Author: Spirit, Golden Finance
1. Background: Current Status and Challenges of Solana’s Inflation Mechanism
Solana’s current inflation mechanism is based on a fixed schedule, with an initial annual inflation rate of 8%, decreasing by 15% each year, and a long-term stable target of 1.5%. As of March 10, 2025, the annual inflation rate is about 4.68% (Solana Compass data), and the total supply is about 587 million SOL, of which 65%-70% (about 390 million SOL) is in a pledged state. This mechanism exposes the following problems in operation:
1. Inflation is out of touch with network demand
The fixed inflation rate does not reflect the actual participation of the network (such as the pledge rate) or the level of economic activity, resulting in a mismatch between token issuance and security needs. Solana Labs co-founder Anatoly Yakovenko pointed out at X that current inflation causes about $1-2 billion in “unnecessary costs” each year.
2. Selling pressure from high inflation
Based on the current full circulation market value of SOL of approximately US$74.2 billion, the inflation rate of 4.68% adds approximately US$3.47 billion of SOL (estimated) each year, which is mostly sold by stakers to cover costs, exerting continuous pressure on prices.
3. Insufficient staking incentives and security risks
Although the staking rate is as high as 65%-70%, fixed inflation fails to dynamically adjust rewards, which may lead to a decline in the staking rate when the market is sluggish or the competition for DeFi returns intensifies, threatening network security.
SIMD-228 was proposed by Tushar Jain and Vishal Kankani of Multicoin Capital and improved by Max Resnick, an economist at Anza, with the aim of optimizing the inflation model through market-based mechanisms. The proposal was passed by a majority vote on March 10 (specific data to be updated by Solscan), marking a major shift in Solana's economic policy.
2. Design: The core mechanism and concept of SIMD-228
SIMD-228 changes the SOL issuance from a fixed schedule to a dynamic model based on the pledge rate. Its core design is as follows:
1. Dynamic inflation formula
The inflation rate adjustment formula is:
Δi = 0.05 * Δs
Δi: Change in issuance rate per epoch (about 2-3 days);
Δs: Deviation between the target pledge rate (50%) and the actual pledge rate;
0.05: Adjustment coefficient.
If the pledge rate is higher than 50%, the inflation rate will decrease; if it is lower than 50%, the inflation rate will increase, ensuring a balance between network security and economic efficiency.
2. Target pledge rate and safety interval
The target pledge rate is set at 50%, based on Solana's PoS consensus:
50% is the middle value, taking into account both decentralization and economic sustainability.
3. Transition period design
The proposal extends the transition period to 50 epochs (about 4-6 months), gradually adjusting from the current 4.68% to avoid drastic market fluctuations.
Design concept: Reduce unnecessary issuance through market mechanisms, increase SOL scarcity, and ensure network security. Helius analysis shows that if the pledge rate remains at 65%, the inflation rate may drop below 1%.
3. Problem Solving: Comparison of SIMD-228's Goals with Mainstream Public Chains
SIMD-228 proposes solutions to Solana's current problems. The following is a comparative analysis of its goals with Ethereum and Sui's mechanisms:
1. Reduce inflation selling pressure
Current Status of Solana: 4.68% inflation rate adds approximately $3.47 billion of SOL each year. After the proposal is passed, it is expected to drop to 1% or even 0% (Helius simulation), reducing selling pressure by approximately $2 billion.
Comparison with Ethereum: Ethereum introduced a destruction mechanism through EIP-1559, and the inflation rate in 2025 is about 0.5%-1% (data from the Ethereum Foundation), relying on transaction fees to dynamically adjust the supply. Solana's SIMD-228 is directly regulated by the pledge rate, with a simpler mechanism but lacks destruction supplements.
Comparison with Sui: Sui adopts DPoS and Mysticeti consensus, with an annual inflation rate of about 3% (estimated by CoinGecko), subsidizing validators through handling fees, without a dynamic inflation design, and selling pressure control depends on ecological growth.
2. Optimize pledge incentives
Solana's goal: dynamically adjust rewards, increase issuance when the pledge rate is lower than 50%, encourage participation, and prevent security decline.
Comparison with Ethereum: Ethereum's pledge rate is about 28% (data from March 2025), and it is incentivized by fixed rewards (about 1.5%-2% annualized) and MEV (miner extractable value), with low flexibility.
Comparison with Sui: Sui's pledge rate is about 40%-45% (estimated by Mysten Labs), and rewards are linked to gas fees. The incentive mechanism relies more on trading activities rather than pledge rate adjustment.
3. Improve economic efficiency
Solana Improvement: From "dumb emission" to "smart emission", issuance is linked to market demand to avoid "overpayment" of security costs.
Comparison with Ethereum: Ethereum achieves supply and demand balance through PoS and EIP-1559, but relies on complex market feedback (gas fee), and the adjustment speed is slower than Solana's epoch cycle.
Comparison with Sui: Sui's inflation design is relatively static and lacks Solana's real-time market responsiveness, but its parallel processing (TPS up to 297,000) takes a different approach to economic efficiency.
SIMD-228 makes Solana more proactive than Ethereum in inflation control and more flexible than Sui, but it lacks Ethereum's destruction mechanism and Sui's high throughput supplement, and may need subsequent upgrades and improvements.
IV. Future Impact: Potential Changes in Solana Ecosystem
After SIMD-228 is passed, its impact will gradually emerge. The following is the short-term, medium-term and long-term outlook:
1. Short-term impact (1-3 months)
Price volatility: Declining inflation expectations have pushed up the price of SOL, which has risen to $124 (+9%) on March 11.
Pledge adjustment: Declining yields may cause some funds to flow to DeFi (such as Raydium, 24-hour trading volume increased by 15%). If the pledge rate falls below 50%, inflation may rebound.
2. Medium-term impact (3-6 months)
Network security: Helius simulation shows that inflation is stable and safe in high-staking scenarios; in low-staking scenarios, high inflation may increase selling pressure, and community adaptability needs to be observed.
Institutional entry: Inflation falling below 1% may attract capital inflows after ETF approval (Medium predicts an additional $20 billion), but the "unpredictable returns" warned by Lily Liu may delay institutional decisions.
3. Long-term impact (6-12 months)
Token economics: Inflation approaching 1% increases SOL scarcity, which may increase long-term investment value, but it is necessary to balance the needs of the DeFi ecosystem.
Ecosystem competition: Compared with Ethereum (mature ecosystem) and Sui (technological innovation), if Solana maintains its low inflation and high performance advantages, it may consolidate its position in the Layer-1 competition.
V. Summary
The passage of SIMD-228 marks Solana's transition from a fixed inflation model to a market-driven model, solving the problems of excessive inflation and insufficient incentives. Compared with Ethereum's destruction mechanism and Sui's static inflation, Solana's dynamic design is more flexible, but it still needs ecological feedback optimization. The market may fluctuate in the short term, but it will be beneficial to SOL value and network efficiency in the medium term. In the long term, we need to be vigilant against inflation rebound when the pledge rate falls below 50%.
Solana's future depends on its continued innovation in technology and economy. SIMD-228 is a key step towards a mature ecosystem.
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