Original | Odaily Planet Daily ( @OdailyChina )
Author: Azuma ( @azuma_eth )
Due to multiple reasons, Solana (SOL), which was once highly anticipated by the market, has performed poorly recently.
The reasons are: first, the overall market has experienced a severe correction; second, the meme market has stalled, resulting in a decrease in the demand for SOL; third, SOL has experienced the largest token unlocking in history on March 1 - the unlocking chips came from FTXs bankruptcy auction, and the buyers were Galaxy, Pantera Capital, Figure and other institutions participating in the bankruptcy auction. The total unlocking scale was approximately 11.2 million SOL, accounting for 2.4% of the circulating supply.
However, looking around the social media updates of the top KOLs in the Solana ecosystem, it seems that few people are discussing prices and unlocking-related matters. On the contrary, top figures in the ecosystem, including co-founder Toly (Anatoly Yakovenko) and Multicoin Capital founder Kyle Samani, are frequently discussing a potential upgrade plan called SIMD-228.
What is SIMD-228? How will it affect the operation of Solana and the market performance of SOL? We will analyze it below.
What is SIMD-228?
In short, SIMD-228 is an upgrade plan for the SOL staking and inflation mechanism.
SIMD-228 was originally proposed by Tushar Jain and Vishal Kankani of Multicoin Capital, and supported by toly and Max Resnick, chief economist of Anza (the operator of the main client on Solana).
SIMD-228 aims to link SOL’s inflation rate to the staking rate . Specifically:
When the staking rate is below 50%, the inflation rate increases to encourage more staking.
When the staking rate is above 50%, the inflation rate is reduced to reduce rewards.
According to estimates by the Solana community, based on the current staking status of the Solana network, SIMD-228 is expected to reduce SOLs annual inflation rate from 4.5% to as low as 0.87%.
Odaily Note: The so-called huge unlocking on March 1st “only” accounted for 2.4% of the circulating supply. If SIMD-228 is passed, the proportion of circulating supply reduced by reducing the inflation rate within one year can reach 3.63% (4.5% - 0.87%).
What is the community’s attitude?
Since SIMD-228 was included in the agenda, the Solana communitys discussion on SIMD-228 has been polarized . Supporters believe that the plan can significantly improve the economic efficiency of the Solana network and curb selling pressure by reducing the inflation rate; opponents worry that this move will increase the centralization risk of the network while damaging the interests of smaller-scale verification nodes.
Proponent’s viewpoint and logic
There are three main logics for supporting SIMD-228:
Improved network efficiency: SIMD-228 can adjust network demand through a dynamic inflation mechanism, avoiding the inefficiencies that may be caused by a fixed inflation rate.
Reduce inflation rate : SIMD-228 can reduce future selling pressure in the market by reducing the inflation rate, thereby potentially increasing the value of tokens and attracting more long-term investors.
Incentivized staking : When the staking rate is low, SIMD-228 can incentivize more users to stake by increasing inflation rewards, thereby maintaining the decentralized security requirements for network operation.
Opposing viewpoints and logic
Centralization Risk : The community is concerned that large validation nodes may profit by manipulating the staking rate, thereby increasing the centralization risk of the network and weakening the core value of Solana.
Damaging the interests of small verification nodes : Some community members are worried that small verification nodes will find it difficult to make profits under the new SIMD-228 mechanism, and their living space will be squeezed.
Uncertain rewards and complex parameter settings : Dynamic inflation rates may make it difficult for staking users to predict future probabilities, increase the complexity of investment planning, and affect their long-term motivation to participate.
Kyle Samani made a high-profile call for voting: Don’t let Solana become Ethereum!
As the top caller of SOL, Kyle Samani, founder of Multicoin Capital, also released several updates today, calling on the community to vote on SIMD-228. The full text is as follows:
There has been a lot of discussion about Solana SIMD-0228.
Tushar and Vishal have shared their views in various forums. I will share mine here as well.
I think there is almost universal agreement that inflation is too high. I agree with that.
The objections seem to focus on the following points: “We don’t know exactly what inflation rate target should be set”; “We don’t know what impact this will have on validators, especially in a bear market, this impact is even more unknown”…
I think there are several problems with this reasoning:
a) False precision. Even if you run a what-if analysis to try to predict how the world would turn out, I can guarantee that your model will be largely wrong. b) Don’t get caught up in an obsessive pursuit of perfection.
Im not worried about consensus security at all.
Considering the time required to unstake (approximately two days), a considerable proportion of the staked amount is not sensitive to changes in yield.
Concerns about validator profitability are valid. I expect at least 100 validators to exit the network, and possibly more.
The biggest cost source for validators is not hardware, electricity, and bandwidth denominated in USD, but voting costs (currently about 2 SOL per day).
Max and many others have recognized this problem and proposed solutions.
Will future proposals to reduce voting costs be adopted much more slowly than we would like? Yes, there is that risk.
Is this a high probability? I think not, because I don’t think any stakeholders want the cost of voting for validators to be higher.
If we allow Solana to require too much structure and planning, we’ll become like Ethereum, paralyzed by over-analysis.
Its critical that we move things forward as quickly as possible. We wont get it perfect the first time, and thats okay.
Solana’s history is one of moving fast, and we cannot become complacent now.
The need for action in this area is widely recognized. So let us act while minimizing collateral damage in the process.
Don’t let Solana become Ethereum!
Time Node
According to the current timeline, SIMD-228 is expected to start voting on epoch-753 on March 6.
Combined with the current will of the upper echelons, I personally tend to think that the plan will most likely be passed, but at the same time there will still be a lot of opposition. But as Kyle Samani said, nothing can be done perfectly the first time. In the future, the Solana Foundation may need to alleviate disputes by optimizing the governance model and balancing the reward mechanism.
