After the massive unlocking of Solana, can SIMD-228 become a remedy for the market?
Recently, Solana (SOL), which was once highly anticipated by the market, has fallen into difficulties and performed poorly. Multiple factors are at play here. The overall market has seen a significant correction, the meme market has cooled down leading to reduced demand for SOL, and the largest token unlock in history on March 1 has put considerable pressure on it. This unlock was sourced from the bankruptcy auction of FTX, with buyers including institutions like Galaxy and Pantera Capital, totaling approximately 11.2 million SOL, accounting for 2.4% of the circulating supply.
However, amidst this predicament, the leading figures in the Solana ecosystem seem to be focusing less on price and unlock-related issues, and more on a potential upgrade plan called SIMD-228. So, what exactly is SIMD-228? How might it affect the operation of Solana and the market performance of SOL?
In simple terms, SIMD-228 is an upgrade plan concerning the staking and inflation mechanism of SOL. It was proposed by Tushar Jain and Vishal Kankani from Multicoin Capital, and has the support of Solana co-founder Toly and Anza’s chief economist Max Resnick. The core idea of this plan is to link the inflation rate of SOL to the staking rate, thereby adjusting the demand and supply of the network and enhancing economic efficiency.
Specifically, when the staking rate is below 50%, the inflation rate will increase to encourage more staking; conversely, when the staking rate exceeds 50%, the inflation rate will decrease to reduce rewards. According to estimates from the Solana community, based on the current staking situation of the Solana network, SIMD-228 is expected to reduce the annual inflation rate of SOL from 4.5% to 0.87%. This means that by cutting the inflation rate, the proportion of circulating supply reduced within a year could reach 3.63%, even exceeding the proportion of tokens unlocked on March 1.
However, the attitude of the Solana community towards SIMD-228 is polarized. Supporters believe that this plan can significantly enhance the economic efficiency of the Solana network by reducing the inflation rate to curb future selling pressure, thereby potentially increasing the value of the token and attracting more long-term investors. Additionally, it can incentivize more users to stake when the staking rate is low by increasing inflation rewards, maintaining the decentralized security needs of the network.
On the other hand, opponents worry that this plan may exacerbate the risk of centralization in the network. They point out that large validator nodes might profit by manipulating the staking rate, thereby increasing the risk of centralization and undermining Solana’s core value. They also fear that this new mechanism could harm the interests of smaller validator nodes, making it difficult for them to profit and squeezing their survival space. Furthermore, the dynamic inflation rate may make it challenging for staking users to predict future rewards, complicating investment planning and affecting their long-term participation motivation.
Amidst this controversy, Kyle Samani, the founder of Multicoin Capital, has vocally called for the community to vote on SIMD-228. He believes that almost everyone thinks the current inflation rate is too high, while opposition mainly focuses on how to set the inflation rate target and its impact on validators. However, he argues that these reasoning may be flawed, as even hypothetical analyses can lead to errors in predictions. He emphasizes not to get caught up in the pursuit of perfection but to push things forward as quickly as possible. He anticipates that at least 100 validators will exit the network, but believes this will not affect consensus security. He urges everyone not to let Solana become like Ethereum, paralyzed by excessive analysis.
According to the current timeline, voting on SIMD-228 is expected to begin on March 6. Given the current situation, I personally tend to believe that the plan is likely to pass, but there will also be considerable opposition. As Kyle Samani said, nothing can be done perfectly on the first try. In the future, the Solana Foundation may need to alleviate disputes by optimizing governance models and balancing reward mechanisms.
Overall, SIMD-228 is undoubtedly an important upgrade plan for Solana. It attempts to address some of the issues currently facing the network by adjusting the relationship between inflation rates and staking rates. However, this plan has also sparked some controversies and concerns. During the upcoming voting and implementation process, we need to closely monitor the community’s reactions and the network’s operational status to promptly identify issues and make adjustments. Only in this way can we ensure that Solana can continue to develop steadily, providing better services and value for investors and users.
In this volatile market, Solana needs to act quickly and make wise decisions to tackle various challenges. We hope that SIMD-228 can become its remedy, helping it overcome the current difficulties and usher in a brighter future. But regardless, we should maintain a rational and objective attitude towards this plan and Solana’s future. After all, the market is unpredictable, and our decisions and actions need to be continuously adjusted and optimized in response to market changes.