Solana proposal to cut inflation rate by up to 80% fails to pass

A proposal to dramatically change Solana’s inflation system has been rejected by stakeholders but is being hailed as a victory for the network’s governance process.

“Even though our proposal was technically defeated by the vote, this was a major victory for the Solana ecosystem and its governance process,” commented Multicoin Capital co-founder Tushar Jain on March 14.

Around 74% of the staked supply voted on proposal SIMD-228 across 910 validators, but just 43.6% voted in favor of it, with 27.4% voting against it and 3.3% abstaining, according to Dune Analytics. It needed 66.67% approval from participating votes to pass and only received 61.4%.

Jain added that this was the biggest crypto governance vote ever, by both the number of participants and the participating market cap, of any ecosystem, chain or network.

“This was a meaningful scaling stress test — a social, rather than technical, stress test — and the network passed despite a wide stratification of diverging opinions and interests.”

“Solana SIMD-228 voter turnout was higher than every US presidential election in the last 100 years,” claimed the team behind Solana’s X account. 

SIMD-228 is a proposal to change Solana’s (SOL) inflation system from a fixed schedule to a dynamic, market-based model. Instead of a pre-set decrease in inflation, this new system would dynamically adjust based on staking participation.

Currently, supply inflation begins at 8% annually, decreasing by 15% per year until it reaches 1.5%. The new mechanism may have reduced it by as much as 80%, according to some estimates. Solana inflation is currently 4.66%, and just 3% of the total supply is staked, according to Solana Compass. 

However, such high inflation can increase selling pressure, reduce SOL’s price and discourage network use. The proposed system would have adjusted inflation based on staking levels to stabilize the network and minimize unnecessary token issuance.

Benefits would have included increased network security due to dynamically increasing inflation if staking participation drops, reaction to real-time staking levels rather than following a fixed, inflexible schedule, and encouraging more active use of SOL in DeFi, according to Solana developer tools provider Helius. 

However, lower inflation could have made it harder for smaller validators to stay profitable, the proposed model increased complexity, and unexpected shifts in staking rates might have led to instability.

Related: Solana price bottom below $100? Death cross hints at 30% drop

There was little reaction in SOL prices, with the asset dipping 1.5% on the day to just below $125 at the time of writing. 

However, it has tanked by almost 60% in just two months as the memecoin bubble burst. Solana network revenue has also slumped over 90% since it was primarily used to mint and trade memecoins. 

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