Ethereum and Solana reconsider their inflation plans

Both Ethereum and Solana face a similar question: how much token issuance is actually needed to maintain network security? Galaxy Research examines why both networks are reviewing their inflation models and what that could mean for expectations around ETH and SOL supply.

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In brief:

• Ethereum and Solana are rethinking their inflation models, but no decisions have been made yet.
• Lower inflation could improve the supply-demand balance, while higher inflation maintains pressure on supply.
• Network participants are increasingly linking security costs to token value, which could adjust market expectations.

Security budget takes centre stage

Lucas Tcheyan, vice president at Galaxy Research, explains in an analysis that both the Ethereum and Solana communities are asking the same core question: how many tokens need to be issued to adequately reward validators for securing the network? That discussion is still ongoing and has not yet led to a concrete decision.

Inflation rates largely determine how the future token supply develops. A reduction in inflation could bring supply and demand into better balance, while stable or higher inflation continues to increase supply and thereby puts pressure on the price. Tcheyan states that participants in both networks are increasingly linking security costs to token value, which could lead markets to adjust their expectations about ETH and SOL supply.

Inflation as a temporary tool

According to Galaxy Research, inflation worked well as a launch mechanism in the early phase of both networks. Validators were paid to secure chains that saw little activity, and that issuance gave both ecosystems time to grow. That approach, however, has a shelf life. In the long term, it is healthier if validating is an activity driven by demand for block space rather than by continuous token issuance.

Supply-side adjustments can help at the margin and provide a better narrative for the market, but they do not solve the underlying problem. Demand is the determining factor for the true value of ETH and SOL. Both networks have recently worked on better technology, broader institutional adoption and more accessible products for retail investors. According to Galaxy Research, that priority must remain at the forefront. The concerns that a possible Ethereum proposal on inflation raises about decentralisation and centralisation risk are relevant in the longer term, but should not stand in the way of the focus on growth now. The Ethereum price is currently trading around $1.9K, an increase of 0.4% in the past 24 hours.