Dynamic transformation of Solana inflation rate: In-depth analysis of SIMD-228 upgrade plan

Author: Spirit, Golden Finance

**1. Background: Current status and challenges of Solana inflation

mechanism**

Solana's current inflation mechanism is based on a fixed timetable, with an initial annual inflation rate of 8%, decreasing by 15% each year, and the target is stable at 1.5% in the long term. As of March 10, 2025, the annual inflation rate was about 4.68% (Solana Compass data), with a total supply of about 587 million SOL, of which 65%-70% (about 390 million SOL) were in pledged. This mechanism exposes the following problems during operation:

1. Inflation is disconnected from network demand

Fixed inflation rates do not reflect the actual participation level of the network (such as the staking rate) or the level of economic activity, resulting in a mismatch between token issuance and security needs. Anatoly Yakovenko, co-founder of Solana Labs, pointed out on X that current inflation causes about $1-2 billion in "demandless costs" every year.

2. High inflation selling pressure

Based on the current SOL's fully circulated market value of approximately US$74.2 billion, the 4.68% inflation rate adds approximately US$3.47 billion in SOL (estimated) every year. Most pledged people sell it to cover costs, which puts continuous pressure on prices.

3. Inadequate pledge incentives and safety hazards

Although the pledge rate is as high as 65%-70%, fixed inflation fails to dynamically adjust rewards, which may lead to a decline in the pledge rate when the market is sluggish or competition for DeFi income intensifies, threatening network security.

SIMD-228 was proposed by Tushar Jain and Vishal Kankani of Multicoin Capital, and was perfected by Anza economist Max Resnick, aiming to optimize inflation models through market-oriented mechanisms. The proposal was passed by a majority vote on March 10 (specific data to be updated by Solscan), marking a major turn in Solana's economic policy.

2. Design: Core mechanism and concept of SIMD-228

SIMD-228 changed SOL issuance from a fixed timetable to a dynamic model based on staking rate, and its core design is as follows:

1. Dynamic inflation formula

The inflation rate adjustment formula is:

Δi = 0.05 * Δs

• Δi: Change in issuance rate for each epoch (about 2-3 days);

• Δs: The deviation between the target pledge rate (50%) and the actual pledge rate;

• 0.05: Adjustment coefficient.

If the pledge rate is higher than 50%, the inflation rate will decrease; if it is lower than 50%, the inflation rate will increase, ensuring the balance between network security and economic efficiency.

2. Target pledge rate and security range

The target staking rate is set to 50%, based on Solana's PoS consensus:

• Below 33.3% may increase the risk of forking;

• The safety margin is reduced by more than 66.6%.

50% is the intermediate value, taking into account decentralization and economic sustainability.

3. Transitional Design

The proposal extends the transition period to 50 epochs (about 4-6 months), and gradually adjusts from the current 4.68% to avoid severe market fluctuations.

• Design philosophy: Reduce unnecessary issuance through market mechanisms, improve SOL scarcity, and ensure network security. Helius analysis shows that if the pledge rate remains at 65%, the inflation rate may drop below 1%.

**3. Solve the problem: Comparison of SIMD-228 's goals with mainstream

public chains**

SIMD-228 proposes solutions to Solana's current problem. The following is based on its goals and compares and analyzes the mechanisms of Ethereum and Sui:

1. Reduce inflation and selling pressure

• Solana's current situation: The inflation rate of 4.68% increases by about US$3.47 billion in SOL every year, and it is expected to drop to 1% or even 0% after the proposal is passed (Helius simulation), reducing the selling pressure by about US$2 billion.

• Ethereum comparison: Ethereum introduces a destruction mechanism through EIP-1559, with an inflation rate of about 0.5%-1% in 2025 (Ethereum Foundation data), and dynamically adjusting supply by relying on transaction fees. Solana's SIMD-228 is directly regulated through the pledge rate, and the mechanism is simpler but lacks destruction supplements.

• Sui Comparison: Sui adopts DPoS and Mysticeti consensus, with an annual inflation rate of about 3% (CoinGecko estimate). Through the verification of handling fee subsidies, no dynamic inflation design is seen, and the selling pressure control depends on ecological growth.

2. Optimize pledge incentives

• Solana goal: dynamically adjust rewards, increase issuance when the pledge rate is below 50%, incentivize participation, and prevent security decline.

• Ethereum comparison: Ethereum staking rate is about 28% (data in March 2025), and is less flexible through fixed rewards (about 1.5%-2% annualized) and MEV (miners can extract value).

• Sui comparison: Sui pledge rate is about 40%-45% (Mysten Labs estimate), rewards are linked to gas fees, and the incentive mechanism relies more on transaction activities rather than on the pledge rate adjustment.

3. Improve economic efficiency

• Solana improvement: shifting from "dumb emissions" to "smart emissions", issuance is linked to market demand, and avoiding "overpayment" of security costs.

• Ethereum comparison: Ethereum achieves supply and demand balance through PoS and EIP-1559, but relies on complex market feedback (Gas fees), and the adjustment speed is slower than Solana's epoch cycle.

• Sui comparison: Sui's inflation design is relatively static and lacks Solana's real-time market response capabilities, but its parallel processing (TPS up to 297,000) takes a different approach to economic efficiency.

SIMD-228 makes Solana more proactive than Ethereum in inflation control and more flexible than Sui, but lacks Ethereum's destruction mechanism and Sui's high throughput supplement, which may require subsequent upgrades and improvements.

4. Future impact: Potential changes in Solana ecology

After SIMD-228 is passed, its impact will gradually emerge. The following are short-term, medium-term and long-term outlooks:

1. Short-term impact (1-3 months)

• Price fluctuations: Declining inflation expectations push up SOL prices, which had risen to $124 (+9%) on March 11.

• Pledge adjustment: The decline in yield may cause some funds to flow to DeFi (such as Raydium, 24-hour trading volume increases by 15%). If the pledge rate falls below 50%, inflation may rebound.

2. Medium-term impact (3-6 months)

• Network security: Helius simulation shows that inflation is stable and safe in high pledge scenarios; in low pledge scenarios, high inflation may intensify selling pressure, so community adaptability needs to be observed.

• Institutional entry: Inflation drops below 1% may attract inflows after ETF approval (Medium predicts $20 billion new), but the "unpredictable gains" warned by Lily Liu may delay institutional decision-making.

3. Long-term impact (6-12 months)

• Token Economics: Inflation approaches 1% to enhance SOL scarcity, which may enhance long-term investment value, but it is necessary to balance the DeFi ecological demand.

• Ecological competition: Compared with Ethereum (mature ecosystem) and Sui (technological innovation), Solana may consolidate its position in the Layer-1 competition if it maintains its low inflation and high performance advantages.

5. Summary

The passage of SIMD-228 marks Solana's transformation from fixed inflation to a market-driven model, solving the problems of excessive inflation and insufficient incentives. Compared with Ethereum's destruction mechanism and Sui's static inflation, Solana's dynamic design is more flexible, but it still requires ecological feedback optimization. The market may fluctuate in the short term, while the medium term is good for SOL value and network efficiency. In the long run, we need to be wary of the inflation rebound when the pledge rate falls below 50%.

Solana's future depends on its continued technological and economic innovation, and SIMD-228 is a key step towards a mature ecosystem.