Solana's Upgrade: Stakers Face Reward Cut, Inflation Rate Adjustment Looms

Solana's upcoming protocol upgrade has sparked significant discussion among validators and stakeholders, with asset management firm VanEck highlighting the potential impacts on validator rewards and staking sustainability. The network is set to vote on two crucial blockchain protocol upgrade proposals, SIMD 0123 and SIMD 0228, which aim to maintain adequate rewards for stakers while recalibrating the inflation rate of SOL.

Matthew Sigel, Director of Digital Assets Research at VanEck, has expressed concerns about the potential reduction in validator rewards, with the possibility of a 95% decrease threatening smaller operators. The first proposal, SIMD 0123, seeks to implement an on-chain strategy that channels priority fees generated from transactions to validator stakers. This would allow traders to pay additional fees for expedited transaction processing, a segment that currently contributes to 40% of the overall network revenue, which stakers aren't required to share. The vote for this proposal is scheduled for March 6th and aims to boost staking rewards while discouraging off-chain settlements.

The second initiative, SIMD 0228, is considered the "most impactful" due to its objective of adjusting the inflation rate of SOL in direct correlation to the percentage of staked tokens. This adjustment could mitigate dilution and lessen the selling pressure from stakers. According to Coin Metrics, Solana's inflation rate in February was approximately 4%, reduced from an initial 8%, yet remains significantly above the targeted terminal rate of 1.5%, with a current annual decrease of 15%.