Solana’s SOL token jumped 30.5% in annualized inflation following the implementation of SIMD 96 on February 12th. The implementation of SIMD 96 decreased the amount of SOL burned daily from 18,000 SOL to 1,000 SOL, impacting the real economic value (REV) distributed to token holders.
The Solana Improvement Document 96 (SIMD 96) proposed adjusting the priority fee structure to reward validators with 100% of the fees collected instead of using half of them to burn SOL. The SIMD 96 proposal introduced by partners at Multicoin Capital Tushar Jain and Vishal Kankan aimed to boost SOL’s inflation if the amount staked fell below 50% of the supply.
Conversely, the inflation rate will reduce accordingly if the amount surpasses 50%. Onchain data revealed that the token holder REV percentage gradually fell from 72% to 40.9% on February 16th, while validator commission slowly grew from 25.1% to 56.1%.
Carlos Campo, a Blockworks researcher, said that this raised the SOL annualized inflation from 3.6% to 4.7% as the SOL weekly burn rate reached 6.93% from February 10th to February 16th, the lowest level since mid-October 2024 and nearly half the ratio of the previous week.
According to Campo, Solana enthusiasts were now waiting for the approval of SIMD 228, which will reform SOL’s inflation mechanism to a dynamic ratio based on the amount of staked SOL.
SIMD 96 incentivizes validators to prioritize network security and efficiency
3/ The chart below shows the distribution of network REV (fees and tips to stakeholders).
In the 30 days prior to the activation of SIMD 96:
– Token Holders: 67%
– Validators: 30%Since the activation of SIMD 96:
– Token Holders: 46%
– Validators: 51%❗️In the coming weeks,… pic.twitter.com/NyKgKlJRTq
— Carlos (@0xcarlosg) February 19, 2025
The SIMD 96 proposal, approved in May 2024, suggested that a previous model user would prefer to directly pay a block producer to prioritize its transaction rather than pay a priority fee to the network, with the block producer receiving only half the value. According to the proposal, the goal of SIMD 96 is to boost validator incentives and discourage side deals.
According to Campo, the distribution of network REV (fees and tips to stakeholders) in the 30 days prior to the activation of SIMD 96 saw token holders receive 67% while validators received 30%. However, token holders and validators have now received 46% and 51%, respectively, since the activation of SIMD 96. Campo added that validators would hopefully start using Jito’s TipRouter to distribute priority fees to stakers in the coming weeks.
“Notably, SIMD 123 would create an in-protocol solution to share priority fees with stakers natively, but this development is likely months away.”
– Carlos Campo
Campo argued that while SIMD 96 could potentially lead to a reduction in priority fees, ‘that hasn’t been the case’. The median priority fee remained flat in SOL terms aside from spikes caused by recent volatility events.
Solana validator revenue surges amid fears of stakers missing out
According to Blockworks Research, some in the crypto community were calling for Solana to pump the brakes on the SIMD 96 implementation until validators were able to share the extra fees with stakers.
Some developers on Solana also argued that SIMD 96 could incentivize priority fee ‘spoofing’ where validators could artificially raise priority fees to rake in more rewards. Blockworks Research revealed that Solana’s priority fees totaled about $240 million in January.
Tim Garcia, the Solana Foundation validator relations lead, said a newer SIMD 123 proposal would allow validators to share priority fees directly with stakers. However, he disclosed that the proposal had little chance of being implemented together with SIMD 96 as things stood.
Stakers will, therefore, have to rely on the goodwill of validators to share the extra rewards until SIMD 123 is activated. According to Blockworks Research, some were calling for Solana to approve SIMD 123 alongside SIMD 96 so that stakers could share in the ‘windfall’. Mert Mumtaz, CEO of the largest Solana validator in Helius, said validators only ‘overcompensated’ if they did not share back the rewards.
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Source: https://www.cryptopolitan.com/solanas-annualized-inflation-surges-30-5/