Solana’s blockchain network will soon undergo significant protocol upgrades. Validators will vote on two proposals in March. These upgrades aim to enhance security, reward mechanisms, and inflation control. However, they may also reduce validator earnings.
Solana recently implemented SIMD 096 on Feb. 12. This change directs all priority fees to validators. Previously, half of these fees were burned. This adjustment increases staking rewards but discourages off-chain agreements between traders and validators.
Solana’s upcoming upgrades and their impact
Another proposal, SIMD 0123, seeks to ensure priority fees reach stakers. Currently, validators are not required to share these fees, even though they make up 40% of Solana’s total costs. Some validators voluntarily distribute a portion, but many do not.
If approved, SIMD 0123 will enforce a fair distribution model, shifting more revenue to stakers.SIMD 0228 is the most significant proposal. It aims to adjust Solana’s inflation rate based on the percentage of SOL staked. Solana’s inflation rate currently decreases by 15% annually until reaching 1.5%.
Under SIMD 0228, inflation would decline further if staking participation rises. For example, if 63% of SOL is staked, inflation would drop to 0.93%. If 65% is staked, it would fall to 0.87%.
If only 50% is staked, inflation would increase to 1.32%. This mechanism balances token issuance and staking demand, strengthening Solana’s economic model. The vote on SIMD 0228 is scheduled for March 6, 2025.
Impact on validator earnings and decentralization
These proposals have sparked debate. Some estimates suggest validator earnings could decline by as much as 95%. Running a Solana validator involves fixed costs, including voting fees of about 1.1 SOL per day ($58,000 per year) and hardware expenses of $6,000 per year.
Solana currently has 1,323 validators, but only 458 hold enough stake to remain profitable. If smaller validators shut down, the network may become more centralized around major entities like Coinbase and Binance.
Some community members propose reducing voting costs to help validators. However, finding the right balance to sustain decentralization is complex. Market forces will ultimately shape the validator landscape.
Despite potential reductions in staking rewards, these changes aim to enhance Solana’s long-term stability. Lower inflation can strengthen SOL’s value by reducing dilution and selling pressure. The network’s future depends on maintaining economic balance while ensuring validator sustainability.
