21Shares: Solana Proposes Changes to Reduce Inflation and Increase Burning, Staking Rewards Could Halve in Two Years

BlockBeats News, August 26th - Asset management company 21Shares announced that Solana is advancing two proposals, SIMD-550 and SIMD-553, aimed at reshaping the tokenomics by accelerating inflation reduction and increasing SOL burning. SIMD-553 was approved and merged by the development team on July 20th, while SIMD-550 entered the voting phase on August 23rd. If passed, the two proposals are expected to reduce SOL issuance by approximately $1.4 billion to $1.5 billion over 6 years.

SIMD-550 proposes to increase Solana's annual inflation reduction rate from 15% to 30%, shortening the time for the network to reach a 1.5% final inflation rate from about 5.7 years to 2.8 years, bringing it forward from the first half of 2032 to the first half of 2029. According to the proposal, the nominal staking yield will decrease from the current approximately 5.25% to 4.34% in the first year, 3% in the second year, and 2.25% in the third year.

SIMD-553 introduces a burn fee for computation units of financial activities. At the current network activity level, the daily SOL burning amount is expected to increase from about 600 to 800 tokens to 7,500 to 9,000 tokens, worth around $712,500 to $855,000, but still insufficient to offset the current daily inflation issuance of about $4.5 million.

The decline in staking rewards will directly reduce validator income. The validator voting fee structure under SIMD-553 is not yet final, with the related costs potentially increasing by up to 21 times. Based on the predictions of SIMD-550, out of the 738 validators, approximately 2 validators may operate at a loss in the first year, increasing to 30 in the third year.

Reducing the issuance and increasing the burning aim to improve the long-term supply-demand structure of SOL but do not necessarily guarantee a price increase. Solana's current staking rate is approximately 67.93%, nearly double Ethereum's 34.14%; part of the reason for reducing staking rewards is to drive funds towards on-chain use cases like DeFi. However, MEV and priority fee revenue need to grow by about 55% to 95% to fully offset the impact of the staking reward reduction.