Solana’s SIMD-228 proposal to reduce SOL inflation by 80% fails to meet approval threshold

SIMD-228, a proposal seeking to reduce SOL inflation rate by 80%, failed to meet the required vote threshold for approval after many small validators voted against it.

According to SIMD Vote Status, 61.39% of voters supported the SIMD-228 governance vote, which was less than the 66.67% required for approval. With a record 74% turnout by the end of voting on Mar. 13, it was the biggest crypto governance vote ever in terms of both market value and participation. 

The voting pattern revealed a rift among network members despite high engagement. More than 60% of smaller validators with 500,000 Solana (SOL) or less voted against the proposal. Validators with greater stakes, on the other hand, overwhelmingly backed it, indicating how the proposal would have impacted various groups.

The current inflation system in Solana strikes a balance between burning transaction fees and generating staking rewards. More fees are burned during periods of high network activity, which helps keep inflation under control.

However, fewer tokens are being removed from circulation as transaction costs have declined. Meanwhile, at an inflation rate of 4.7%, staking rewards keep adding new SOL to the market. The goal of SIMD-228 was to reduce staking rewards, which would slow the growth of SOL’s supply and potentially raise its value.

Under the proposal, inflation would have fallen below 1% at the current 65% staking rate. However, smaller validators would have had difficulty remaining profitable, as many of them charge little to no commission. If enough of them left the network, Solana’s decentralization could have weakened, raising concerns about long-term stability.

While SIMD-228 failed, a different proposal, SIMD-123, passed with almost 75% support. This modification will enable validators to distribute rewards more transparently by allowing them to split a portion of their earnings with stakeholders via an on-chain system. According to the findings from the just concluded vote, network participants prefer changing validator incentives over lowering inflation.