Original | Odaily Planet Daily (@OdailyChina)
Author | Azuma (@azuma_eth)
Due to multiple reasons, Solana (SOL), which was once highly anticipated by the market, has recently performed poorly.
The reasons are: first, the overall market has seen a significant correction; second, the meme market has cooled down, leading to a decrease in SOL demand; and third, SOL experienced the largest token unlock in history on March 1 — this unlock was sourced from the bankruptcy auction of FTX, with buyers including Galaxy, Pantera Capital, Figure, and other institutions participating in the bankruptcy auction, totaling approximately 11.2 million SOL unlocked, accounting for 2.4% of the circulating supply.
However, looking at the social media dynamics of the top KOLs in the Solana ecosystem, it seems that few are discussing price and unlock-related matters. In contrast, top figures in the ecosystem, including co-founder Toly (Anatoly Yakovenko) and Multicoin Capital founder Kyle Samani, are frequently discussing a potential upgrade plan called SIMD-228.
What is SIMD-228? How will it affect the operation of Solana and the market performance of SOL? We will analyze it in the following text.
What is SIMD-228?
In short, SIMD-228 is an upgrade plan regarding the staking and inflation mechanism of SOL.
SIMD-228 was initially proposed by Tushar Jain and Vishal Kankani from Multicoin Capital and has received support from Toly and Max Resnick, the chief economist of Anza (the main client operator on Solana).
SIMD-228 aims to link the inflation rate of SOL to the staking rate, specifically:
When the staking rate is below 50%, the inflation rate increases to encourage more staking.
When the staking rate is above 50%, the inflation rate decreases to reduce rewards.
According to estimates from the Solana community, based on the current staking situation of the Solana network, SIMD-228 is expected to reduce the annual inflation rate of SOL from 4.5% to as low as 0.87%.
- Odaily Note: The so-called massive unlock on March 1 "only" accounted for 2.4% of the circulating supply, if SIMD-228 is passed, the reduction in circulating supply due to the decrease in inflation rate within a year could reach 3.63% (4.5% - 0.87%).
What is the community's attitude?
Since SIMD-228 was included in the agenda, discussions within the Solana community regarding SIMD-228 have been polarized. Supporters believe that the plan can significantly improve the economic efficiency of the Solana network by reducing the inflation rate to suppress selling pressure; opponents worry that this move will exacerbate the centralization risk of the network and harm the interests of smaller validation nodes.
Proponents' Views and Logic
The main logic of those supporting SIMD-228 includes three points:
Improving network efficiency: SIMD-228 can adjust network demand through a dynamic inflation mechanism, avoiding inefficiencies that may arise from a fixed inflation rate.
Reducing inflation rate: SIMD-228 can reduce future selling pressure in the market by lowering the inflation rate, potentially increasing token value and attracting more long-term investors.
Incentivizing staking: When the staking rate is low, SIMD-228 can incentivize more users to stake by increasing inflation rewards, thus maintaining the decentralized security needs of the network.
Opponents' Views and Logic
Centralization risk: The community is concerned that large validation nodes may profit by manipulating the staking rate, thereby increasing the centralization risk of the network and undermining Solana's core value.
Harming the interests of small validation nodes: Some community members worry that under the new mechanism of SIMD-228, small validation nodes will find it difficult to be profitable, squeezing their survival space.
Uncertain rewards and complex parameter settings: A dynamic inflation rate may make it difficult for staking users to predict future probabilities, increasing the complexity of investment planning and affecting their long-term participation motivation.
Kyle Samani calls for a vote: Don't let Solana become Ethereum!
As the top advocate for SOL, Multicoin Capital founder Kyle Samani also released several posts today, calling on the community to vote on SIMD-228. The full content is as follows:
The discussion about Solana SIMD-0228 is overwhelming.
Tushar and Vishal have shared their views on multiple forums. I would like to share my perspective here as well.
I believe that almost everyone agrees that the current inflation rate is too high. I agree with this.
The opposition seems to focus mainly on the following points: "We don't exactly know what inflation rate target should be set"; "We don't know what impact this will have on validators, especially in a bear market, where the impact is even more uncertain"…
I think there are several issues with this reasoning:
a) False precision. Even if you analyze hypothetical situations and try to predict what the world will look like, I can guarantee that your model is still largely wrong; b) Don't get caught up in the pursuit of perfection.
I am not at all worried about consensus security.
Considering the time required for unstaking (about two days), a significant proportion of the staked amount is not sensitive to changes in yield.
Concerns about validator profitability are reasonable. I expect at least 100 validators to exit the network, possibly more.
The largest cost for validators does not come from hardware, electricity, and bandwidth priced in dollars, but from voting costs (currently about 2 SOL per day).
Max and many others have recognized this issue and proposed solutions.
Will future proposals that reduce voting costs be much slower than we expect? Yes, there is that risk.
Is this possibility high? I don't think so, because I don't believe any stakeholders want the voting costs for validators to be higher.
If we require Solana to have too much structure and planning, we will become Ethereum, paralyzed by over-analysis.
We must push things forward as quickly as possible; this is crucial. We won't get it perfect the first time, but that's okay.
The history of Solana is one of rapid action, and we cannot become complacent now.
Everyone generally recognizes the need to take action in this regard. So, let's take action while minimizing collateral damage in the process.
Don't let Solana become Ethereum!
Timeline
According to the current timeline, voting on SIMD-228 is expected to begin on March 6 during epoch-753.
Considering the current upper-level sentiment, I personally tend to believe that the proposal will likely pass, but there will still be considerable opposition. However, as Kyle Samani said, nothing can be done perfectly the first time. In the future, the Solana Foundation may need to alleviate disputes by optimizing the governance model and balancing the reward mechanism.
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