Solana plans could reduce SOL issuance by $1.5 billion

Two governance proposals could drastically change Solana’s economy. SIMD-550 aims to double the annual deflation rate, causing the issuance of new SOL to fall much faster. SIMD-553, already approved on 20 July, introduces a burning fee on financial transactions. Together, the two proposals would reduce issuance by $1.4 to $1.5 billion over six years, according to research firm 21Shares.

Solana is available at OKX and Bybit.

In brief:

• SIMD-550 aims to double Solana’s deflation rate from -15% to -30% per year, reducing the staking yield to approximately 2.25% within three years.
• SIMD-553 has already been approved and increases daily SOL burning from 600 to 800 SOL to 7,500 to 9,000 SOL.
• Together, the two proposals target an issuance reduction of $1.4 to $1.5 billion over six years.

What exactly the proposals change

Solana’s current staking yield stands at approximately 5.25%, fuelled by three sources: protocol inflation (the largest, accounting for about 3.78%), transaction fees and MEV, the profit generated through high-frequency trading and arbitrage, which accounts for roughly 2% in additional annual returns.

SIMD-550 focuses on protocol inflation. By doubling the annual deflation rate from -15% to -30%, the network brings forward the terminal inflation of 1.5%: no longer around 2032, but already in the first half of 2029. The expected nominal staking yield would consequently drop to approximately 4.34% in year one, 3% in year two and 2.25% in year three.

SIMD-553 introduces a burning fee on compute operations stemming from financial activity on the network. According to 21Shares’ analysis, daily burning would rise from 600 to 800 SOL to 7,500 to 9,000 SOL, equivalent to $712.500 to $855.000 per day. That is a significant acceleration, but still insufficient to fully offset the current daily inflation of approximately $4.5 million.

Validators and stakers face lower income

The income reduction for stakers is direct: anyone staking SOL would see their income per unit roughly halve as the nominal yield falls from approximately 6% to 3%. In addition, validator costs under SIMD-553 could rise sharply, in the worst case up to 21 times the current level.

Under current projections for SIMD-550, two of the 738 validators would become loss-making in year one, rising to thirty by year three. Both proposals have now been submitted as official governance proposals and require a two-thirds majority through a stake-weighted vote to be adopted.

Lower issuance as a potentially positive signal

Historical comparisons show that similar measures on other networks were often received positively by the market. The Ethereum burning mechanism via EIP-1559 produced a price increase of 37% in the month after its introduction. The Cosmos proposal that halved the maximum inflation resulted in a gain of 25% in the following month. 21Shares does note, however, that external factors played a role in both cases and that historical performance offers no guarantee for the future.

Solana’s staking ratio stands at approximately 67.93%, nearly twice as high as Ethereum’s at 34.14%. A lower staking yield could direct capital towards DeFi and other applications on the network, which could increase activity and fee income over time. The ultimate effect depends on the outcome of the vote on SIMD-550 and the validator fees within SIMD-553 that have yet to be determined.