Solana's governance approved a proposal to accelerate disinflation for SOL tokens, reducing supply faster and impacting staking rewards.
On August 28, Solana's on-chain governance successfully passed proposal SGP-0002, which accelerates the disinflation rate for SOL tokens from 15% to 30%. The proposal garnered support from 176.29 million SOL, while 66.19 million voted against it, and 20.63 million abstained.
This initiative is based on a technical proposal, SIMD-0550, created by Helius, an infrastructure company. Although the long-term inflation target remains at 1.5%, the time to reach this goal has been halved from 5.7 years to 2.8 years. This change is expected to reduce the total supply by approximately 18.9 million SOL over six years.
Impact on Staking Rewards
The faster reduction in supply will likely affect staking rewards, resulting in a decrease in nominal yield from 5.84% to 4.34% in the first year, with further declines to 3% and 2.25% in the subsequent years. Helius also noted potential challenges for validators; among 738 operators, a few could go from profitable to unprofitable due to the new staking dynamics.
While the proposal changes the disinflation rate, it does not modify emission parameters directly. The next phase involves integrating SIMD-0550 into Solana's client software and updating the main network accordingly.
Mixed Reactions to the Proposal
Reactions from key network players varied. Figment opposed the proposal, casting around 17.1 million SOL against it, while Helius and Jupiter expressed support. Notably, Kraken initially voted against SGP-0002 but later shifted to favor it, with over 90% of their 8.9 million SOL backing the proposal. Co-CEO Arjun Sethi emphasized that custodians should remain neutral and act as conduits for votes.
"Custodians should be conduits, not voices," Sethi stated on X.
Galaxy also changed its position, deciding to support the proposal after initially abstaining. Helius CEO Mert Mumtaz actively rallied support from validators, claiming he contacted about 500 participants in the final hours leading up to the vote.
"AFTER 500 CALLS IN THE PAST FEW HOURS WE GOT ALL THE VOTES IN THE LAST SECONDS AND PASSED THE DISINFLATION PROPOSAL BY A LITERAL HAIR," Mumtaz tweeted.
Other Governance Proposals
In addition to SGP-0002, the governance also approved SGP-0001, the "Solana Constitution," which established the framework for on-chain governance. This proposal received 193.65 million SOL in support, representing about 86% of the participating votes. Conversely, SGP-0003, which aimed to restructure support fees, was not approved, receiving 142.84 million votes in favor against 50.15 million opposed.
The rejected SGP-0003 proposal sought to split fees into a base fee and a variable component intended for burning, which could have increased the daily SOL burn rate significantly.
Voting on these proposals began on August 24.
