Important Solana Tokenomics Update: The Double Disinflation

[nelson4lov]

There is an ongoing proposal in the Solana community right now that has drawn attention from some of the most important people in Solana ecosystem including Toly (Solana Co-founder),  Mert (CEO of Helius), and others.

The proposal is about reduction in Solana's inflation by doubling the disinflation rate and arriving at a floor in 3 years rather than 6 years.  Solana's inflation isn't fixed. It shrinks a bit each year until it hits a permanent 1.5% floor. Right now it shrinks by 15% per year. The proposal doubles that to 30% per year. Same 1.5% floor, but gets to the floor in ~2.8 years instead of ~5.7.

This is the current inflation progression for the next couple of years

Year | Current (15%)         | Proposed (30%)
-----|-----------------------|-----------------------
Now  | 4.5%                  | 4.5%
1    | 3.82%                 | 3.15%
2    | 3.25%                 | 2.20%
3    | 2.76%                 | 1.54%  → floor achieved
4    | 2.35%                 | 1.50%
5    | 2.00%                 | 1.50%
6    | 1.70%                 | 1.50%
7    | 1.50% → floor achieved| 1.50%

The proposal affects almost all users in solana community including normal users, stakers, DeFi power users, etc. For normal Solana users, the proposal means less dilution for their SOL bags aka numbers go UP in the near future.

For anyone that needs the nitty-gritty stuff:
Main proposal on Github: https://github.com/solana-foundation/solana-improvement-documents/pull/550
The Steelman Argument on X: https://x.com/brianlong/status/2088290242079953350

[asriloni]

Less inflation means less yield. Currently there are more than 65% SOL staked in the validators. So when the proposal will take effect, i guess people will pull out their SOL with the goes of time due to the unattractive yield by staking their SOL. It's hard to guess whether this idea will work to make the token sustain.

So let's take a look at ethereum who already cut its inflation three times. The price is going down instead of moving up. The rule less supply = more price was not even affecting ethereum's price.

I also think this is going to be the same with this proposal.

[crwth]

This could be a great experiment to see whether any crypto can reach the floor. I am imagining it as Bitcoin reaching the very last Bitcoin in 2140 in a way. In essence, it could compare what is in store for the future.

It's either an improvement or not, but it depends on the consensus, right?

[TastyChillySauce00]

The solana inflation even with yearly 15% decline is too much therefore this is a good news, from 2021 bullrun peak until today solana's supply has almost doubled, if not for the inflation, solana could've gotten an even higher price. I've been stressing about holding solana because the inflation is way higher compared to ETH despite having higher 24 chain rev, if the community wants, they could reduce the inflation rate to 1.5% floor instantly and the chain would still sustain because of the high daily chain rev, current inflation is still way too high but at least it's a good start.

[nelson4lov]

Less inflation means less yield. Currently there are more than 65% SOL staked in the validators. So when the proposal will take effect, i guess people will pull out their SOL with the goes of time due to the unattractive yield by staking their SOL. It's hard to guess whether this idea will work to make the token sustain.

So let's take a look at ethereum who already cut its inflation three times. The price is going down instead of moving up. The rule less supply = more price was not even affecting ethereum's price.

I also think this is going to be the same with this proposal.

Yes, that is the argument against this proposal. There are a lot of DeFi protocols that rely on the staking rewards and the yields from it and when that is cut, most of those protocols will simply have nothing to offer as the yield will now be too little. So the proposal is really not a one-size-fits-all. It has some benefits and some costs to all users of the protocol.

This could be a great experiment to see whether any crypto can reach the floor. I am imagining it as Bitcoin reaching the very last Bitcoin in 2140 in a way. In essence, it could compare what is in store for the future.

It's either an improvement or not, but it depends on the consensus, right?

Yes, there is currently discussions around the proposal. As expected, there are a lot of arguments against this proposal because there are people that rely on that solana yield to stay afloat and when that is taken away, they don't have much anymore.

The solana inflation even with yearly 15% decline is too much therefore this is a good news, from 2021 bullrun peak until today solana's supply has almost doubled, if not for the inflation, solana could've gotten an even higher price. I've been stressing about holding solana because the inflation is way higher compared to ETH despite having higher 24 chain rev, if the community wants, they could reduce the inflation rate to 1.5% floor instantly and the chain would still sustain because of the high daily chain rev, current inflation is still way too high but at least it's a good start.

When Solana was at $120 to $140 last year, the Mcap/FDV was closer to the figure it was when Solana was at $300 from years ago. So the price was like 50% less but at same mcap/FDV because the annual inflation increased the supply so much.

There is something I also didn't mentioned, This proposal will reduce the inflation by around 19M tokens which is around ~$1B at today's prices.

[asriloni]

Less inflation means less yield. Currently there are more than 65% SOL staked in the validators. So when the proposal will take effect, i guess people will pull out their SOL with the goes of time due to the unattractive yield by staking their SOL. It's hard to guess whether this idea will work to make the token sustain.

So let's take a look at ethereum who already cut its inflation three times. The price is going down instead of moving up. The rule less supply = more price was not even affecting ethereum's price.

I also think this is going to be the same with this proposal.

Yes, that is the argument against this proposal. There are a lot of DeFi protocols that rely on the staking rewards and the yields from it and when that is cut, most of those protocols will simply have nothing to offer as the yield will now be too little. So the proposal is really not a one-size-fits-all. It has some benefits and some costs to all users of the protocol.

The only benefit to decrease its inflation, and i think Sol dev has to taken a look at ethereum before they implement it. Just because they make Sol's supply becomes scarcity, then they expect it to always going straight with expectation to see the price to go up.

Ethereum price was around 3k at 2021, but it's decreasing almost a half even after ethereum foundation always cut their inflation. I think the idea to burn in the altcoin won't work unless the coin itself has a genuinse usefulness.

Don't compare it to BNB because BNB has binance as its main product while sol only has its chain.