Solana voting will prioritize 100% fee rewards for validators, highlighting governance issues amid ongoing community disputes
Where there are interests, there are conflicts; where there are conflicts, there is a community. Behind the seemingly calm proposal in the Solana validator community lies a struggle for interests, both overt and covert.Author: Frank, PANews
Where there are interests, there are conflicts; where there are conflicts, there is a community. Behind the seemingly calm approval of the Solana validator community's proposal lies a struggle for interests.
On May 28, the Solana validator community voted to approve the Solana Improvement Document (SIMD)-0096 proposal, which sends all transaction priority fees to validators, changing the previous distribution method of 50% for burning fees and 50% as rewards for validators. The aim is to improve validator income and network security. Although the proposal passed with a support rate of 77%, a multi-round struggle erupted among validators in the proposal forum regarding the token economic model, governance loopholes, and insider manipulation. PANews will provide an in-depth interpretation of the key topics discussed by the community and the potential impacts of the proposal's approval.
For Ecological Health or Validator Manipulation?
In fact, according to information on GitHub, this proposal was raised as early as December 2023. Initially, it was simply discussed among a few core developers through comments on GitHub. From the initial discussions, Tao Zhu, who proposed the plan, did not mention the reason for changing this ratio. Several developers participating in the discussion almost unanimously agreed with the proposal, conducted related tests, and changed this feature in the new version to allocate 100% of the priority fees to validators.
It wasn't until March 12 that Max Sherwood, co-founder of H2O Nodes, commented on GitHub: "Doesn't such a significant economic change require community discussion? The economy of validators will be greatly affected. It can be said to be at the expense of token holders, who will see an increase in supply issuance. This doesn't seem like a purely technical change. Where did this come from? There needs to be a heightened awareness of the change, and possibly some voting."
Subsequently, some developers who had previously participated in the discussion stated that this document was a final draft and could be discussed by the community. It wasn't until May 9 that the proposal was officially raised in the Solana validator forum and voting was initiated.
After the formal discussion began in the forum, several validators questioned the motives behind the proposal. A validator named Freedomfighter stated: "This proposal is full of lies and deception, aimed at benefiting only those allowed to vote. I don't care how it claims to achieve this through backdoor means; the intent is obvious, and greedy individuals will stop at nothing to sacrifice others for their own benefit. No one even provided data on these related transactions, which are so important that this proposal was formulated. After reading everyone's thoughts and opinions, I conclude that this is 100% false, a form of intimidation aimed at extracting more funds for validators."
Exposing Governance Limitations, Increasing Validator Rewards May Lead to SOL Inflation
The most questioned aspect of the proposal primarily concerns its impact on the SOL token model. Solana's token employs a dynamic inflation model. The initial inflation rate was 8%, which then decreases by 15% each year. Currently, Solana's inflation rate is about 5%. With the long-term development of inflation, the final inflation rate will stabilize at 1.5%. Some community members believe that the previous 50% burning of priority fees was an effective way to combat inflation and could even help achieve a deflationary effect for the SOL token. Once 100% of the priority fees are given to validators, this balance will be disrupted, affecting the direct interests of millions of SOL token holders.
Others in the community argue that since the amount of priority fees is not large, the impact on inflation is minimal. However, some opposing voices have pointed out that regardless of the size of the proposal's impact on inflation, there should be rigorous data calculations to verify it before voting, rather than voting directly without investigation. According to PANews' investigation, the recent total daily on-chain fees for Solana are about 6000 SOL. If 100% is allocated to validators, based on this average level, the annual increase in SOL on-chain would be over 2 million coins. This amount accounts for about 0.5% of the current supply.
Validator Laine stated, "The net economic impact of inflation is 0.2%," but did not specify the source of his calculations. His statement was rebutted by another member, Freedomfighter: "The economic impact still exists, whether it's 0.2% or 1%, or however you want to manipulate it to downplay the negative effects to make it sound favorable. It's like a criminal claiming, 'But I didn't steal a dollar; I only stole a penny,' trying to downplay the obvious facts to push the logic of this proposal is absolutely disgusting."
In addition to concerns about the inflation impact on the token economy, the most questioned aspect is the limitations of Solana's governance exposed during this voting process. In October 2023, the Solana community held a vote on governance rights, which showed that 71% voted for "validators only." During the discussions of this proposal, some members stated that the biggest beneficiaries of this proposal are the validators, and the voting weight is also determined by large validators. Therefore, this is a vote where "a small group decides the fate of millions." From this perspective, it is unfair to other members of the entire Solana ecosystem. Moreover, once this begins, many subsequent proposals may also revolve around the interests of validators.
Potential for Fake Volume Generation
In the previous 50% burning proposal, since half of the priority fees would be burned, there were rarely instances of validators and traders colluding to create fake fees. However, with 100% of the priority fees being paid to validators, it is likely that the aforementioned collusion between validators and traders to create fake transactions could occur, leading to fake transactions being prioritized, which would further harm network performance balance.
Additionally, some skeptics believe that this distribution mechanism may lead to a "rich get richer" phenomenon, where large nodes receive more priority fee rewards, further widening the gap between large and small nodes, thus exacerbating the centralization issue of the network.
Ultimately, the proposal passed smoothly amid numerous controversies, but PANews also noted that the participation rate in this round of voting was 51.17%, just over half. In fact, only 38.25% of the total votes were in favor, while 10.93% voted against. About 49% of the votes did not participate in this voting. As of now, the specific impact of the proposal to allocate 100% of priority fees to validators remains uncertain, but from the process of community debate, it is clear that Solana's governance process has many issues.
In contrast, the Uniswap Foundation has recently conducted a similar vote on fee switches, and the governance process of the Uniswap Foundation has gone through more than three months, including temperature checks (community discussions), pre-voting, code audits, and on-chain voting. Perhaps the Solana governance community can learn from Uniswap to ensure that the interests of token holders are not controlled by a minority.
