Solana’s planned protocol upgrades are important for the long-term health of your network, but according to Vaneck of Asset Manager, it could hit the profits of validators.
In March, Solana Validators vote for two proposed upgrades known as Solana Improvement Documents (SIMDS). It is designed to secure rewards for the hitkers and adjust the inflation rate of the network’s native SOL (SOL) tokens for blockchain protocols.
Vaneck Digital Asset Research Head Matthew Sigel on the X-Post on March 4th both proposals have created “significant controversy.”
“Though these changes may reduce staking rewards, we believe lowering inflation is a valuable goal to enhance Solana’s long-term sustainability,” Sigel said.
Since 2023, Sol pile supply has been increasing. Source: Coin Metrics
Related: Solana’s Jitostaking Pool Over $100 million per month: Kairos Research
Rewarded stakers
The first SIMD 0123 “will introduce an in-protocol mechanism to distribute Solana’s priority fees to validator stakers,” Siegel said. Traders can pay an additional fee to validators to process transactions more quickly.
Sigel said that although priority fees account for 40% of network revenue, verification officers don’t currently have to share the fees with the takers. Validators must pass on other forms of revenue, such as voting fees.
As the proposal is being made to vote on March 6, “not only will it promote boring rewards, but it will also “stoop off-chain trading contracts between traders and validators and enhance the execution on the chain,” Sigel said.
Staking involves locking Sol as collateral with validators for the Solana blockchain network. Stakers earn SOL Payouts from network fees and other rewards, but if the verifier cheates, they risk “reducing” or losing Sol’s accompanying.
Solana Network revenue comes from fees and tips. Source: Multicoin Capital
Adjusting inflation
The second SIMD 0228, according to Sigel, is “the most influential proposal under consideration.”
Adjusting Sol’s inflation rate, tracking the percentage of token supply inverted, potentially “reducing dilutions and reducing sales pressure from stakers who treat staking rewards as revenue.”
As of February, Solana’s inflation rate had fallen by 4% from the original 8% rate, but far exceeded the 1.5% terminal inflation target, according to a Coin Metrics report shared with CointeLegraph. Inflation is currently declining at a fixed interest rate of 15% per year.
According to ChainCatcher, the second proposal was drafted primarily by Vishal Kankani of Multicoin Capital. Venture capital firm Multicoin owns “significant position” in Jito, Solana’s most popular staking pool, said in a March report.
As of December, 93% of Solana’s verification devices were using Jito software to maximize revenue from building blocks, according to developer Jito Labs.
The proposal is because asset managers encourage regulators to allow regulators to list Sol Exchange-Traded Funds (ETFs) on US exchanges. The issuer is also asking US regulators to allow ETF cryptocurrencies to enhance returns.
Bloomberg Intelligence sets the probability that a SOL ETF will be approved at around 70% in 2025.
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