Solana's SIMD-228 (SOL): what it is and why it's being debated in the community ?

What is the SIMD-228 proposal?

Solana’s current model

SIMD-228 is a governance proposal on Solana aimed at profoundly modifying SOL’s issuance system. This new issuance method sparked numerous discussions as it sought to reduce SOL inflation to decrease the amount of SOL deposited in staking.

Solana currently uses a simplified SOL issuance system based on time, without considering network activity or the number of tokens staked. After its launch, Solana introduced an initial annual inflation of about 8%, decreasing by 15% per year until it reaches a floor of 1.5%.

Specifically, the inflation rate was about 4.7% at the beginning of 2025 and will gradually decrease to 1.5% in the coming years under this fixed model. This SOL issuance mechanism, activated in February 2021, provides validators and delegators with predictable yields, but it is not dynamic and does not adjust to staking participation as Ethereum does.

The SIMD-228 proposal

The SIMD-228 proposal aims to replace this fixed model with a "smart" issuance model, meaning an inflation rate that adjusts based on the percentage of SOL staked on the network. The authors of SIMD-228 proposed a mathematical formula linking inflation to the staking participation rate: the higher the proportion of tokens staked, the lower the inflation, and vice versa.

In simple terms, the annual issuance of new SOL would decrease proportionally to the square root of the staking rate.

• If 50% of the SOL supply is staked, the model proposes a sharp reduction in inflation compared to the current rate.
• If only ~33% of SOL is staked, the proposed inflation roughly matches the current model.
• Below 33% participation, the network would even increase inflation beyond the current floor to attract more stakers and secure the network.
• For a very high staking rate (close to 100%), inflation would tend toward zero, as the network would no longer need to issue additional SOL to incentivize more validators.

In practice, given Solana’s current staking rate (around 65% of circulating tokens are staked), SIMD-228 would drastically reduce the annual inflation rate. Estimates suggest that inflation would drop from about 4.5% annually to around 0.9%, assuming staking participation remains at current levels. This represents an 80% decrease in new SOL issuance compared to now, leading to a massive reduction in staking rewards in SOL.

The stated goal is to issue only the minimal amount of new tokens needed to secure the network. Thus, when most SOL holders are already participating in staking, the network does not need to "overpay" in inflation to attract them; instead, it can reduce issuance and limit token dilution. Conversely, if participation drops too low, the mechanism would automatically increase rewards to incentivize more holders to stake and maintain security.

A paradigm shift for Solana

This represents a paradigm shift for Solana. Instead of inflation being predetermined by a time-based curve, it would be algorithmically managed based on the percentage of SOL staked. The goal is twofold: reduce selling pressure from staking rewards (as fewer SOL would be issued and potentially sold by stakers) and stimulate the DeFi ecosystem by lowering the "risk-free" yield from staking.

By reducing inflation when the network is already highly staked, Solana would avoid injecting billions of dollars worth of new SOL into the market each year. For example, at a 4.7% rate and at the current price, the annual issuance represented over $2.5 billion worth of newly created SOL, which puts downward pressure on the token’s price. The new model aims to avoid this "over-inflation" by issuing only the SOL necessary for security.

To implement this change smoothly, SIMD-228 planned a gradual transition. Instead of immediately switching to the new formula, there would be an interpolation over 50 epochs (several months) between the old and new rates. This would give participants time to gradually adapt to the lower rewards. In summary, the SIMD-228 proposal would introduce a market-driven issuance mechanism (the staking market), optimizing security at the lowest cost in SOL. This model is inspired by experiences from other networks (Cosmos, Polkadot, etc.) while being tailored to Solana, which now experiences very high on-chain activity (notably significant MEV revenues for validators).

Indeed, in 2024, MEV on Solana exploded: in Q4, Jito tips generated approximately 2.1 million SOL (about $430M) for validators, a sharp increase compared to previous quarters. This context justifies, according to SIMD-228 proponents, reducing traditional inflationary issuance since validators now earn significant revenues from transaction fees and MEV. Nearly half of them no longer receive any income from inflation, as their emission commissions are set to 0%, meaning that staking rewards are fully distributed to stakers.

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Why is the community divided?

A change as fundamental as modifying Solana’s monetary policy has sparked heated debate within the community. Several points of contention have emerged.

