SIMD 0228 - Solana's Pain and Change

Author: Danny @IOSG

SIMD 0228 Proposal, an important decision that recently touched the heartstrings of all the eco-participants in Solana, the final proposal was not passed. The vote participation rate hit a record high in Solana (close to 50% of the total token supply), but the final support votes are not enough to meet the super majority threshold required to pass (66.67%).

The background of such a proposal is when Solana gradually returned to calm from the on-chain frenzy brought by Memecoin after issuing coins at Trump. Weekly trading volume fell from nearly $100b at the beginning of the year to no more than $10b, down 90%, which is already lower than the trading volume in the early days of Memecoin's rise.

With Memecoin, Solana has become the most successful public chain in this cycle. When Memecoin's cycle gradually declined, Solana also faced the stage of transforming and re-finding positioning. It was at this time that Solana's largest capital supporter, Multicoin, proposed the 0228 proposal. As soon as the proposal was released, it attracted heated debate in the community. Twitter became the main battlefield, and different stakeholders argued and made clear the number of votes until the last moment of the vote.

During the proposal debate process, we can see many shadows of what was previously driven by the Ethereum community. The window for the proposal itself is very short, and it proposes many long-term considerations and short-term solutions. Of course, there are also many interest considerations that are not easy to talk about directly. But its transparency allows us to see the attitudes and strategies of many Solana leaders in their current situation.

This time despite the rejection, the proposal’s proposer, Tushar from Multicoin, still called it a “one victory” due to the high participation rate of votes and extensive community discussions that demonstrated Solana’s ability to manage decentralized governance.

Solana's proposal governance, who is playing games, what does it mean, why it is not passed, and is the procedure just and successful? Let's take a look one by one.

SIMD 0228 ——Hurried proposal

What is a 228 proposal?

228 By dynamically adjusting the inflation rate based on the pledge rate, the goal is to maintain a 50% pledge rate and reduce the SOL issuance rate in the long run.

Solana's current inflation model is a curve that gradually declines over time. At the time of the mainnet launch (March 2019), an 8% inflation rate was set and decreased over time, with the current inflation rate of about 4.8%, and a long-term target inflation rate of 1.5%-2%.

If this proposal is passed, the short-term pledge income will be reduced (based on the pledge rate between 1% and 4.5%) and the long-term inflation rate will approach 1.5%.

The current pledge rate is 70%. Therefore, if 228 passes, the pledge SOL income will be reduced in the short term, the additional issuance will be reduced in the long term, and the pledge yield will be adjusted in real time according to the pledge rate.

Unlike SIMD 0123, such a validator can choose whether to opt in, 0228 is mandatory and means that once initiated, it will affect the interests of all stakeholders.

Supported voice

The proposal was proposed by Tushar and Vishal of Multicoin Capital and supported by Max, a researcher from Anza and former Consensys. The reasons include:

#Reduce unnecessary token issuance and reduce inflation costs

Solana's current fixed inflation model is a kind of "dumb emissions" because there is no consideration of the actual economic activity or security needs of the network. Based on the inflation rate of 4.8% at the beginning of 2025, the value of new issuances will be approximately US$3.82 billion (based on the market capitalization of US$80 billion). This high inflation is essentially a dilution to SOL holders, especially when the current pledge rate is as high as 65.7% - cybersecurity has been fully guaranteed.

Through this proposal, it means that the concept of pledge shifts from "overpayment to ensure security" to "find the minimum necessary payment".

Interestingly, this is exactly what some KOLs in Solana have previously attacked the economic security of Ethereum, that too many assets are supporting an economic security that is considered "meme".

#Release capital and promote the development of DeFi ecosystem

The current high pledge rate (65.7%) has led to a large number of SOLs being locked, inhibiting the flow of capital in the DeFi ecosystem. Kamino founder Marius pointed out that “staking encourages hoarding but reduces financial activity”. Similar to the principle that high interest rates in traditional finance suppress investment.

It is worth noting that the main Defi protocol supporters on Solana are also VCs who propose proposals, so releasing liquidity into Defi is also a motivation that cannot be ignored.

#Reduce the " lost barrel effect " and improve ecosystem autonomy

The leak-barrel effect refers to the value within the ecosystem, which causes great wear and leakage during economic activities. Since the SOL issued by the additional is considered ordinary income and needs to be paid taxes in the United States, the additional issuance generated by inflation will be proportional to the value extracted from the entire ecosystem. For Solana, about $650 million in taxes and about $305 million in exchange commissions have occurred out of the ecosystem.

From the first principle, Solana has essentially entered a stable stage, and the inflation model set by the initial shot has become unreasonable. The development of the chain is to improve economic activities as the North Star, and should also correspond to plans to improve inflation.

Chris, partner at Placeholder, concluded that the real gains should come from the demand-side overflow, and should not be followed by a fixed inflation setting that is conducive to cold start. In the long run, the arguments of the supporters do make some sense. When a public chain ecosystem is in the cold start stage, it is naturally necessary to promote economic development with a more idealized economic system.

Voices of opposition

A faction led by Lily, chairman of the Solana Foundation, opposes the adoption of the proposal. The main point of the dispute is whether this proposal should be implemented in such a short period of time, rather than a proposal with significant changes in asset attributes over a longer period of time, which will affect participants in different links (engineers at the network layer, developers at the product layer, and institutions at the economic layer). Currently, most of the discussions are at the core network layer and product layer personnel, and there are fewer voices in the product layer and the economic layer dominated by institutions that are farther from the information channel. Therefore, you should not rush to pass until the argument is not perfect.

