Solana anti-inflation vote dramatically passes, SOL will cut production

Solana Network approved deflation acceleration proposal that will significantly reduce SOL's annual additional issuance.

Solana Network validators voted today to approve a proposal to double the deflation rate of tokens. This means that the number of new SOLs issued each year will be significantly reduced in the future.

This is undoubtedly good news for SOL investors. They generally believe that today's vote will drive SOL prices higher in the future. However, this process has not been smooth sailing.

Solana Verifier today completed the first binding governance vote in web history. This was a vote based on pledge weights and was conducted through the new Solana Governance Proposal System (SPG), allowing verifiers and their clients to exercise voting rights on the chain for the first time.

Today's proposal packs three elements, but each has a different destiny.

The most eye-catching of these is SGP-0002 "Double Deflation" proposal. The proposal was passed with only a narrow margin-of the 1326 votes, 67.0%(176.29 million SOL) were in favor and 66.19 million SOL were against, with a voting rate of 60.7%.

The proposal originated from the SIMD-550 proposal submitted by engineers from infrastructure company Helius. The proposal that has now been approved increases Solana's deflation rate-the rate at which new token issuance shrinks each year-from 15% to 30%.

Solana's inflation rate would have declined slightly every year and would eventually stabilize at a fixed lower bound of 1.5%. The SIMD-550 proposal only accelerates the process, allowing inflation to reach that floor in 2029 rather than 2032. This means approximately 18.9 million SOL circulation will be reduced over the next six years.

The net result is that the amount of SOL in circulation will decrease each year. If demand growth coincides with supply tightening, this may be positive for token prices in the long run.

However, this change is not without cost. Because the inflation rate (i.e., the amount of new tokens issued) is paid to those pledgers (individuals and companies) who lock in SOL to maintain network security through the reward form of "revenue". As 21Shares said, if the issuance volume is reduced, the pledge yield will drop from the current approximately 5.25% to approximately 2.25% within three years.

This may be why some pledge service providers (such as cryptocurrency exchange Kraken) initially voted against the deflation proposal today, while others (such as Galaxy) reversed their stance at the last hour after initially abstaining (which effectively amounts to opposition).

Kraken nearly aborted the SGP-0002 proposal. The exchange, which has 8.92 million SOL votes, opposed the double deflation proposal throughout the vote count process, but reversed its stance at the last minute. "Custodians should act as channels, not voices," Kraken co-CEO Arjun Sethi wrote in response to Helius CEO Mert Mumtaz.

Mumtaz, who had lobbied Kraken and other agencies to support the proposal, welcomed the shift after Kraken changed his stance. Since the yes vote is 67.0%, and the passage threshold is 66.67%, the direction of millions of SOL votes is enough to determine the success or failure of the proposal.

In addition to the deflation debate, Solana validators need to consider today other matters that will affect the future of the network.

Proposition SGP-0001, the "Solana Constitution", is the easier one. It formally established the future operation of the voting system and received 86.0% support for participating in pledge weights-of 1153 votes, 193.65 million SOL votes were in favor and 4.63 million SOL votes against, with a voting rate of 52.0%.

Another economic controversy was the failure of SGP-0003,"Resources and Inclusive Fees," which was adopted.

Its approval vote was 53.9%-142.84 million SOL in favor, 50.15 million SOL against, and another 72.03 million SOL abstained-well below the two-thirds threshold. The proposal originated from the SIMD-553 proposal submitted by research and development firm Temporal, which originally planned to split Solana's transaction fee in two: one was the basic "inclusion fee" paid to the verifier, and the other was a new "resource fee" linked to transaction calculation usage, which would be directly destroyed.

This change would have increased the daily SOL destruction volume from approximately 650 SOL (approximately US$48,000) to as much as 9000 SOL (approximately US$668,000), an increase of 12 to 14 times. The proposal passed a code review by Solana's two client teams (Anza and Firedancer) on July 20; the vote focused on whether to enable the feature, not whether it was ready.

Nasdaq-listed finance company Solana Company (code HSDT) supported the constitutional proposal but voted against the two economic reforms, citing the timing as a bad time for institutional pledgers who wanted predictable returns. DeFi Development Corp voted against all three proposals and subsequently purchased 19,000 SOLs for $1.86 million.

SOL prices have risen this week on expectations of tight supply, rising about 44% in the month before the vote. After the failure of SGP-0003 proposal, the price trend reversed. On August 28, the daily candlelight chart on Coinbase opened at $109.18, peaked at $110.14, then fell to a low of $103.63, and finally closed at $105.00-down 3.83% from the opening price and about 5.4% from recent highs of around $111.