VanEck: Solana's two proposed upgrades will enhance the network, but will significantly reduce validator earnings

PANews March 5th news, asset management company VanEck said that Solana's planned protocol upgrades are crucial to the long-term healthy development of the network, but may hit validators' revenue. In March, Solana's validators will vote on two blockchain protocol upgrade proposals (SIMDs) that aim to ensure stakeholders' rewards and adjust inflation rates for network native token SOL.

Matthew Sigel, head of digital assets research at VanEck, said in a March 4 X post that the two proposals sparked "significant controversy" as they could cut validators' revenue by up to 95%, potentially endangering small operators. "While these changes may reduce staking rewards, we believe that reducing inflation is a worthwhile goal that can enhance the long-term sustainability of Solana," Sigel said.

Sigel introduced that the first proposal, SIMD 0123, will introduce an in-protocol mechanism to allocate Solana's priority fees to the verifier stakeholders. Traders can pay additional fees to speed up transaction processing, with priority fees accounting for 40% of network revenue, but currently validators do not need to share with stakers. The proposal voted on March 6 to increase pledge rewards, and to prevent off-chain transaction agreements and strengthen on-chain execution. Sigel said the second proposal, SIMD 0228, is the "most influential" proposal, which will adjust SOL inflation rate to inversely proportional to the percentage of pledged token supply, which may reduce dilution and reduce selling pressure from pledgers. As of February, Solana inflation was 4%, lower than the initial 8%, but still well above the 1.5% terminal target, and is currently declining at a rate of 15% per year, according to Coin Metrics.