The concern raised by many opponents is concern about the loss of small validators. Small nodes are inferior to large nodes in terms of scale effects and bargaining power, so reducing inflation will first eliminate these small nodes, which will harm Solana's degree of decentralization. However, after chatting with some nodes of Solana, I found that most nodes still support passing. The reason is that Solana has a large subsidy and that everyone believes more in the value of SOL itself after continuous improvement. It is off-topic to feel the centripetal force of the Solana community.

It is obvious that both are dissatisfied with the current inflation model and believe that it needs to be improved. The debate is whether it will be implemented hastily within two weeks.

In addition, there may be some factors that consider interest. The simplest thing is that the holders of a large number of SOLs, especially those who can obtain higher returns from the non-staking ecosystem (Defi), naturally do not want inflation to continue to maintain such a high level. The standard portrait here is the VC behind Solana and the projects they support.

One of the important adoptions of Solana is the organizational direction, including ETFs and more traditional institutional use cases. Then the relevant parties who are promoting the adoption of the agency will definitely be opposed. For institutional adoption, it is controversial whether SIMD's approval is beneficial. Supporters believe that traditional institutions are more disgusted with high-inflation assets, while opposition parties believe that traditional assets have greater uncertainty about assets with dynamic changes in inflation rates.

Here, the author will believe that the uncertainty of the mechanism may more hinder the adoption of institutions - institutions themselves can evaluate the asset attributes under the mechanism, but if this mechanism continues to change, it will hinder the assessment of institutions. Therefore, for institutions, they either pass quickly or wait for the preliminary completion before consultation. At this time, there are more conflicts of interest, and it may be more difficult to pass.

Why now?

Here comes a question, why do you need to introduce and promote such a proposal so hastily?

Perhaps Solana still maintains a large amount of transaction volume in the residual heat of meme, resulting in the current fees and MEV revenue of the nodes still maintaining high levels, so the adjustment of the pledge mechanism will not usher in too much controversy. In 2024, Solana's MEV income totaled US$675 million, and there was a significant upward trend. The MEV income of the Q4 node even exceeded the inflation reward. For this reason, nodes are currently relatively sensitive to inflation income in the short term. If the Solana chain is completely cooled down, the income caused by this proposal will make it worse and will inevitably cause opposition from the pledge community.

Solana's Restaking is about to begin, and Renzo, Jito and others have already begun to show signs. Looking at the history of Ethereum, the emergence of liquid staking and Restaking will bring great subsidized benefits to staking and validators, and will also reduce the concerns about inflation rewards.

The Ethereum Foundation also proposed a proposal to improve the inflation curve mid-last year, similarly anchoring the pledge ratio to a fixed ratio to reduce excessive pledges. The argument put forward at that time was that while economic security was already far enough, it was hoped to release more liquidity while reducing the substitution effect of LSTs such as Lido ETH on ETH.

After this proposal was proposed, it also triggered a brief discussion. That is when OGs re-examine the economic related mechanisms of POW of Ether after the POS transformation. The proposal itself and the discussion process both put forward a lot of computational deduction support, but in the end, the proposal was not promoted without clearing the theoretical basis. The economic argument of Ether may provide some reference for 228, but the opposition it received also reflects the difficulty of passing such a proposal to "cut" interests.

The final result is reasonable. Perhaps it was under the auspices of the Foundation that validators formed a view of the proposal bearish and concerns about the adoption of the agency. Or maybe this decision was indeed too hasty, resulting in no consensus among the validators and differences in voting. Or maybe the small validators formed a consensus on short-term income pressure and collectively chose to oppose it. A wide discussion does not necessarily mean a deep discussion. If the discussion is not deep, there will be differences. The hastily promoted proposal also reflects the current consensus pain of Solana's parties' unclear positioning of the chain itself and the stage is unclear, and what to do next after memecoin supercyle

The governance process is a victory

This proposal, although hastily, has erupted in just a few weeks with very transparent and open discussions. Both sides spoke out bluntly on Twitter, without a centrist, and directly gave approval or not, and gave arguments. This discussion model allows everyone to understand the considerations of both parties. At the most intense moment, I even directly pulled Space, and the relevant parties expressed their opinions in Space.

Another highlight is the acceptance of community voices. A large number of Solana project parties/builders’ pertinent suggestions on Twitter were responded to and were included in Space’s discussion. Proposals are no longer obscure formulas, but are transformed into the voice of each community and are proposed to discuss. What is criticized by the voting is that the pledgee cannot directly participate in the vote of opinions, which also brings about self-contradictory among many major nodes - how to coordinate the opinions of all pledgees and give the final decision. This is a problem that all public chains need to be solved, and Solana illuminates this problem for the first time.

The proposal attracted 74% of the pledge supply participation, and still demonstrated a high degree of community engagement. SIMD’s clear voting mechanism and pass threshold make the decision-making process clearer and predictable. In contrast, Ethereum's proposal decision-making process is relatively vague, mainly relying on discussions and consensus among core developers, and lacking a formal voting mechanism.

Finally, the efficiency of the proposal. Even though we always criticize it for being too hasty, the proposal takes no more than two months from the time of proposals to the completion of the voting, which makes people have to sigh at the efficiency of the idea of ​​this ecosystem from top to bottom. This is why Tushar believes this is a victory.

Conclusion

Overall, the SIMD228 proposal reflects that after Solana's booming period of innovating the asset issuance model, it entered the stage of choice for institutional adoption and continuing to build on-chain consumer applications. The beginning of conflicts in the distribution of interests is an opportunity for the entire incident.

Supporters also need to take advantage of this on-chain activity boom stage to quickly promote reforms with small frictions, but it seems too hasty to cause discussions to be fierce but not sufficient. The support and education of small validators are inadequate, resulting in insufficient consensus among validators. The life cycle of the proposal is very short, and this process also reflects the execution and openness of the Solana ecosystem. It is an excellent governance case worth learning from all ecological environments.