Solana Leadership Remains Divided Over Token Inflation Proposal

The Solana community seems to be split over the Solana Improvement Document (SIMD) - 0228, a proposal to update the network’s token inflation mechanism.

Among those who oppose the proposal is the president of the Solana Foundation, Lily Liu. In a Mar. 7 X post, Liu argued that the proposal was too “half-baked” and could have serious economic implications for Solana if implemented. Liu believes that it could hinder the SOL token's growth, destabilize the network's infrastructure, and reduce decentralization.

“What to do (?) No on the proposal before us. Or, extend the time period so that the proposal can be adjusted to include 123 and vote fees together. This will give us a chance to evaluate this holistically, not piecemeal,” Liu said in the X post.

Another major Solana figure opposing the proposal is the Solblaze validator. They claimed in a Mar. 6 X post that SIMD-0028 would reduce the amount of staked SOL, thus reducing the network's security and significantly impacting smaller validators. They said it could also damage Solana’s DeFi ecosystem and trigger mass liquidations.

“Put simply, people are trying to rush through SIMD-0228 and drastically change Solana economic policy without any data on its detrimental long-term effects. A mature network like Solana with $70b+ in market cap should not be changing its economics on a whim,” Solblaze said.

On the other hand, key figures like Anatoly Yakovenko, co-founder of Solana, and Mert Mumtaz, founder of Helius, have expressed support for the proposal. Mumtaz said in a Mar. 5 X post that he thinks the proposal should pass because it strengthens the network and joked that he would leave to Polkadot if it didn’t.

Meanwhile, Yakovenko said in a Mar. 7 X post that the counter-arguments against SIMD-0228 were bad because “the cost of inflation is something on the order of (global average income tax rate * inflation). Or $1-$2 BILLION per year.”

The debate comes as SOL has dropped by over 50% since peaking at $293 in January.

SIMD-0228

The SIMD-0028 proposal was authored by Multicoin Capital’s Tushar Jain and Vishal Kankani and supported by Anza’s lead economist, Max Resnick. It seeks to replace Solana’s current inflation mechanism, a schedule set at 4.5% annually but decreasing by 15% yearly until it reaches 1.5%, with a dynamic staking-based model.

Under the staking-based model, the inflation rate (issuance of new SOL tokens) is based on the percentage of total SOL staked. If the percentage of staked SOL drops below 33% (the fixed threshold), the emission rate increases, and stakers receive more rewards.

However, if the percentage of staked SOL is high, the emission rate decreases, and stakers receive fewer rewards. Through this mechanism, inflation is reduced as the network does not need to “overpay” for security.