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The pious SOL guards have gained some comfort recently because the Solana community recently proposed a new proposal called SIMD-0411 (translated as Double Suppression of Inflation Rate, which can be understood as not reaching deflation but falling inflation rate), this proposal was initiated by Solana community contributors Lostin and helius Dev Ichigo. It is currently in the governance discussion stage and will enter a vote in the near future. The proposal proposes to directly double the SOL inflation deceleration rate from -15% to -30%. After adjusting the parameters, the time point for the SOL inflation rate to drop from the current 4.18% to 1.5% will be advanced from early 2032 to early 2029, which means that it will only take 3.1 years for the inflation rate to reach the 1.5% target. It is estimated that corresponding to this parameter, the issuance of SOL will decrease by 22.3 million pieces in the next 6 years (according to the current mechanism, the supply of SOL after 6 years will be 721.5 million pieces, and the supply of SOL after 6 years under the SIMD-0411 mechanism will be 699.2 million pieces). Based on the price of SOL of $140 at the time of writing, the total is approximately $3.12 billion.  A simplified security version of SOL SIMD-0228, what is the difference between SIMD-0411Let us first review the SOL token inflation plan, which was originally designed with an initial inflation rate of 8% and an inflation deceleration rate of 15% until it gradually drops to a final inflation rate of 1.5%, currently at 4.18%. SIMD-0411 is not the first proposal to improve the SOL inflation mechanism. Earlier this year, early SOL investors Multicoin Capital and others released a proposal called SIMD-0228. The purpose of this proposal is also to modify the Solana inflation model. By adjusting the SOL issuance rate to a dynamic and variable mode, the proposal sets a target pledge rate of 50% to enhance network security and decentralization. If more than 50% of SOL Being staked, the inflation rate decreases, disincentivizing further staking by reducing rewards.； If less than 50% of SOL is staked, the inflation rate increases, increasing rewards and encouraging staking. According to the Solana network situation at that time, the final inflation rate will be set at 0.87%. However, because the proposal was too complex and encountered strong opposition from the community, it ultimately failed. The reason for the opposition of most community members at that time was reflected in the conflict of interest between large verification nodes and small verification nodes: Large verification nodes support the SIMD-0228 proposal, and inflation will soon decrease leading to an increase in token prices and greater returns.； Small verification nodes are worried that the reduction in staking rewards will significantly reduce their income, and some DeFi projects are worried about liquidity issues. If small verification nodes withdraw, Solana power will be concentrated in the hands of a few large verification nodes, which will affect the decentralization of the network. SIMD-0411 is also a simplified and secure version of SIMD-0228. Based on this, the plan proposed by SIMD-0411 is more targeted, doubling the rate of inflation decline, and maintaining the existing consensus final inflation rate of 1.5%. It only adjusts a single parameter, rather than redesigning the entire inflation system like SIMD-0228. It provides a minimal, predictable and low-risk way to strengthen the inflation design of SOL tokens without increasing the complexity of the protocol. Simpler and easier to govern. What is the community’s view?Regarding this SIMD-0411, everyone’s evaluation is still mixed: Positive view: Institutions are optimistic and encourage innovation and DeFi activitySOL treasury company DeFi Dev Corp (DFDV) also expressed support for SIMD-0411. DFDV analyzed that: 1. In addition to the emission reduction of 22.3 million SOLs, SIMD-0411 applies a single and easy-to-understand parameter adjustment, avoiding any complex or dynamic monetary logic and enhancing predictability. In addition, SIMD-0411 includes a 6-month activation grace period to prepare network participants ； 2. Regarding staking income, DFDV stated that high staking income is reasonable in the early stages of blockchain network development, helping to attract developers, accelerate the decentralization process and stimulate token demand, but Solana has passed that stage. As data comparison: 「Solana's protocol revenue will grow from $29 million in 2023 to $1.42 billion in 2024, and to approximately $1.38 billion so far in 2025: a nearly 50-fold increase in one year. By 2025, Solana’s protocol revenue will be more than double that of Ethereum. Solana took about 4 years to reach $1 billion (Ethereum took 6 years). 