Solana’s SIMD-0228 Rejected but Strengthens Governance

• SIMD-0228 was rejected but considered a significant step for Solana’s governance.
• The proposal was aimed to reduce staking rewards so as to address inflation issues.
• Smaller validators would have faced challenges if the proposal had been validated.

Taking a drastic step, investors have rejected a proposal that was put in place to change Solana’s inflation model, SIMD-0228, despite it being a major victory for the network’s governance framework. They insist that, although it failed, the vote has been a significant forward step in Solana’s decision-making procedure. 

Voting Results and Key Stakeholder Views

Data from Dune Analytics reveals that of the 746 validators voting on this proposal, nearly 58% of the active validator pool-37.8% were in favor, 18.5% opposed, and 1.2% abstained. Such an outcome indicates that the proposal was headed for failure since voting would continue until Epoch 755, in about 11 hours.

Tushar Jain, the co-founder of Multicoin Capital, stated on March 14 that even if the proposal failed at the technical end, the result can be called “huge victory” for Solana’s governance process. The proposal would eventually result in the network having a more robust and transparent decision-making process.

Source: Dune

Concerns Over Network Decentralization

The proposal, SIMD-0228, aimed to reduce staking rewards in a bid to address inflation and potentially boost SOL’s price. However, it raised concerns about its impact on network decentralization. While proponents argued that lowering staking rewards could reduce token supply, critics contended that smaller validators could be adversely affected.

Currently, Solana’s inflation rate relies on a balance between transaction fee burning and staking rewards. The reduction in transaction fees has led to fewer tokens being burned, and the continued issuance of new tokens at a 6.8% inflation rate may pressure SOL’s price. Critics also pointed out that SIMD-0228’s dynamic staking adjustments could destabilize staking trends, potentially harming the ecosystem.

Related: Solana CEO Opposes Government Role in US Crypto Reserves

Potential Benefits and Drawbacks of SIMD-228

SIMD-0228 had its share of advocates who believed it would offer several benefits. For one, it would have allowed the network to respond dynamically to real-time staking levels rather than adhering to a fixed schedule. This flexibility could have promoted more active use of SOL in decentralized finance (DeFi) and strengthened network security by increasing inflation if staking participation decreased.

Despite these advantages, the proposal faced opposition due to its complexity. Detractors warned that sudden changes in staking rates could destabilize the network. Furthermore, some questioned whether reducing staking rewards would have been enough to reignite Solana’s growth without an influx of new users and activity.

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