Solana Faces a Choice: Preserve Staking or Rarify SOL?

Solana may soon significantly reduce the rewards for its stakers. The SIMD-550 proposal, currently up for community vote, aims to accelerate the decline in SOL inflation. Ultimately, the nominal staking yield could drop from about 5.25% today to 2.25% in three years. The community must decide between immediate income for stakers and increased scarcity of SOL.

In Brief

• SIMD-550 would double Solana's annual disinflation from 15% to 30%, targeting a terminal inflation rate of 1.5% by the first half of 2029.
• The nominal staking yield would slide to 4.34% in year 1, 3% in year 2, and then 2.25% in year 3.
• Two validators out of 738 would become unprofitable as early as the first year, with about thirty by the third.

Solana Accelerates Its Inflation Decline

Voting on SIMD-550 began on August 23. Championed by Helius, the proposal seeks to gradually modify the SOL issuance curve by doubling the disinflation rate from 15% to 30% per year. The goal is to reach a terminal inflation rate of 1.5% much more quickly.

Initial votes already show a divided community. Forward Industries and Blueshift have expressed support for the text, while Everstake and P2P.org voted against it. For SIMD-550 to be adopted, it must gather votes representing at least two-thirds of the staked SOL.

This threshold recalls the precedent of SIMD-228, another reform of the rewards system that only garnered 38.61% of the votes and was ultimately rejected.

Staking Would Lose Some of Its Appeal

The most visible change would directly affect SOL holders who delegate their tokens to validators.

The nominal yield, currently close to 5.25%, would drop to around 4.34% in the first year following the implementation of SIMD-550. It would then fall to 3% in the second year and 2.25% in the third.

The idea behind this reduction is to limit the creation of new SOL. However, the network will need to find other sources of revenue to maintain the economic interest in staking.

This is where SIMD-553 comes into play. The proposal, approved in July, increases the burning of SOL related to the computational resources used by transactions. With the current level of activity, daily burn rates could rise from about 600-800 SOL to 7,500-9,000 SOL.

However, these burns are still below the current rate of new token creation. The desired effect is primarily to gradually alter the trajectory of supply.

The reform could have another consequence, less visible to investors: the income of validators.

With declining inflation rewards, operators will have to rely more on transaction fees and MEV-related income to remain profitable. Estimates cited by 21Shares suggest that two validators could already become unprofitable in the first year. This number could reach around thirty after three years, depending on the evolution of operating costs and voting fees.

Thus, the question is not only about the yield of SOL. It also concerns the economic balance of the infrastructure that secures the network.

The Bet on DeFi

Solana hopes that the decline in staking yield will push some capital towards decentralized finance applications.

Currently, nearly 67.9% of SOL is staked, compared to about 34.1% for Ethereum. A less generous reward could encourage some holders to move their tokens to lending, trading, or other on-chain applications.

The calculation is simple: if network activity increases sufficiently, fees, MEV, and other revenues generated by Solana could gradually take over from inflation.

Matt Mena, senior strategist at 21Shares, believes that inflation should more closely follow economic performance and network growth to compensate for the decrease in staking rewards.

For SOL holders, the compromise is now on the table. Less immediate yield, but also fewer new tokens in circulation. It remains to be seen if network usage will progress quickly enough for this new economy to be truly beneficial for SOL.

The vote on SIMD-550 will therefore be closely monitored. Its adoption would not guarantee a price increase, but it would mark an important shift in how Solana balances participant rewards and the scarcity of its token.