What Was SIMD-228 About?

SIMD-228 was a Solana governance proposal to shift from a fixed inflation rate (currently starting at 4.5%, decreasing to 1.5%) to a dynamic model. This new model would adjust SOL token issuance based on the staking participation rate, targeting 50% staking for network security. If staking fell below 50%, inflation would increase to encourage more staking; if above, it would decrease to reduce rewards.

Why Was It Important?

This proposal could have significantly lowered inflation, potentially boosting SOL's value by reducing supply. However, it sparked debate over its impact on smaller validator operators, who feared reduced profitability and potential centralization.

What Happened in the Vote?

The vote concluded on March 13, 2025, with 61.39% support, short of the 66.67% needed. Despite record participation (74% of staked supply), it failed, keeping the current fixed inflation model intact. This shows the community's preference for stability over change.

Background and Context

SIMD, or Solana Improvement Document, proposals are formal suggestions for changes to the Solana network, akin to Ethereum's EIPs or Bitcoin's BIPs. SIMD-228, proposed by Multicoin Capital's Tushar Jain and Vishal Kankani, with support from Anza's lead economist Max Resnick, aimed to introduce a dynamic, market-based emissions model for SOL tokens. This was in contrast to Solana's existing fixed inflation schedule, which starts at 4.5% annually and decreases by 15% each year until reaching a terminal rate of 1.5%.

The proposal was debated extensively, with voting concluding on March 13, 2025, as per recent reports SIMD-228 Solana proposal to cut SOL inflation rate rejected. The high turnout, with 74% of staked supply participating, marked it as the biggest crypto governance vote ever by market value and participation, highlighting Solana's active community.

Details of the Current Inflation Model

Under the current system, Solana's inflation is predetermined, ensuring a predictable reduction in new SOL issuance over time. This model, borrowed initially from Cosmos, has been effective but static, not responding to network activity or staking levels. For instance, with a current inflation rate of around 4.68% and a staking rate of 65%-70%, the fixed schedule adds approximately $3.47 billion in SOL annually, much of which is sold by stakers, exerting pressure on prices Solana’s inflation rate dynamics: an in-depth analysis of the SIMD-228 upgrade solution.

Proposed Changes in SIMD-228

SIMD-228 proposed a shift to a dynamic inflation model where the issuance rate adjusts based on the staking participation rate, with a target of 50%. The mechanics were straightforward:

• If staking falls below 50%, inflation increases to incentivize more staking, ensuring network security.

• If staking exceeds 50%, inflation decreases, reflecting reduced need for additional rewards, potentially lowering inflation to as low as 0.87% at current rates.

This adaptive mechanism, dubbed "smart emissions," aimed to align Solana's economics with real-time network activity, reducing sell pressure and enhancing DeFi usage, as noted by supporters like Helius Labs CEO Mert Mumtaz in an X post Solana May Soon Get a Major Change—Here’s Why Builders Are Butting Heads Over SIMD-0228.

Implications for Stakers and Validator Operators

The proposal had significant implications:

• For Stakers: Lower inflation could increase SOL's value due to reduced supply, but high staking rates might decrease rewards, affecting returns. This dynamic adjustment was seen as a way to bootstrap the network toward real economic value, as per Placeholder VC partner Chris Burniske's X post Everything You Need to Know About Solana’s New Bold Proposal ‘SIMD-0228’.

• For Validator Operators: Smaller validators, especially those with stakes of 500,000 SOL or less, were concerned. Lower inflation could reduce profitability, potentially leading to centralization, as larger validators might dominate. Critics, including Solana Foundation president Lily Liu, described the proposal as "too half-baked," warning of unpredictable yields alienating institutional investors Solana validators to soon vote on key 'SIMD-228' proposal affecting network inflation | The Block.

Stakeholder Group	Potential Benefit	Potential Risk
Stakers	Increased SOL value with lower inflation	Reduced rewards if staking rate is high
Large Validators	Higher efficiency, potential dominance	None significant
Small Validators	None significant	Reduced profitability, risk of exit

Arguments For and Against

Proponents argued that SIMD-228 would:

• Reduce unnecessary costs, with Anatoly Yakovenko estimating $1-2 billion annual savings Solana May Soon Get a Major Change—Here’s Why Builders Are Butting Heads Over SIMD-0228.

• Enhance network security by maintaining optimal staking levels.

• Align with market conditions, making Solana more responsive and efficient.

Opponents highlighted:

• Risks to decentralization, with smaller validators potentially exiting, as seen in voting patterns where over 60% of small validators opposed it SIMD-228 Solana proposal to cut SOL inflation rate rejected.

• Complexity and unpredictability, which could deter institutional investors and destabilize DeFi.

Outcome and Community Engagement

The vote concluded with 61.39% support, falling short of the 66.67% threshold required for passage. This high participation rate, with 910 validators voting, underscores the community's investment in Solana's future. The failure to pass suggests a preference for the current stable model, with some, like validator operator SolBlaze, believing SIMD-228 wasn't the right solution Solana’s SIMD-228 Proposal Fails—What It Means for Token Emissions. Meanwhile, SIMD-123, another proposal, passed with 74.91% support, focusing on transparent reward distribution, indicating a focus on validator incentives over inflation cuts.