Solana heavyweights push to cut inflation over price concerns

A new proposal would effectively slash inflation of Solana’s native cryptocurrency, SOL, to boost the token’s price and the blockchain’s DeFi ecosystem.

SOL inflation is fixed at a rate that decreases by 15% annually until stabilising at 1.5%.

Under the proposal, authored by partners at crypto venture capital firm Multicoin Capital — one of the most prominent backers of Solana-based projects — the inflation rate would fluctuate to push the share of staked Solana tokens to 50%.

“It’s overall very healthy for the SOL staking rewards to be dynamic, as it increases the attractiveness of SOL as a collateral asset in DeFi,” Cindy Leow, co-founder of Drift, a perpetual futures exchange on Solana, told DL News.

That would boost the value of Solana’s DeFi ecosystem as well as its liquidity, “since there’s more incentive to stake into economic use cases versus just deploying to validators,” she added.

As of Monday, more than 69% of Solana tokens were staked, a figure the proposal’s authors say is overkill. Staking is one of several mechanisms used to secure blockchains from hostile takeover, and requires that users stake, or lock up, their Solana tokens in exchange for a modest annual return akin to the yield on a traditional savings account.

That yield can go much lower without compromising the security of the Solana blockchain, according to the authors.

“The most efficient amount of token issuance is the lowest rate possible necessary to secure the network,” they wrote in their proposal, shared on the software repository GitHub.

Solana’s annualised inflation rate was 3.8% on Monday, according to an estimate from 21.co.

That poses a couple 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 proposal made its debut as US president-elect Donald Trump and his wife Melania launched memecoins on the blockchain.)

It isn’t the first time someone has made the argument. Continuously issuing new tokens causes “long-term, continual downward price pressure,” Solana company Helius argued in a September report.

Second, the inflation rate has meant that Solana investors could earn a modest reward without having to engage in the blockchain’s DeFi ecosystem, those authors wrote.

“Reducing inflation spurs SOL usage in DeFi, which is ultimately good for the applications and stimulates new protocol development,” they write.

The proposal has received support from one of the blockchain’s most prominent voices: Helius founder Mert Mumtaz.

“[The] current number is completely arbitrary — it’s time to let the market set the price,” he said on X ahead of the proposal’s debut.

Others have been more circumspect.

South Africa-based staking company Laine said it supports a dynamic inflation rate, but wanted to see projections of the impacts of the proposed inflation schedules.

“If we make a change it needs to be well thought out and sustainable,” its founder, who only goes by Michael, wrote in response to Multicoin’s proposal. “The current inflation schedule, while simple, has worked.”

Ansel, the pseudonymous founder of Solana app Tokamai, kicked off a debate about the blockchain’s inflation rate in November.

“With the evolution of the ecosystem, validators now rely on MEV and priority fees over token inflation,” they wrote.

“This positive direction means that we can reduce reliance on inflation for rewarding stakers to maintain network security.”

Some supported the idea. But others said it was a solution looking for a problem.

“Changing inflation should be completely off the table,” one critic wrote at the time.

“It introduces an unquantifiable risk into the long-term financial modeling of the value of the token. What’s stopping the token from changing every quarter or month based on the current macro-economic conditions — like the Fed?”

Aleks Gilbert is a New York-based DeFi correspondent for DL News. You can reach him at aleks@dlnews.com.