Solana Labs Drops Proposal to Lower the $3.5 Billion in Tokens Granted to Stakers Each Year

In a close fight, detractors said the cuts would mean small validators existing on razor thin margins would no longer be able to profit

On Thursday, Solana stakeholders rejected a proposal to lower the $3.5 billion in tokens granted to stakers each year.

Proposal SIMD-0228 sought to reduce the amount of Solana tokens awarded based on the total amount of tokens staked, and continue to cut the blockchain’s emissions by a flat 15% each year until hitting a base inflation rate of 1.5%.

In a close fight, detractors said the cuts would mean small validators existing on razor thin margins would no longer be able to profit, and force them to shut down, which would harm Solana’s decentralisation. The sceptics won the vote.

Validators run the software that processes transactions on the Solana blockchain.

Despite the proposal’s failure, many in the Solana community are celebrating because the vote represents a historic moment in the network’s decentralised governance.

“This was a major victory for the Solana ecosystem and its governance process,” Tushar Jain, co-founder of Multicoin Capital, a Solana investor, said online. He was one of the three people behind the proposal.

Since its 2020 launch, Solana has rewarded stakers with lucrative token rewards. However, as the portion of rewards stakers earn from other sources, such as transaction tips, increases, many in the community have argued that native staking rewards should be lowered.

Continuously issuing new tokens causes “long-term, continual downward price pressure,” Solana company Helius said in September.

Decentralised doubts

Solana has for a long time struggled to convince users that it is sufficiently decentralised — in other words, that a patchwork of token holders has the power to intervene in major decisions, and not just rich insiders.

There are reasons for them to be sceptical. The blockchain was launched by Solana Labs, a for-profit company. By contrast, Bitcoin, often viewed as the gold standard for crypto decentralisation, has no central authority or attached company.

Additionally, a whopping 48% of Solana tokens were given to insiders or sold to venture capital firms when the blockchain launched, according to blockchain data platform Messari. Alameda Research, the sister company of fraudulent exchange FTX, was previously among the token’s biggest holders.

The disagreement and close vote shows the network isn’t controlled by a single group of likeminded insiders and that those with conflicting opinions and interests are able to influence decision making, community members say.

“Solana has demonstrated to the world how truly decentralised it is,” Justin Bons, founder of crypto investing fund Cyber Capital, said on X. He supported the proposal.

A close battle

The vote was close. Over 74% of eligible tokens participated.

For much of the approximately two-day polling period, votes in favour of cutting token emissions were in the lead. That changed in the final hours as several large players came in against the proposal.

All Solana validators were eligible to vote. They received votes based on the number of tokens staked through them.

Individual Solana token holders weren’t able to vote, but were encouraged to stake their tokens through a validator that planned to vote in line with their beliefs.

Some validators even chose to sell their votes, and used the proceeds to boost rewards for stakers.

Staker schism

The results show a pattern in how validators voted.

Validators with over 500,000 Solana tokens staked overwhelmingly voted in favour of cutting token emission

Large validators that make more money from staking don’t have to worry about their margin of profitability as much, Ben Sparango, a former head of strategic business development at the Solana Foundation, said on X.

Validators with fewer than 500,000 Solana staked mostly voted against the proposal, however.

“Small validators are overwhelmingly against as they might not be in business under the new regime” Sparango said.