Matthew Sigel, VanEck’s head of digital assets research, has raised concerns that upcoming upgrades to the Solana blockchain could significantly reduce validator earnings and potentially increase centralization risks.
In a post shared on X on March 4, Sigel outlined three key proposals — SIMD 096, SIMD 0123, and SIMD 0228 — that aim to enhance Solana’s economic framework. While these proposals may help improve the overall network, they also have the potential to slash validator revenue by up to 95%.
Key Proposals and Their Impact
SIMD 096: This proposal, implemented on February 12, directed 100% of priority fees to validators, effectively eliminating the previous system that burned half of the fees. While staking payouts were boosted, the proposal discouraged off-chain trading agreements between validators and traders.
SIMD 0123: Currently up for vote, this proposal seeks to divert more revenue away from node operators by requiring validators to pay priority fees to stakers, further cutting into their earnings.
SIMD 0228: The most contentious of the proposals, SIMD 0228, is set to be voted on March 6. It suggests adjusting Solana’s inflation rate based on staking participation. The proposal would decrease the annual inflation rate from 4.7% to 0.93% if staking levels remain at 63%. While this would reduce token dilution and help support SOL’s price, it would also decrease staking rewards, negatively affecting validators’ income.
The Risk of Centralization
Solana’s validators are particularly concerned about the high operating costs associated with running nodes. These costs include mandatory voting fees of 1.1 SOL daily (roughly $58,000 annually) and approximately $6,000 in hardware expenses per year. Currently, only 458 of Solana’s 1,323 validators possess enough stake to turn a profit, leaving smaller operators vulnerable to being pushed out of the network.
Several community members have proposed lowering voting fees to ease the financial burden on validators. Despite the controversy surrounding these proposals, Sigel believes that reducing inflation would benefit SOL in the long term by lowering sell pressure and supporting the token’s value.
Solana’s Strong Network Activity
Despite the concerns surrounding validator profitability, Solana’s network continues to perform strongly. In February, Solana surpassed Ethereum for the fifth consecutive month in decentralized exchange volume, reaching $109 billion, according to data from DeFiLlama.
However, Sigel warns that the current proposals could make operating a node financially unfeasible for smaller validators, leading to a more centralized network. This shift could undermine Solana’s decentralized ethos, as larger operators would hold a greater share of the network, consolidating power among a few key participants.
The upcoming changes could reshape the Solana ecosystem, with significant implications for its validator community and long-term network decentralization.
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