SIMD 0228 - The Growing Pains and Transformation of Solana

Author: Danny @IOSG

The SIMD 0228 proposal, an important decision that recently stirred the hearts of all participants in the Solana ecosystem, ultimately did not pass. The voter participation rate reached a historic high for Solana (nearly 50% of the total token supply), but the final percentage of supporting votes was insufficient to meet the supermajority threshold required for passage (66.67%).

The background of such a proposal is that Solana, after the launch of Trump’s token, has gradually transitioned from the on-chain frenzy brought by Memecoins to a calmer phase. The weekly trading volume has retreated from nearly $100 billion at the beginning of the year to no more than $10 billion, a 90% decline, now below the trading volume during the early rise of Memecoins. Alongside Memecoins, Solana became the most successful public chain of this cycle. As the Memecoin cycle gradually wanes, Solana also faces a transformation and the need to find a new positioning. It was at this time that Solana's largest capital supporter—Multicoin—proposed the 0228 proposal. The proposal sparked intense debate within the community. Twitter became the main battleground, with different stakeholders arguing their points and revealing their votes until the very last moment of the voting.

During the debate process of the proposal, we could see many echoes of past changes pushed within the Ethereum community. The window for the proposal itself was short, presenting many long-term considerations and short-term solutions, and of course, there were many interests that were not easy to articulate. However, its transparency allowed us to see the current attitudes and strategies of many Solana leaders.

Despite the proposal being rejected, Tushar from Multicoin, one of the proposers, still referred to it as "a victory," citing the high voter participation rate and extensive community discussion, which demonstrated Solana's decentralized governance capabilities.

Who is actually playing the game behind Solana's proposal governance? What does it mean, why did it not pass, and was the process just and successful? Let’s take a closer look.

SIMD 0228 ------ A Hasty Proposal

What is the 228 proposal? The 228 proposal aims to dynamically adjust the inflation rate based on the staking rate, with the goal of maintaining a 50% staking rate and gradually reducing the issuance rate of SOL.

Solana's current inflation model is a gradually declining curve over time. At the launch of the mainnet (March 2019), an inflation rate of 8% was set, which decreases over time. The current inflation rate is approximately 4.8%, with a long-term target inflation rate of 1.5%-2%.

If this proposal passes, short-term staking rewards will decrease (based on a staking rate between 1% - 4.5%), while the long-term inflation rate will approach 1.5%.

Currently, the staking rate is 70%, so if 228 passes, short-term staking rewards for SOL will decrease, long-term issuance will reduce, and staking yields will be adjusted in real-time based on the staking rate.

Unlike proposals like SIMD 0123, where validators could choose whether to opt in, 0228 is mandatory, meaning that once initiated, it will affect the interests of all stakers. Supporting Voices This proposal was put forward by Tushar and Vishal from Multicoin Capital, with support from Anza and former Consensys researcher Max. Their reasons include: # Reduce unnecessary token issuance and lower inflation costs Solana's current fixed inflation model is a form of "dumb emissions," as it does not take into account the actual economic activity or security needs of the network. Based on the inflation rate of 4.8% at the beginning of 2025, approximately $3.82 billion worth of new tokens would be issued annually (based on an $80 billion market cap). This high inflation essentially dilutes SOL holders, especially given the current staking rate of 65.7%—the network's security is already well ensured.

By passing this proposal, the concept of staking shifts from "overpaying to ensure security" to "finding the minimum necessary payment."

Interestingly, this point echoes the arguments made by some KOLs in Solana who previously attacked Ethereum's economic security, arguing that too many assets support an economy perceived as a "meme." # Release capital and promote DeFi ecosystem development The current high staking rate (65.7%) leads to a large amount of SOL being locked up, suppressing capital flow within the DeFi ecosystem. Kamino founder Marius pointed out, "Staking encourages hoarding but reduces financial activity," similar to how high interest rates suppress investment in traditional finance.

It is worth noting that the main supporters of DeFi protocols on Solana are also the VCs proposing the proposal, so releasing liquidity into DeFi is also a significant motivation. # Reduce the "leaky bucket effect" and enhance ecosystem autonomy The leaky bucket effect refers to the significant wear and leakage of value within the ecosystem during economic activities. Since the newly issued SOL due to inflation is considered ordinary income and is taxable in the U.S., the amount generated by inflation will proportionally extract value from the entire ecosystem. For Solana, approximately $650 million in taxes and about $305 million in exchange fees have already leaked out of the ecosystem.

From a first principles perspective, it essentially indicates that Solana has entered a stable phase, and the initially arbitrary inflation model has become unreasonable. The development of the chain should aim to enhance economic activity and correspondingly improve the inflation scheme.

Placeholder partner Chris summarized that real benefits should come from demand-side spillovers to the supply side, rather than continuing to use a fixed inflation setting that favors cold starts. In the long run, the supporters' arguments do have some merit. Once a public chain ecosystem has passed the cold start phase, it naturally requires a more ideal economic system to drive economic development. Opposing Voices A faction led by Solana Foundation Chair Lily opposed the passage of this proposal. The main point of contention was whether to implement this proposal in such a short time frame, rather than through a longer process that considers the significant changes in asset attributes that would affect different participants (engineers at the network layer, developers at the product layer, institutions at the economic layer). Currently, most discussions are among core network personnel and product layer personnel, with fewer voices from the product layer and institution-led economic layer groups that are further from the information channels. Therefore, it should not be rushed to pass before the arguments are sufficiently developed.

