Solana Implements Upgrade, Here's What You Need to Know

Bittime - Solana announced plans to implement two major protocol upgrades referred to as Solana Improvement Documents (SIMDs). How will this impact the network? Check out the details here!

This upgrade aims to increase network efficiency and strengthen the long-term sustainability of the Solana ecosystem. However, behind this optimism, there are concerns that arise, especially for validators whose income could be cut by up to 95%. 

So, what are the details of this upgrade and how will it impact the Solana ecosystem? Here's the review.

Latest Update Solana Upgrade

This March, the Solana validator community will vote on two protocol improvement proposals, namely SIMD 0123 and SIMD 0228. 

Both are designed to optimize the distribution of staking rewards and adjust the SOL token inflation rate to be more stable in the future. The following is the explanation:

1. SIMD 0123: Priority Fee Distribution for Stakers

This first proposal aims to distribute "priority fees" to validators who also act as stakers. As an illustration, Solana users can pay additional transaction fees so that their transactions are processed more quickly. 

Currently, validators receive 40% of network revenue through this mechanism, but they are not obliged to share it with stakers. If this proposal is approved, validators will have to distribute the fees, thereby increasing incentives for those staking SOL.

Read also: Solana Will Release 11.2 Million Tokens! This is the SOL Price Prediction after Unlock

2. SIMD 0228: SOL Inflation Rate Adjustment

The second proposal is a bigger change, namely adjusting the SOL token inflation rate based on the percentage of total supply that is being staked. 

The aim is to reduce selling pressure from stakers who consider staking rewards as passive income. Currently, SOL's inflation rate is at 4%, down from 8% at Solana's initial launch, but still higher than the final target of 1.5%. 

With this change, SOL inflation will decrease gradually and be more stable in the long term.

Impact of the Upgrade on the Solana Ecosystem

Although this upgrade aims to strengthen the Solana network, there are concerns from validators, especially small-scale ones. 

If SIMD 0123 is implemented, validators will have to share most of their income with stakers, so their profits will be drastically reduced. Some analysts estimate that this revenue cut could be as high as 95%, which risks driving small validators out of the ecosystem.

Read also: Solana Price Prediction and Analysis for the Next Few Days

However, on the other hand, this step can encourage better decentralization. Because, increased staking incentives will attract more users to participate in the network. 

With lower inflation, the value of SOL could also be more stable, reducing selling pressure from long-term token holders. What is the next Solana price movement?

FAQ

1. What is the purpose of the Solana upgrade?

This upgrade aims to improve the security and sustainability of the Solana network, as well as adjust the distribution of validator income and the SOL inflation rate.

2. How will the Solana upgrade impact validators?

Validators may experience income cuts of up to 95% if they have to distribute priority fees to stakers. This can be a challenge for small validators.

3. When does the Solana upgrade take effect?

This proposal will be submitted for voting by Solana validators in March 2025. If approved, implementation will take place in stages.

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Reference 

AInvest, Solana's Upgrades: Slashing Validator Earnings, Boosting Staking Rewards, accessed March 5, 2025.

Cointelegraph, Solana upgrades will strengthen network but squeeze validators — VanEck, accessed March 5, 2025.

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