- The supply of Solana tokens is steadily increasing.
- Critics argued that this lowered the price of Solana.
- A prominent VC has proposed a discount on new Solana tokens.
A new proposal would effectively reduce the inflation of Solana’s native cryptocurrency, SOL, to increase the token’s price and the blockchain’s DeFi ecosystem.
SOL inflation is set at a rate that decreases by 15% per year until stabilizing at 1.5%.
Under the proposal, drafted by partners at crypto venture capital firm Multicoin Capital – one of the main backers of Solana-based projects – the inflation rate would fluctuate to push the share of Solana tokens staked to 50%.
“It is overall very healthy that SOL staking rewards are dynamic, as it increases the attractiveness of SOL as a collateral asset in DeFi,” said Cindy Leow, co-founder of Drift, a perpetual futures exchange on Solana. DL News.
This would increase the value of Solana’s DeFi ecosystem as well as its liquidity, “as there is more incentive to invest in economic use cases rather than just deploying it to validators,” he said. she added.
As of Monday, more than 69% of Solana tokens were staked, a figure that the authors of the proposal consider exaggerated. Staking is one of several mechanisms used to protect blockchains against hostile takeovers and requires users to stake or lock up their Solana tokens in exchange for a modest annual return similar to the return on a bank account. traditional savings.
This yield can be much lower without compromising the security of the Solana blockchain, according to the authors.
“The most efficient amount of token issuance is the lowest possible rate necessary to secure the network,” they wrote in their proposal, shared on software repository GitHub.
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Solana’s annualized inflation rate was 3.8% on Monday, according to a 21.co estimate.
This poses some problems, according to the authors.
First, inflation has weighed on the price of Solana. (Solana hit an all-time high on Sunday, several days after the proposition debuted when US President-elect Donald Trump and his wife Melania launched memecoins on the blockchain.)
This isn’t the first time someone has made this argument. The continued issuance of new tokens causes “continued downward price pressure in the long term,” Solana company Helius argued in a September report.
Second, the inflation rate allowed Solana investors to earn a modest reward without having to engage with the blockchain’s DeFi ecosystem, these authors wrote.
“Reducing inflation boosts the use of SOL in DeFi, which is ultimately good for applications and drives the development of new protocols,” they write.
The proposal received support from one of the most prominent voices in blockchain: Helius founder Mert Mumtaz.
“(The) current figure is completely arbitrary – it’s time to let the market set the price,” he said on X before the proposal launched.
Others were more circumspect.
South Africa-based staking company Laine said it supported a dynamic inflation rate but wanted to see projections of the impacts of the proposed inflation schedules.
“If we make a change, it must be well thought out and sustainable,” wrote its founder, who goes only by Michael, in response to Multicoin’s proposal. “The current inflation schedule, while simple, has worked.”
Ansel, the pseudonymous founder of the Solana Tokamai app, started a debate on the blockchain inflation rate in November.
“As the ecosystem evolves, validators now rely on MEV and priority fees over token inflation,” they wrote.
“This positive direction means we can reduce reliance on inflation to reward stakeholders to maintain network security.”
Some supported the idea. But others said it was a solution in search of a problem.
“Change in inflation should be completely ruled out,” one critic wrote at the time.
“This introduces unquantifiable risk into long-term financial modeling of the token’s value. What stops the token from changing quarterly or monthly based on current macroeconomic conditions – like the Fed? »
Aleks Gilbert is a New York-based DeFi correspondent for DL News. You can reach him at aleks@dlnews.com.