Impact on staking and DeFi

The first issue is the impact on the network and DeFi. By significantly reducing inflationary rewards, SIMD-228 could lower the incentive to stake SOL. If many holders decide to unstake their tokens in search of better returns elsewhere, the staking participation rate could drop significantly. This is actually one of the intended goals: to find a new equilibrium at around 50% of tokens staked (compared to ~65% today) to reduce inflation.

This shift could have two opposing consequences, as discussed by the community. On one hand, fewer SOL locked in staking means more SOL in circulation within DeFi, which could benefit Solana’s DeFi applications. Today, highly attractive staking rewards absorb a significant portion of the SOL supply, which can limit liquidity and participation in DeFi protocols. By lowering the "risk-free" staking yield, the minimum required yield for DeFi applications to be attractive to investors also decreases.

Projects could more easily attract users if they only earn 2-3% from staking instead of the current 6-7%. As the proposal highlights, lower inflation "stimulates SOL usage in DeFi" by making the yields offered by protocols more competitive. A frequently cited argument is that SIMD-228 could revitalize the ecosystem by freeing up capital for innovation and new DeFi applications.

Impact on network security

On the other hand, a drastic drop in staking could raise concerns about network security and stability. Staking is what secures the blockchain: fewer staked SOL means it becomes (theoretically) easier for a malicious actor to acquire a significant stake and influence block validation. Some community members worry that targeting a staking rate around 50% could reduce Solana’s security margin.

Currently, with ~65% of tokens staked, the network is highly secure, and malicious validators would need to control a significant portion of the total SOL supply to threaten consensus. If participation fell to 40-50%, this attack threshold would become more accessible, which could alarm investors during market downturns.

Some opponents of SIMD-228 argue that varying inflation based on staking reductions could create a vicious cycle: in moments of panic when stakers withdraw, increasing inflation (hence the yield) might be perceived negatively and accelerate a loss of confidence (as more SOL would be printed while the price might already be falling).

However, supporters argue that the mechanism actually acts as a stabilizer: it would increase rewards if staking participation drops to encourage more holders to stake and, conversely, reduce inflationary issuance when confidence returns and more SOL are staked, preventing excessive token dilution. The debate remains open regarding the optimal balance: the community questions whether the ~50% staking target is appropriate or arbitrary, and what the actual minimum participation rate for network security should be.

Risks of Centralization

The third point of debate is the risk of centralization and pressure on smaller validators. One of the main concerns is the impact on independent, small-scale validators. If staking rewards (derived from inflation) drop by 80%, the portion of validator revenue coming from inflation will shrink significantly. For many smaller validators, these rewards are a key source of income to cover their infrastructure costs.

Validators have expressed concerns that the new fluctuating model could push smaller actors out, leaving only the largest validators or those with alternative revenue sources. Jota from Pine Stake stated that "most small/medium validators are against" the proposal, predicting that it could render up to 25% of currently profitable validators unviable. An investor from Finality Capital similarly estimated that in a prolonged bear market, reduced inflation could force one-third of currently active validators to shut down.

Such a contraction in the validator set would pose a serious decentralization issue, concentrating validation power in the hands of a few major operators—especially since Solana currently has only around 1,300 active validators. The perceived risk is that many small validators would disappear, taking with them the geographical diversity that strengthens the network.

However, this point has sparked differing analyses. Supporters of SIMD-228 acknowledge that there could be some consolidation of validators, but they argue that it would be limited. For instance, Helius’ analysis predicts a moderate and temporary contraction, stating that other factors—such as SOL’s price or voting costs—have a greater impact on validator profitability than inflation alone.

Additionally, many smaller validators already operate with very low staking commission rates (sometimes even 0%), meaning they were never heavily reliant on inflation for their income. Over time, the bulk of validator revenues will come from transaction fees and MEV, especially since the activation of SIMD-96 in February 2025, which now allocates 100% of priority fees to validators (whereas 50% were previously burned).

Thus, paradoxically, over half of Solana’s validators today earn the majority of their revenue from off-inflation sources (fees, MEV tips) rather than inflation commissions. This relativizes the impact of reduced staking rewards: validators will be able to compensate, at least partially, through on-chain fee income, especially if network activity remains high. Additionally, the community is working on improvements to lower fixed costs for validators (such as reducing voting fees, as discussed in SIMD-0123) and possibly allowing delegators to receive a share of block rewards in the future. These measures could soften the impact on small operators and prevent excessive centralization during the transition.

