Will Solana’s ‘double disinflation’ plan squeeze DeFi returns? Analysts weigh in

Key Takeaways

What’s the plan’s target? 

It aims to cut the current Solana inflation rate from 4.5% to 1.5% in three years by doubling the disinflation rate from 15% to 30%. 

What’s the potential impact? 

Short-term DeFi yields could be hurt, but it could also reduce long-term selling pressure from staking rewards. 

Some Solana community members raised concerns about how the latest inflation-reduction proposal could hit DeFi yields.

DeFi Ignas, an analyst and one of the critics, said the Solana [SOL] DeFi returns, via liquid staking tokens (LSTs) like jupSOL, would be unattractive in the near term.

He added, 

“If rates drop, I would reconsider holding that position and even SOL itself. Although I admit, lower inflation is the correct decision for long term and save $SOL chart.”

Source: X

The 30% Solana disinflation plan 

The plan, also known as the “Double Disinflation Rate” or Solana Improvement Document (SIMD)-0411, aims to halve the annual inflation rate.  

Currently, the Solana inflation rate (emission from staking and validators) is 4.5% per year. The disinflation rate (emission reduction) is presently fixed at 15% per year.

In other words, over the next three years, inflation could decrease to 2.5% based on a fixed 15% disinflation rate. 

However, the latest proposal seeks to double the disinflation rate to 30%. Put differently, in three years, the current inflation rate is expected to drop to 1.5%. 

Source: Github

Mert Mumtaz, Founder of Helius Labs, said the change would help reduce selling pressure from stakers who sell rewards to cover taxes. He described the proposal as a way to “plug the leaky bucket” and save the network millions of dollars in emission cuts.

Projected impact on SOL supply

He added that cuts would be minimal and save the network millions of dollars, 

“Big..Solana inflation reduction proposal is now live. We don’t need to leak this value.”

Source: Github

The proposal noted that, in six years, about 22.3 million SOL will be removed from the inflation schedule if it’s adopted. That’s $2.9 billion worth of potential selling pressure, per current market prices. 

Solana’s inflation has been a contentious issue for a while.

Earlier in the year, another proposal, SIMD-228, sought an aggressive 80% cut in inflation. However, the community rejected it due to the potential impact on staking rewards. 

Mumtaz argued that SIMD-0411 would not be an “adverse cut,” but short-term concerns—like those raised by Ignas—have already surfaced. Community voting will determine whether it moves forward.

That said, as of the time of writing, SOL traded at $129, down 50% from its September high of $253.