VanEck warns that Solana’s planned upgrades will reinforce the network but may increase financial pressure on validators.
Discussions about the network’s upcoming changes are growing, with validator revenue concerns at the center.
While these upgrades aim to ensure Solana’s long-term success, they may also create financial challenges for validators, according to VanEck.
Solana’s blockchain will undergo two proposed upgrades, called Solana Improvement Documents (SIMDs), which validators will vote on in March. These proposals focus on staking rewards and SOL’s inflation rate.
On March 4, Matthew Sigel, VanEck’s digital asset research head, posted on X that both proposals have sparked intense debate because they could slash validator revenues by 95%, possibly forcing out smaller operators.
“While these changes may reduce staking rewards, we believe lowering inflation is a worthy goal that strengthens Solana’s long-term sustainability,” Sigel said.
The first, SIMD 0123, “would introduce an in-protocol mechanism to distribute Solana’s priority fees to validator stakers,” Sigel said.
Validators can speed up transaction processing for traders, who compensate them with additional payments.
Priority fees contribute a significant 40% of network revenue, but validators do not have to allocate any portion to stakers, Sigel stated.
Validators must share specific revenues, such as rewards they earn from voting.
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With a vote set for March 6, the proposal aims to increase staking rewards while discouraging off-chain trading agreements between traders and validators, reinforcing on-chain execution, according to Sigel.
To stake on Solana, users must lock up SOL with a validator as collateral. They earn SOL rewards from network fees and incentives but risk “slashing,” which could cause them to lose part of their stake if the validator engages in misconduct.
The second, SIMD 0228, is the “most impactful proposal under consideration,” according to Sigel.
The proposal seeks to tie SOL’s inflation rate to the percentage of staked tokens in an inverse manner, potentially “reducing dilution and lowering selling pressure from stakers who treat staking rewards as income,” Sigel stated.
Coin Metrics reports that Solana’s inflation rate had dropped to 4% by February from its initial 8%, but the network has not yet reached its 1.5% terminal target.
Currently, inflation decreases at a fixed rate of 15% annually.
