Matthew Sigel, the head of digital assets research at VanEck, has raised concerns that the upcoming upgrades to the Solana network could significantly impact validator earnings and heighten centralization risks.
In a post on X dated March 4, Sigel elaborated on three major proposals — SIMD 096, SIMD 0123, and SIMD 0228 — that are designed to improve Solana’s (SOL) economic framework, though these modifications could potentially cut validator revenue by as much as 95%.
On February 12, Solana rolled out SIMD 096, which reallocated all priority fees to validators, eliminating the previous method that burned half of these fees. This adjustment has led to higher staking payouts but has also discouraged off-chain trading arrangements between validators and traders.
The SIMD 0123 proposal, which is currently up for vote, aims to further channel revenue away from node operators by requiring that validators pay priority fees to stakers.
SIMD 0228, the most contentious proposal scheduled for a vote on March 6, seeks to modify Solana’s inflation rate depending on staking participation. If staking levels stay at 63%, the network’s annual inflation rate would decrease from 4.7% to 0.93%. While this reduction would lessen token dilution, it would also cut staking rewards, negatively affecting validators.
Validators have voiced serious concerns about the substantial costs related to operating nodes. These expenses include mandatory daily voting fees of 1.1 SOL (approximately $58,000 annually) and hardware costs of around $6,000 per year. Currently, only 458 out of Solana’s 1,323 validators have enough stake to turn a profit, posing a threat to smaller operators.
Many community members have suggested lowering voting fees as a way to reduce the financial strain on validators. Despite the ongoing discussion, Sigel asserted that decreasing inflation would ultimately favor SOL by relieving sell pressure and bolstering the token’s value.
Solana’s network activity remains strong, having outperformed Ethereum for the fifth month in a row with $109 billion recorded in February, illustrating its dominance in decentralized exchange volume, according to DeFiLlama data.
Nevertheless, the current proposals could render it challenging for smaller validators to maintain operational nodes, potentially resulting in greater centralization.
