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Solana’s (SOL) yearly inflation rate increased by 30.5% following the implementation of a new priority fee distribution on February 12. The daily amount of SOL burned dropped from nearly 18,000 SOL to 1,000 SOL.
The Solana Improvement Document 96 (SIMD 96) suggested allocating the entire priority fees for network validators instead of just half to facilitate the burning of SOL.
According to Blockworks researcher Carlos Gonzalez Campo, this adjustment elevated the SOL annualized inflation from 3.6% to 4.7%. Additionally, the SOL weekly burn rate fell to 6.93% from February 10 to 16, marking the lowest level since mid-October 2024 and nearly half the rate of the previous week.
The SIMD 96 also influenced the real economic value (REV) distributed to token holders. Based on on-chain data, token holders received 65.7% of Solana’s REV from February 3 to 9, which decreased to 58.9% from February 10 to 16.
Meanwhile, the REV percentage allocated to validators increased by a similar margin during this timeframe.
Significantly, the daily data indicates that the REV percentage for token holders was nearly 72%, gradually declining to 40.9% by February 16. During the same period, the validator share rose from 25.1% to 56.1%.
Awaiting SIMD 228
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The SIMD 96 was approved in May 2024. Its aim is to enhance incentives for validators and deter side deals.
The proposal highlighted that, under the previous model, a user would prefer to directly compensate a block producer to prioritize their transaction rather than paying a priority fee to the network, with the block producer receiving only half the value.
The proposal stated:
“This ensures that validators are appropriately incentivized to prioritize network security and efficiency, rather than being incentivized to engage in potentially detrimental side deals.”
However, one practical effect was the increase in SOL’s annualized inflation.
Carlos mentioned that Solana supporters are now anticipating the approval of SIMD 228, which aims to reform SOL’s inflation mechanism to a dynamic ratio based on the amount of SOL staked.
The proposal was introduced by Tushar Jain and Vishal Kankani, partners at Multicoin Capital, and seeks to increase SOL’s inflation if the staked amount falls below 50% of the total supply.
<pConversely, if the staked amount exceeds 50%, the inflation rate will be reduced accordingly. This would help alleviate the inflation increase caused by SIMD 96, even though it does not directly address the declining REV distribution to token holders.
The article SOL inflation jumps 30% one week after changes in fee distribution model appeared first on CryptoSlate.