」 「Solana's DEX trading volume will grow from $12 billion in 2022 to $55 billion in 2023 to $694 billion in 2024, and is expected to reach $1.45 trillion in 2025. Solana’s processing volume this year is approximately 1.6 times the transaction volume of Ethereum DEX. 」 「From 2023 to 2025, Solana processed approximately 68.6 billion transactions, while Ethereum only processed 1.27 billion transactions, a gap of up to 50 times. Solana's annual transaction count has grown from 12.3 billion in 2023 to 25.9 billion in 2024, and has reached 30.5 billion so far this year, while Ethereum's annual transaction volume has remained below 500 million. Solana scales (Ethereum does not). 」 Solana has outperformed Ethereum for many years in almost all key metrics including network revenue, transaction data, DEX transaction volume, new wallets, etc.； 3. The current high inflation has also dragged down the price performance of SOL tokens, which needs to be solved urgently.； 4. Institutional investors, DAT and ETF issuers are more inclined to issue assets with predictable, reliable long-term economic benefits and low structural inflation.； 5. Lower staking yields will also cause more SOL to flow to DeFi products, such as lending, LP, stable coins, etc.； 6. Reduce reliance on token inflation and encourage network validators to innovate. There are concerns: a series of problems caused by the reduction of staking rewardsAccording to Pine Analytics analysis, after the passage of SIMD-0411, the corresponding SOL nominal staking yield will steadily decrease, as follows: · About 5.04% in the first year； · About 3.48% in the second year； · About 2.42% in the third year. In addition, according to 0xSpade analysis, after SIMD-0411 is passed, 10 verification nodes will change from profitable/breakeven to unprofitable in the first year, 27 in the second year, and 47 in the third year. In this regard, DFDV also stated: 1. A lower inflation rate will make the economic benefits of verification nodes more challenging, reduce staking participation, reduce economic security, and cause short-term fluctuations.； 2. As the rate of return decreases, some verification nodes may lose money or even close down.； 3. Uncertainty about sudden adjustments to Solana’s inflation plan may lead to market volatility； 5. The yields of ETFs, pledged products and DAT will decrease； 6. Interfering with the token mechanism may set a bad precedent. Not all networks can follow this mechanism. Most network dynamics and token designs should remain unchanged. DAT, ETF and lowering inflation, is it time for SOL to take off?Although the price performance of SOL tokens this year is not good, there has been obvious substantial progress: First, the DAT treasury. Although the SOL treasury is not as "fanfare" as BTC and ETH, it is also continuing to buy； The second is the SOL ETF. SOSOValue data shows that the SOL spot ETF had a net inflow of US$128 million in a single week (from November 17 to November 21, Eastern Time). As of press time, the total net asset value of SOL spot ETF is US$719 million, the ETF net asset ratio (market value as a proportion of the total market value of Bitcoin) reaches 1.01%, and the historical cumulative net inflow has reached US$510 million. Strategic SOL Reserve data shows that SOL treasury companies and ETFs hold a total of 25.581 million SOLs, worth approximately US$3.55 billion. While other crypto assets have been abandoned and continue to bleed, SOL has ushered in a more solid backing, and a well-funded institutional buying support has formed. In the eyes of my SOL guard: "The short-term pain is worse than the long-term pain. In any case, the inflation rate will reach 1.5% in the end. I am optimistic about SIMD-0411." Of course, the reduction in pledge returns may affect the data of ETFs, and it is reasonable to worry. However, in the long run, the "new transparent and predictable inflation mechanism" will attract more retail investors and institutions, which is completely greater than the risk caused by "the reduction in pledge returns leading to some departures." Moreover, the volatility caused by short-term potential selling pressure will most likely lead to "constant new highs" in the future. 」 |
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