What is SIMD-0228?
SIMD-0228 (Solana Improvement Document 0228) is a governance proposal put forward by the Solana community aimed at reforming the token issuance mechanism of the Solana network (i.e., the inflation model). This proposal was introduced by Tushar Jain and Vishal Kankani from Multicoin Capital, with support from Max Resnick, the chief economist of Anza (a key development entity in the Solana ecosystem). It suggests changing Solana’s current fixed inflation schedule to a dynamic, market-driven “smart emissions” model, primarily adjusting the issuance rate of SOL tokens based on the staking participation rate.
The core objectives of the proposal are:
To reduce unnecessary token issuance, thereby lowering the inflation rate.
To optimize network security and avoid overpaying for security.
To enhance the long-term value of SOL tokens, making them more attractive and sustainable.
The voting began around March 7, 2025, during the 753rd epoch.
Background: Issues with the Current Inflation Model
The current inflation model of Solana is fixed and gradually decreases over time:
Initial inflation rate: 8% (set early on).
Decreasing rule: Reduces by 15% each year until stabilizing at a long-term inflation rate of 1.5%.
Current inflation rate (as of early 2025): approximately 4.6% (may fluctuate slightly based on network data).
This fixed model, while simple, has the following issues:
Lack of flexibility: It cannot adjust the issuance based on actual economic activity or staking conditions, potentially leading to “overpaying” for security (i.e., issuing too much SOL to incentivize staking).
Inflation pressure: The new SOL issued each year (approximately 27 million in 2024) may create selling pressure, especially after the previous SIMD-0096 proposal allocated 50% of the priority fees to validators (no longer burned), exacerbating inflation.
Disconnection from ecological development: As Solana’s DeFi, MEV (Maximum Extractable Value), and trading activities grow, the fixed inflation has failed to fully leverage these new revenue sources to optimize the token economy.
SIMD-0228 attempts to address these issues by introducing a dynamic mechanism that aligns the inflation rate more closely with the actual needs of the network.
Proposal Content: Dynamic Inflation Mechanism
SIMD-0228 proposes to link the issuance rate of SOL to the staking rate, with the specific mechanism as follows:
Core Formula
The proposal introduces a dynamic adjustment formula based on the staking rate (the specific formula may be adjusted in technical documents, but the basic logic is as follows):
Target staking rate: Set at 50% (initial discussions also mentioned 33%-66% as a safe range).
Adjustment rules:
If the staking rate is below the target (e.g., 33%), the inflation rate increases, raising the SOL issuance to incentivize more staking.
If the staking rate is above the target (e.g., 65%), the inflation rate decreases, reducing the issuance of new SOL to avoid excessive dilution.
Adjustment speed: Initially proposed to adjust every 10 epochs (approximately 3 weeks), later extended to 50 epochs (approximately 4-5 months) based on community feedback, to ensure a smooth transition and reduce short-term volatility.
Key Parameters
Current staking rate: As of early 2025, Solana’s staking rate is approximately 65% (about 390 million SOL staked, accounting for around 63% of the total supply).
Expected effect: With a staking rate of 65%, the new model could potentially reduce the inflation rate to below 1% (even as low as 0.87%), significantly lowering it by about 80% compared to the current 4.6%.
Example formula (simplified version):Δi = 0.05 * (target staking rate – actual staking rate), where Δi is the change in the inflation rate. This mechanism adjusts staking behavior through positive feedback.
Implementation Details
Gradual rollout: The new emission curve will be gradually implemented over 50 epochs to avoid sudden shocks to the network.
Other revenue sources: With the increase in MEV and transaction fees, the proposal suggests that staking rewards can rely more on these “real economic returns” rather than solely on inflation issuance.
Potential Impact
The implementation of SIMD-0228 will have profound effects on various aspects of the Solana ecosystem, with the following main viewpoints from both sides:
Advantages (supporters’ views)
Reducing inflation pressure:
The current inflation causes an estimated “leakage” of value of about $1-2 billion per year (based on SOL market value). If inflation drops below 1%, it could significantly reduce selling pressure and enhance the scarcity of SOL.
Solana co-founder Anatoly Yakovenko stated: “The arguments against 228 are poor because the inflation cost is as high as $1-2 billion/year, and the network security does not require that much.”
Optimizing security costs:
The current 65% staking rate means the network may be “overpaying” for security. The dynamic model ensures more efficient allocation of resources by reducing issuance during high staking periods.
Helius Labs CEO Mert Mumtaz believes: “The greatest advantage of 228 is accelerating the network’s transition to real economic value.”
Long-term value enhancement:
Chris Burniske from Placeholder VC supports the proposal, stating that “long-term gains come from real spillover from demand to supply, and inflation is just a starting mechanism.”
If inflation significantly decreases, it may attract more long-term holders and institutional investors.
Disadvantages (opponents’ concerns)
Reduced staking rewards:
The current annualized staking yield (APY) is about 8%. If inflation drops to 1%, the yield may fall to around 1.34% (with MEV and other income possibly slightly higher), which may lead to a large number of users unstaking.
Validator SolBlaze warns: “228 will reduce the staking amount from 63% to 42%, threatening network security and decentralization.”
Decentralization risk:
Small validators may exit the network due to declining rewards. Matthew Sigel from VanEck estimates that only 458 out of 1323 validators (with over 100,000 SOL staked) can remain profitable.
If small validators exit, large institutions (like Coinbase and Binance) may dominate the network, increasing centralization risk.
Uncertainty and complexity:
Lily Liu, chair of the Solana Foundation, criticized the proposal as “too half-baked,” arguing that the “predictability” of fixed inflation is more valuable to capital markets, while a dynamic model may scare off institutional investors.
BitGo CEO Mike Belshe also stated: “If passed, large holders may significantly reduce their exposure, and Solana’s reputation needs to be handled with care.”
Impact on DeFi
Positive: Lower inflation may reduce the “risk-free rate,” making DeFi lending more attractive.
Negative: Reduced staking may weaken liquidity, affecting DeFi protocols that rely on staking rewards.
Community Response and Voting
Supporters: Including core developers and investors like Anatoly Yakovenko, Mert Mumtaz, and Chris Burniske.
Opponents: SolBlaze, Lily Liu, some small validators, and community members.
Voting time: March 7, 2025, evening (Epoch 753, around 20:30 ET). SolBlaze expects the vote to be “very close.”
Discussion process: The proposal was introduced in January 2025 and underwent nearly two months of public discussion, incorporating multiple community feedback (such as extending rollout time).
Conclusion
SIMD-0228 is a bold reform attempting to balance the security and economic efficiency of the Solana network through a dynamic inflation mechanism. If passed, it could reduce the inflation rate to below 1%, enhance the scarcity of SOL, and support long-term development, but it may also bring about reduced staking and decentralization risks. Opponents call for more cautious adjustments to avoid disrupting the existing ecological balance.