The Story Behind Solana SIMD-228
New to Solana, and I’m incredibly lucky to have Turbin3 as a community to help folks like me grow and learn. This post is part of my Turbin3 research track application. It focuses on technical innovation and its economic impacts. It’s been a fun journey to piece together the big picture. I really enjoyed it.
Solana is a high-speed blockchain known for its cheap transactions and ultra-fast block times. Like other proof-of-stake blockchains, it secures its network by letting users stake SOL tokens with validators. Validators run the hardware that confirms transactions. To reward them, Solana prints new SOL at a fixed inflation rate—currently around 4–5% annually—which slowly decreases over time. That’s the status quo: predictable, but not very flexible.
What is SIMD?
SIMD stands for “Solana Improvement & Maintenance Directive.” These proposals suggest major upgrades. SIMD-228 proposed a dynamic system where inflation adjusts based on staking levels. If staking is high, inflation would drop, possibly below 1%. If staking is low, inflation would rise to attract more stakers. It's like Solana adjusting its own monetary policy automatically, similar to how central banks raise or lower interest rates.
Why Change the Fixed Schedule?
Supporters of SIMD-228 argue Solana doesn't need to print as much SOL if enough is already staked. Keeping high rewards when security is already strong just dilutes holders and adds sell pressure. On the flip side, if staking declines, a temporary rise in rewards could stabilize things. But this is a big shift in how the network manages incentives.
Endogenous Monetary Policy
SIMD-228 moves from a fixed system (exogenous) to a responsive one (endogenous). It reacts to current staking levels, like how central banks react to inflation or employment. The idea is to code these reactions into the protocol. Critics are concerned about predictability—if monetary policy changes too often, some investors might lose trust.
Risk-Free Rate Arbitrage
This change could also shake up DeFi. The staking yield is Solana’s “risk-free rate.” If it drops, DeFi protocols wouldn’t need to offer sky-high yields to stay competitive. That could attract more capital to DeFi. But validators, especially smaller ones, might suffer if rewards drop and they can't cover server costs.
Why It Was Controversial
- Small validators rely on inflation rewards. Cutting those sharply could force them out, leading to more centralization.
- Lower inflation might raise SOL’s price during good times but cause problems in downturns, when higher inflation kicks in at the worst time.
- The vote failed. 61% voted yes, 27% no. High turnout, but not enough for approval. Small validators opposed it; large ones supported it.
Dynamic inflation looks great when the market is healthy. If usage is high and validators earn enough from fees, Solana can grow with low inflation. But in a downturn, increasing inflation might be seen as a red flag, and stakers could still exit. That would undermine the system’s stability.
What’s Next?
SIMD-228 may not have passed, but the idea isn’t going away. A gradual rollout or combining it with fee-sharing might be the next step. The debate continues: print less SOL to support the price, or print enough to keep the network decentralized and secure.
In the end, dynamic monetary policy brings central bank-style thinking into crypto. Done right, it could unlock new growth for DeFi. But it also shows that crypto is as much about incentives and governance as it is about technology.
Reference
SIMD-228: Market Based Emission Mechanism
Why Solana's Inflation Proposal Didn't Pass
Solana’s inflation rate dynamics: an in-depth analysis of the SIMD-228 upgrade solution
