Solana rejects SOL inflation and expense plans

Solana has expressed its support for Solana's proposed charter and opposed two economic plans that could cut the issuance of 18.8 million SOL tokens and increase daily token destruction after the vote opens on August 22.

Summary

Solana will support SGP-0001 and vote against SGP-0002 and SGP-0003. SGP-0002 may reduce expected SOL circulation by 18.8 million units over the next six years. The Nasdaq-listed company said changes to pledge and fee rules could hinder institutional participation. A successful governance vote will guide policy direction, but will not automatically activate any proposal.

The company said in a press release on August 21 that it would vote for SGP-0001, known as the "Solana Charter," while opposing SGP-0002 (double deflation rate proposal) and SGP-0003 (resource and inclusive fee proposal).

On-chain voting on the first three Solana governance proposals is expected to begin on August 22. Solana trades on NASDAQ under the HSDT code, operates an institutional-level validator infrastructure in the Asia-Pacific region, and receives pledge proceeds from SOL treasury.

The company's support for SGP-0001 is based on the voting structure in the proposed charter. Under this system, pledge participants will receive transparent voting rights proportional to the amount they pledge, while token holders retain the right to override votes cast by the operator who manages their entrusted SOL.

According to the company, this structure provides a way for financial institutions to directly participate in influencing network decisions without having to cede voting rights to verifiers. Management said that adopting the charter will establish the necessary governance system to attract more institutional participants to join Solana.

Solana opposes changes to two economic rules

While supporting the governance framework, Solana stated that the first voting cycle should not be used to change Solana's token issuance schedule and transaction fee model at the same time.

Management described the goals behind SGP-0002 and SGP-0003 as reasonable. However, the company said institutions considering doing validator operations or pledge businesses need economic rules that can be modeled over many years.

In exchanges with financial institutions, Solana stated that token issuance itself is rarely mentioned as an obstacle. The question instead centers on whether Solana's economic rules can remain stable over the long term, allowing institutions to forecast revenue, costs and cash flows.

According to the press release, changing the two most stable economic parameters in the network during the first real-time governance cycle could delay decisions by companies that are already evaluating Solana. Therefore, the company characterized the two objections as objections to timing rather than a denial of the proposal's fundamental goal.

Joseph Chee, Chairman and CEO of Solana, said: "We firmly believe that institutional adoption is a key driver of Solana's growth, and that institutions make decisions based on a consistent and predictable structure." Chee added that the positions were disclosed to support institutional engagement and planned to work with other industry players as Solana's governance system evolves.

SGP-0002 will accelerate SOL deflation

SGP-0002 asked Solana voters whether the network should reduce token issuance more quickly. The related technical solution SIMD-0550 will double the annual deflation rate from 15% to 30%, while retaining Solana's terminal inflation rate of 1.5%.

Proposal estimates show that faster progress would reach the 1.5% bottom line in approximately 2.8 years, rather than 5.7 years. It is expected that token issuance will decrease by approximately 18.8 million SOL over the next six years, but this estimate does not represent a reduction in guaranteed supply.

According to the analysis of the proposal on August 9, SIMD-0550 entered the Solana Improved Document Library on July 23, with the status of "under review". Inclusion in the document library does not mean that the proposed change has been approved or activated.

Solana said it was not opposed to a possible end result of reduced circulation. The objection is to reopen a fixed timetable that has pushed inflation towards the terminal interest rate of 1.5%.

According to the company, for institutional holders, pledge yields can be expressed as audited and disclosed financial items. Some holders also view pledge rewards as operating cash flow, so changes in issuance are related to their revenue forecasts. The company said it may support revisiting the issue of accelerating deflation after SOL records sustained net capital inflows.

Solana's reliance on pledge income makes this issue have a significant impact on its own accounts. The financial report on August 15 showed that of the company's revenue of $2.526 million in the second quarter, pledge income contributed $2.512 million. During the quarter, it received 31,200 SOLs through pledge rewards and automatically re-pledged these tokens. Pledge income helped achieve gross margins of approximately 97%, but operating costs and losses on digital asset sales resulted in a net quarterly loss of $30.3 million.

SGP-0003 will replace predictable fixed fees

Solana also plans to vote against SGP-0003, which supports resource-based transaction fees and inclusive fees through SIMD-0553.

Based on this design, transaction costs will depend in part on the network resources consumed per transaction. Resources will be completely destroyed, making fees more closely related to network usage than Solana's existing fixed fees.

It has been estimated that under recent network conditions, the proposal could increase the daily SOL destruction volume from approximately 650 to between 7,500 and 9,000. The authors of SIMD-0553 later said early estimates were "misleading" and issued a series of possible results based on the previous month's activity.

Solana agreed that fixed fees do not accurately match fees to the network capacity consumed by transactions. However, management said the current fee is still a known expense that financial institutions can include in their budgets before using the network.

The company said that introducing variable transaction costs will transfer estimated risks to users and operators before they adjust the system. Management would consider a revised proposal that maintains a minimum fee floor that an agency can pre-calculate.

U.S. investors 'exposure to the Solana Pledge Rule

Since Solana Company is listed on the Nasdaq Capital Market, U.S. investors can indirectly gain exposure to SOL, pledge proceeds and verifier operations by holding HSDT shares without having to personally hold the token.

The company's financial results remain sensitive to SOL prices, pledge returns and funds raised through stock sales. In the second quarter, the company raised a net $7.9 million by selling approximately 3.08 million shares at $2.60 per share, while spending approximately $2.3 million to buy back 1.3 million shares.

Changes in the Solana token issuance schedule may also affect U.S. listed funds that pledge their SOL positions. An Aug. 11 fund report showed that Bitwise's Solana Pledge ETF held 8.18 million SOLs valued at $622.02 million as of Aug. 9, with 99 percent of the tokens pledged.

Bitwise reported an annualized total pledge yield of 6.21% over the past 90 days and a net yield of 5.84% after deducting pledge-related costs. The fund warned investors that rewards may change with network conditions and do not represent the ETF's investment performance.

A successful SGP vote will not immediately change Solana's token issuance or fee rules. Each proposal must be supported by at least 66.67% of the decisive pledge amount, which includes both yes and no votes but excludes abstentions.

Even if approved, SGP will only serve as a policy directive, not executable code. Developers still need to complete relevant Solana improvement documents, prepare software, and deploy changes through function switches.

Solana said it disclosed its position before the vote in order to let clients understand how its validator operator planned to vote. Under the proposed charter, underlying SOL holders could override the operator's choice by submitting a separate vote.