Understanding SIMD-0228
A Market-Based Emission Mechanism for Solana
Introduction
Solana’s current staking emissions follow a fixed time-based schedule, which does not adjust dynamically based on network conditions. SIMD-0228 introduces a market-driven emissions model that reduces issuance as staking participation increases. The goal is to optimize security spending, prevent unnecessary inflation, and reduce selling pressure on SOL.
This article explores how SIMD-0228 works, its expected impact on Solana’s token economy, and why it seems like a logical step given current staking dynamics.
How SIMD-0228 Works
The proposal ties token emissions to the percentage of SOL staked. Instead of following a rigid schedule, issuance is adjusted based on the following formula:
Where:
= new issuance rate
= base inflation rate (currently 4.5%, decreasing to 1.5%)
= fraction of total SOL supply staked
= constant (~3.146) that steepens the curve when staking is low
This means: ✔ If staking is high (e.g., >50%) → Emissions drop significantly, minimizing inflation. ✔ If staking drops too low (e.g., <33%) → Emissions increase sharply to attract stakers back. ✔ The system aims to balance inflation while ensuring enough SOL is staked to secure the network.
Expected Emission Rates at Different Staking Levels
Based on the formula, here are the expected issuance rates at different staking participation levels:
50% staked → 1.32% issuance rate
40% staked → 2.97% issuance rate
33% staked → 4.57% issuance rate
25% staked → 6.40% issuance rate
20% staked → 7.69% issuance rate
This table highlights how issuance remains low when staking is stable (~50%) but increases aggressively if staking participation drops below the 33% threshold. This ensures that Solana remains secure while preventing unnecessary inflation during times of high staking participation.
Solana Staking Trends Over Time
Solana’s staking participation has remained relatively stable over time, fluctuating within a narrow range of approximately 10% since epoch 180. This suggests that staking demand is relatively inelastic, meaning that validators and stakers have shown a consistent preference for locking their SOL, regardless of short-term market conditions.
Key Observations:
Historical Stability: Despite fluctuations in SOL price, the percentage of staked SOL has remained between 50–65% for most of Solana’s history.
Short-Term Dips & Recoveries: Occasional sharp declines in staking participation have been observed, but they tend to recover quickly, indicating that large-scale unstaking events are rare and temporary.
Minimal Sensitivity to Yield Changes: Unlike DeFi liquidity providers who frequently shift capital for higher yields, Solana stakers appear less reactive to changes in staking rewards, reinforcing the argument that staking demand is relatively inelastic.
This historical trend is crucial when evaluating SIMD-0228 because it suggests that, under normal conditions, staking participation is unlikely to fall significantly below the 50% threshold for an extended duration, where emissions would sharply increase. Instead, the primary effect of SIMD-0228 will likely be a sustained reduction in inflationary pressure while maintaining network security.
Why This Is Useful for Solana
Solana Validators Are Already Profitable
MEV revenue for Solana validators has exploded, with Jito Tips reaching $430M in Q4 2024.
Many validators no longer rely on high emissions for profitability, making excessive issuance unnecessary.
Reduces Sell Pressure on SOL
Lower staking emissions mean fewer SOL rewards being distributed and sold.
If emissions decrease from 4.5% to ~1.3% (assuming 50% staking), it significantly reduces inflation-driven sell pressure.
Solana Staking Participation Is Extremely Stable
Historical data shows that total staked SOL has only fluctuated by ~10% since epoch 180.
This suggests that staking demand is relatively inelastic—stakers are not quickly reacting to small yield changes.
If staking remains steady, this proposal effectively acts as a permanent inflation reduction.
Maintains Security While Lowering Costs
Since staking remains high, security is not compromised by lower emissions.
The model only raises issuance if staking drops too much, ensuring security incentives remain intact.
What Will Happen If SIMD-0228 Is Implemented?
1. Staking Emissions Will Drop
Since staking is currently at 62%, the issuance rate would be approximately 0.73% per year, which is a significant reduction from the current 4.5%.
2. The Inflationary Impact of SOL Will Decline
Less issuance means lower dilution for holders and less selling pressure from validators cashing out rewards.
3. Staking Yields Will Adjust, but Security Remains Strong
Since validators already earn significant MEV and fees, most will likely continue staking despite lower rewards.
4. Solana’s Monetary Policy Becomes More Efficient
This makes Solana’s issuance schedule responsive to market conditions, ensuring that tokens are only issued when needed to maintain security.
Conclusion: A Smart, Market-Based Emission Model
SIMD-0228 introduces a dynamic, responsive staking emissions system that reduces unnecessary inflation while keeping Solana’s security intact. Given the historical stability of staking participation (~10% fluctuation since epoch 180) and the growing profitability of validators through MEV and fees, the proposal seems like a strong step toward a more efficient Solana economy.
If adopted, this could make SOL a more attractive long-term asset by reducing inflation-driven sell pressure while ensuring that validators continue securing the network. It’s a deflationary upgrade that benefits both the ecosystem and token holders.
Additionally, this mechanism appears to reduce inflation in good times and help keep stake around 50% in bad times, but its effectiveness will ultimately be tested when SOL’s price is under heavy pressure.