Solana (SOL) Prepares for Two Major Protocol Upgrades, SIMDs 0123 and SIMDs 0228

This month, Solana validators will vote on two proposals, SIMDs 0123 and SIMDs 0228. These will adjust how rewards and inflation are managed.

Solana (SOL) is set for two major protocol upgrades, known as Solana Improvement Documents (SIMDs), to adjust how rewards and inflation are managed for the network’s native SOL token.

This month, Solana validators will vote on two proposals: SIMDs 0123 and 0228. But these changes could reduce validator revenues by as much as 95%, warns Matthew Sigel, head of digital asset research at VanEck.

What are the proposed changes to Solana?

The first proposal would implement an in-protocol mechanism to distribute priority fees, currently accounting for roughly 40% of network revenues, to validator stakers. This proposal is scheduled for a vote in March.

Traders pay extra to expedite transactions, and while validators already pass on other forms of revenue (such as voting rewards), this change would require them to share priority fees as well.

The idea is to be able to distribute more of the network revenue to stakers in order to increase their returns and discourage off-chain trading agreements between traders and validators, thus reinforcing on-chain execution.

“This move is seen as a way to boost staking rewards and discourage any off-chain agreements traders may make with validators for preferred inclusion in blocks.”

The second proposal, which is expected to be voted on in April, aims to modify SOL’s inflation rate to be inversely dependent on the portion of the token supply that is actively staked.

This adjustment is intended to decrease dilution and lower selling pressure from stakers who view their rewards as immediate income.

“It is noteworthy that Solana’s inflation rate today stands at 4%, down from an initial 8%, but it remains above its long-term target of 1.5%.

“Solana’s inflation declines at a fixed rate of 15% annually, and the proposed adjustment is considered the most impactful change pending vote.”

What are the implications of these changes?

These two proposals are among the most significant changes that could affect the long-term sustainability of the Solana ecosystem.

The changes to the reward system could have a significant impact on the economics of the Solana network and may induce changes in trading activity.

Moreover, these protocol upgrades come amid heightened interest from institutions in Solana exchange-traded funds (ETFs) in the US.

The Securities and Exchange Commission (SEC) has until October to decide on multiple Solana ETF filings, as reported by Crypto News Australia.

Earlier this year, the SEC dropped a lawsuit against Kraken for allegedly offering unregistered securities in the form of its crypto staking service.

The agency also sued Coinbase for allegedly operating an unregistered exchange and selling unregistered securities.