Many opponents expressed concerns about the potential loss of small validators. Small nodes are inferior to large nodes in both scale effects and bargaining power, so a reduction in inflation would first eliminate these smaller nodes, harming Solana's decentralization. However, after speaking with some Solana nodes, I found that most nodes still support passage, primarily due to Solana's substantial subsidies and a shared belief in the value of SOL as it continues to improve. There is a palpable sense of community cohesion within Solana, but that is a side note.

It is clear that both sides are dissatisfied with the current inflation model and agree that it needs improvement. The debate centers on whether to hastily implement changes within two weeks.

In addition, there may be some factors related to vested interests. The simplest is that a large number of SOL holders, especially those who can obtain higher returns from non-staking ecosystems (DeFi), naturally do not want inflation to remain at such a high level. The typical profile here is the VCs behind Solana and the projects they support.

An important aspect of Solana's current adoption is its direction towards institutions, including ETFs and more traditional institutional use cases. Therefore, those promoting institutional adoption will certainly hold opposing views. Regarding institutional adoption, whether the passage of SIMD is beneficial is controversial; supporters argue that traditional institutions are more averse to high-inflation assets, while opponents believe that traditional assets have greater uncertainty concerns regarding dynamically changing inflation rates. I believe that the uncertainty of the mechanism may hinder institutional adoption even more—institutions can evaluate asset attributes under the mechanism, but if this mechanism keeps changing, it creates obstacles for their assessments. Therefore, for institutions, it is either to pass quickly or to wait until initial adoption is completed before negotiating together—at which point, the entanglement of interests may make it even harder to pass.

Why Now? This raises the question of why such a hasty proposal was introduced and promoted.

Perhaps it is because Solana still retains a large trading volume in the aftermath of the meme phase, leading to high fees and MEV income for nodes, so adjustments to the staking mechanism would not provoke too much controversy. In 2024, Solana's total MEV earnings reached $675 million, with a clear upward trend; in Q4, the MEV earnings for nodes even exceeded inflation rewards. For this reason, nodes are currently relatively insensitive to short-term inflation income. If the Solana chain were to cool down completely, the income loss caused by this proposal would undoubtedly provoke opposition from the staking community.

Solana's Restaking is about to begin, with Renzo, Jito, and others already showing signs. Looking back at Ethereum's history, the emergence of liquid staking and Restaking will provide substantial subsidy benefits to stakers and validators, allowing nodes to reduce their concerns about inflation rewards.

The Ethereum Foundation also proposed improvements to the inflation curve last year, similar to anchoring the staking rate to a fixed ratio to reduce excessive staking. The argument at that time was to release more liquidity while reducing the substitutive effect of Lido ETH and other LSTs on ETH, given that economic security was already more than sufficient.

This proposal sparked a brief discussion after it was put forward. It was a moment for OGs to reassess Ethereum's economic mechanisms after the transition to POS. The proposal itself, along with the discussion process, presented a wealth of computational reasoning to support it, but ultimately, without a clear theoretical basis, the proposal did not advance. Ethereum's economic reasoning may have provided some reference for 228, but the opposition it faced also reflected the difficulties of passing such a "reduction" proposal.

The final result was not surprising. Perhaps under the Foundation's leadership, validators formed a bearish view of the proposal, coupled with concerns about institutional adoption. Or perhaps this decision was indeed too hasty, leading to a lack of consensus among validators and resulting in a divided vote. Alternatively, small validators may have reached a consensus on short-term income pressure and collectively chose to oppose it. The breadth of the discussion does not necessarily imply its depth; shallow discussions can lead to divisions. The hasty push for the proposal also reflects the current lack of clarity regarding the chain's positioning and the consensus pain points about the next steps after the memecoin supercycle.

The Governance Process is a Victory

Although this proposal was hasty, it sparked very transparent and open discussions in just a few weeks. Both sides spoke candidly on Twitter, with no moderates, directly stating their support or opposition and providing reasoning. This discussion model allowed everyone to understand both sides' considerations. At the most intense moments, a Space was even organized, where relevant parties expressed their views.

Another highlight was the acceptance of community voices. Many Solana projects/builders received responses to their candid suggestions on Twitter, which were also included in the discussions in the Space. The proposal was no longer an obscure formula but transformed into the voices of each community being raised for discussion. One point of criticism regarding the voting was that stakers could not directly participate in the opinion voting, leading to many contradictions among large nodes—how to coordinate the opinions of all stakers and provide a final decision. This is a problem that all public chains need to solve, and Solana has illuminated this issue for the first time.

The proposal attracted 74% of the staking supply to participate, demonstrating a high level of community engagement. The clear voting mechanism and passage threshold of SIMD made the decision-making process more transparent and predictable. In contrast, Ethereum's proposal decision-making process is relatively vague, relying mainly on discussions and consensus among core developers, lacking a formal voting mechanism.

Finally, there is the efficiency of the proposal. Even though we often criticize its haste, the proposal took no more than two months from introduction to voting completion, which is a testament to the efficiency of this ecosystem in implementing ideas from top to bottom. This is also why Tushar considers it a victory.

Conclusion

Overall, the SIMD 228 proposal reflects Solana's transition into a decision-making phase regarding institutional adoption and the continued development of on-chain consumer applications after the prosperous period of innovating asset issuance models. The emergence of conflicting interests in profit distribution was the catalyst for the entire event.

Supporters need to leverage this phase of vibrant on-chain activity to push for reforms quickly, but the haste led to intense yet insufficient discussions, with inadequate support and education for small validators, resulting in a lack of unified consensus among validators. The short lifecycle of the proposal also reflects Solana's execution capability and openness, making it an excellent governance case worthy of learning for all ecosystems.