- Solana developer suggests reducing staking rewards.
- This is not the first proposal of this type this year.
- Those who oppose reducing token inflation say it could harm Solana’s decentralization.
A Solana developer has proposed accelerating the speed at which the blockchain reduces staking rewards in an effort to reduce the number of new tokens entering circulation.
The proposal, published on developer platform Github on November 21, calls for doubling Solana’s scheduled drop in staking rewards from 15% per year to 30%. If implemented, the measure will prevent the creation of new SOL tokens worth nearly $3 billion.
“High token inflation increases selling pressure, as some stakeholders treat staking rewards as ordinary income and must sell a portion of them to cover taxes,” Lostintime101, a pseudonymous Solana technical editor and researcher at Helius, a Solana development platform, said in the proposal.
Unnecessarily high
Solana pays staking rewards to those who lock their tokens to help process transactions on the network. These rewards are timed to decrease until they reach a final rate of 1.5%.
Still, many advocates argue that current rewards are unnecessarily high and should be reduced sooner rather than later. The network currently pays around 6% per year in kind to those who stake SOL tokens. Staking rewards on Ethereum, Solana’s main competitor, are around 3%.
This is not the first attempt by Solana developers to reduce token inflation.
In March, Solana validators, the entities that manage the blockchain’s distributed network, voted on a multi-faceted proposal to reduce staking rewards by about 66%, or about $3.5 billion worth of new tokens each year at the time.
This vote received more than 61% of the votes in favor, far from the qualified majority of 66.67% necessary for its adoption.
“Previous governance discussions regarding changing the inflation calendar have become particularly heated and divisive,” Lostintime101 said. “With this proposal, we aim to avoid repeating these missteps and promote a more focused governance process. »
Tricky problem
This is a tricky issue to deal with. Blockchains like Ethereum and Solana have spawned a $152 billion DeFi ecosystem.
Yet they still struggle to balance the fees users must pay to transact with the incentives given to those who manage blockchains and secure transactions.
It’s not just Solana that is looking to reduce the tokens it distributes. The Ethereum, Celestia, and Near blockchains have all looked for ways to reduce the inflation of their own tokens this year.
Those who oppose reducing token inflation say it could harm Solana’s decentralization by making validators unprofitable, forcing them to go dark or lose money.
“As staking rewards decline, a subset of validators may struggle to remain economically sustainable, which could impact validator diversity,” Lostintime101 said in the proposal.
The number of Solana validators has fallen from a peak of around 2,500 in early 2023 to fewer than 900 today, a decline of 64%.
Several Solana stakeholders have already declared DL News They view this removal as a good thing because it removed underperforming and malicious validators from the network.
Lostintime101 stated that they believe the reward reduction will have limited impact, with only 84 validators becoming unprofitable after three years.
“Any adjustment to the inflation schedule should be large enough to materially reduce emissions, but moderate enough to avoid introducing shocks to the system,” Lostintime101 said.
“Doubling the rate of disinflation is a simple and balanced way to achieve these goals. »
Tim Craig is DL News’ DeFi correspondent based in Edinburgh. Contact us with advice at tim@dlnews.com.
