- Solana has proposed lowering the inflation rate from 5.7% to 1.5%
- Strikers are concerned that the proposal would lower their returns
The Solana [SOL] The community has proposed reducing annual network inflation (token emissions) to 1.5%, driven by market conditions. Tushar Jain, Managing Partner at Multicoin Capital, made the proposal and criticized the current inflation model.
In a recent interview on the Lightspeed podcast, Jain said in summary the proposal as,
“Our idea is to let market forces determine emissions. Currently, we issue the same number of SOL tokens regardless of market conditions. We propose a smart issuance scheme that would dynamically incentivize participation/staking. “
Jain added that the current model broadcasts “more than necessary” SOL tokens to secure the network. He believes that this should be kept to a minimum.
Even more reasons to tackle SOL inflation
For context, the primary inflationary pressure comes from validators disabling or locking users’ SOL to secure and run network operations. In return, stakers earn compensation in the form of SOL tokens, which adds to the supply.
Jain said around SOL 100 million has been added to the supply since 2021. Of the total supply of 592.4 million, 391 million tokens are locked in staking, which translates to 66% of the total supply.
The proposal 50%-66% deployed SOL, with more than 67% not benefiting network security.
“Above 67% incrementally deployable SOL does not add any incremental security guarantee, because a supermajority of all SOL voted for a particular block and a long-range attack is impossible.”
However, anything below 33% could expose the Solana network to security risks. However, it is worth pointing out that the benefits of the proposal go beyond market efficiency. It would also reduce selling pressure as validators may be forced to sell their tokens to meet their tax obligations.
Furthermore, it would improve SOL’s optics, as high inflation would discourage others from holding the tokens for devaluation.
However, it is worth pointing out that not all members appear to be happy with the proposal. A pseudonymous DeFi analyst, Ignas, noted that the returns from staking SOL would drop if the proposal is passed. He said,
“Frankly, I don’t want to see the $SOL Inflation Reduction Act passed. I’m sure, but I was very happy with my 20% to 30% APY on $SOL multiplier pools in Kamino.”
According to MC, the current model only benefits strikers and diluted non-strikers. If inflation is reduced, even non-strikers can benefit because their stock is not devalued. Furthermore, Multicoin Capital believes it could boost DeFi activity in the ecosystem.
Credit : ambcrypto.com