Reduced Attractiveness for Stakers

The fourth major point of debate is the decline in staking yields for delegators. For SOL holders who delegate their tokens to a validator, their annual yield in SOL will mathematically decrease if SIMD-228 is implemented, due to lower inflation.

Currently, a delegator can expect an ~6–7% APY, combining inflationary rewards and a share of transaction fees (if the validator has a low commission rate). With inflation reduced by about 4x, the base yield in SOL could drop to around 1–2% APY (variable depending on the new staking equilibrium). This raises concerns: many staking participants may find this return too low relative to the risk (even though the risk is minimal on Solana, where slashing only occurs in rare cases of validator misconduct).

More importantly, delegators do not directly benefit from other validator revenue sources (fees, MEV). Unless explicitly agreed upon, a validator keeps 100% of priority fees and MEV profits from block production, only distributing inflationary rewards (minus their commission) to delegators.

Since SIMD-96, this issue has become more pronounced: half of the transaction fees that were previously burned (which indirectly benefited all token holders by reducing supply) are now allocated entirely to validators, increasing their off-staking income. However, these additional earnings are generally not shared with delegators, meaning that the average delegator's net return is decreasing (less inflationary rewards, but no compensation via fees). Some delegators may therefore consider alternative strategies, such as liquid staking pools or DeFi yield farming, rather than traditional staking. The concern is that this could further accelerate the decline in staking participation if no action is taken to improve the delegator experience under the new model.

As a result, the community is discussing ways to maintain staking attractiveness despite lower inflation. One proposal is to eventually redistribute a portion of block fees to delegators, meaning validators would share part of transaction revenue with their delegators (via a fee-sharing parameter, similar to staking commissions). Another suggestion is to encourage validators to lower their staking commission rates so that delegators can capture nearly all newly minted SOL (which is easier to commit to when the issuance volume is low).

Finally, supporters of SIMD-228 argue that the fiat value of yield is just as important as the percentage return: if reducing inflation helps sustain SOL’s price (by limiting selling pressure), a delegator could still benefit from token appreciation, even if they receive fewer SOL in rewards. This long-term perspective, which prioritizes SOL’s price appreciation over high passive yield, contrasts with some stakers’ preference for immediate yield. Once again, this represents an ideological debate within the Solana community.

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Vote results on SIMD-228 proposal

The vote on SIMD-228 concluded on March 14, 2025, with an exceptionally high turnout, as 74% of validators participated. In the early days following its launch on March 7, more than 85% of recorded votes supported the proposal. However, this support gradually declined over time, though it remained above the 66.67% threshold required for approval. A turning point occurred on March 13, just six hours before the vote closed, when a large number of opponents voted en masse against the proposal, causing the percentage of favorable votes to drop from 66% to 60%.

Ultimately, among the 74% of validators who voted, 58.7% supported the proposal, a figure insufficient to reach the required majority. In contrast, 36.9% voted against it, while 4.4% abstained. With only 43.6% of all validators in favor of the measure, the result highlights a deep division within the Solana community, unable to reach a clear consensus, whether to approve or definitively reject the reform.

A stark divide emerged between small and large validators. Validators holding less than 500,000 SOL largely opposed the proposal, with over 60% voting against it, arguing that it would severely harm their revenues and threaten their economic viability. Conversely, validators with over 500,000 SOL voted in favor by more than 60%. These larger validators typically generate revenue from other sources, such as transaction fees and MEV, and view SIMD-228 as a long-term improvement for the network’s sustainability. This divergence reflects distinct economic interests within Solana’s ecosystem, further complicating consensus-building around tokenomics reforms.

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Conclusion

The rejection of the SIMD-228 proposal highlights the tension between long-term optimization (improving tokenomics and reducing inflation) and immediate concerns from validators and delegators (profitability and network security). The high voter turnout and division of opinions show that the Solana community is deeply engaged in these issues, yet unable to reach a clear consensus.

The failure of SIMD-228 in its current form does not necessarily mean the abandonment of all reforms. It is likely that new proposals will emerge to address the objections raised, such as introducing revenue-sharing mechanisms or specific incentives for validators. Solana will need to continue exploring adjustments to balance economic sustainability, staking attractiveness, and network decentralization.

This vote marks an important milestone in the collective discussion on Solana’s monetary policy and could inspire future initiatives to gradually refine the protocol’s economic model.