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SIMD-228: Solana's Proposed Market-Based Inflation Explained

SIMD-0228 would replace Solana's fixed, time-based token emission with a market mechanism that ties issuance to staking participation. What the proposal suggests, what arguments the authors put forward, and what effects on stakers, DeFi, and inflation are being discussed.

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Solana mints new SOL every day — similar to a central bank printing money to fund security. SIMD-228 asks: do we still need this much?

In plain terms: Imagine your home heating running at full blast year-round — whether it’s 90°F or 10°F outside. That’s how Solana’s inflation works today: a fixed amount of new SOL every year, regardless of what’s happening in the network. SIMD-228 proposes replacing that with a thermostat. When a lot of SOL is staked and the network is well-secured, the thermostat turns emissions down. When too little is staked, it turns them up — to attract more participation. The system would only create as many new SOL as actually necessary.

Core Idea

Solana’s token emission (newly created SOL per year) follows a rigid schedule today: roughly 4.35 % per year, blind to everything happening in the network. SIMD-228 would replace that schedule with a dynamic formula tying the issuance rate (amount of new tokens created) directly to actual staking participation (the share of all SOL actively securing the network). The more is staked, the fewer new SOL are created — because the network is already well-secured and inflation as an incentive is less needed. Validators (node operators who confirm transactions) now earn substantially from real fees and MEV (Miner Extractable Value — additional profits from transaction ordering). That was not the case in 2021. The proposal draws the logical conclusion: fixed emission “overpays” security today.

Overview

Solana’s token emission has followed a fixed, time-based schedule since February 10, 2021 (Epoch 150) — independent of what is actually happening in the network. SIMD-0228 is a proposal sitting in the Solana Improvement Documents repository since 2025 that would replace this schedule with a market-based mechanism. It would tie inflation to actual staking participation in the network.

This article explains what SIMD-228 proposes, what arguments the authors put forward, and what effects are being discussed in the market.

No financial advice. This article describes a protocol reform proposal and the arguments documented in Solana research. It is not a recommendation on SOL.

How Solana’s Current Emission Works

Solana’s current token emission is a fixed, time-based formula, activated with Epoch 150 (year 1 after genesis). Key properties:

  • Inflation rate (annual percentage of newly created SOL) starts around 8 % and reduces by approximately 15 % per year
  • Approaches a floor rate of approximately 1.5 % asymptotically (ever closer, never quite reaching it)
  • As of 2026, currently around 4.35 % per year
  • Emission is network-activity-blind — it does not know how much stake (SOL locked as network security) is active, how much MEV (Miner Extractable Value — extra profit from transaction ordering) is earned, or how much fee revenue the network generates

The accusation by the SIMD authors: today’s emission is “dumb emissions” — it does not react to real network conditions.

What SIMD-228 Proposes

The core: instead of a fixed curve, a function of staking participation rate.

Mathematically:

  • current inflation × (square root(target stake rate / actual stake rate)) ≈ new inflation
  • at current ~64 % stake participation, inflation would be significantly reduced compared to today
  • if stake participation drops, inflation would automatically rise again to attract validators back

This is a self-regulating mechanism: the network emits only as much SOL as needed to keep enough stake (locked SOL serving as security buffer) for security. SIMD authors call this the “Minimum Necessary Amount” (MNA — minimum amount of new issuance required).

The Authors’ Motivation

The SIMD names MEV growth as the central driver. Quoted directly from the proposal:

“According to Blockworks, in Q4 2024 MEV, as measured by Jito Tips, was approximately $430M (2.1M SOL), representing massive quarter-over-quarter growth. In Q3 Jito Tips were approximately $86M (562k SOL), Q2 was approximately $117M (747k SOL), and Q1 was approximately $42M (300k SOL).”

The argument: stakers earn much more today from real activity (MEV + priority fees (surcharge paid for faster transaction confirmation) + block rewards) than in 2021. The fixed inflation was needed back then to attract stake — today, with high stake participation and substantial MEV income, it is excessive.

The Four Central Pro Arguments

The SIMD names four reasons for Smart Emissions. Plain reporting of the arguments — no SolanaHub evaluation:

1. Centralization Reduction

High inflation dilutes non-stakers. Anyone who doesn’t stake loses proportional network ownership. At 10 % inflation: ~90 % wealth share lost over 24 years for non-stakers (simplified). Lower inflation reduces this mechanism.

2. DeFi Stimulus

The “risk-free” staking rate (baseline yield with no protocol risk) is today the implicit hurdle rate (minimum return threshold) for DeFi protocols. If staking yields 4.35 %, a DeFi protocol must deliver at least 4.35 % net — otherwise it’s not worthwhile for SOL holders. A lower staking rate gives DeFi more room.

3. Reduced Sell Pressure

Stakers in many jurisdictions must tax staking rewards as ordinary income (e.g. USA: up to 37 % federal plus state tax). To pay this, portions are often sold directly. Lower inflation = less tax-driven selling.

4. Cleaner Market Signals

Inflation distorts long-term price information. The SIMD compares: PoS inflation (Proof-of-Stake — consensus mechanism where validator participation is secured through locked tokens) is mathematically like a publicly listed company doing a small share split every two days — distorts comparison values.

Anza’s Theoretical Foundation

Parallel to the SIMD, Anza has published a more fundamental treatment of Solana’s issuance: Solana Issuance From First Principles.

The core formula:

$$U(i) = V(S(i)) + W(H(i)) - \lambda i$$

  • $U(i)$ = network utility as function of issuance $i$
  • $V(S(i))$ = security term (higher stake = better security, but diminishing marginal utility)
  • $W(H(i))$ = honesty term (incentive for honest validator behavior)
  • $\lambda i$ = “leaky bucket” costs (share of emissions lost through taxes and validator commissions)

Anza estimates $\lambda$ at 5–10 % (based on validator commissions (fee share retained by node operators) 4–8 % + tax effect). At current inflation of 4.35 % and FDV (Fully Diluted Valuation — market value of all SOL that will ever exist) of $120B, that yields an annual “leaky bucket” cost of **$522M** — in the same order of magnitude as Solana’s annual fee income.

Anza’s conclusion: at today’s issuance, Solana is likely above the optimum. This aligns with the SIMD-228 motivation.

Who Profits / Who Bears Costs

Again, plain reporting of documented effects from the SIMD and Anza post:

Suspected beneficiaries:

  • Non-stakers — less dilution
  • DeFi protocols — lower risk-free rate as competition
  • Long-term SOL holders outside stake — less inflation-driven value loss

Suspected costs:

  • High-commission validators — lower absolute rewards
  • Staking service providers (Binance, Coinbase) — business model margins
  • Tax-burdened stakers with high tax rates — lower nominally because of reduced reward (real effect ambivalent)

What remains unclear:

  • How the change affects Solana validator decentralization metrics
  • Whether the sqrt formula has the right sensitivity for market shocks
  • How liquid staking tokens (mSOL, jitoSOL, etc.) react to the changed yield rates

Current Status and Roadmap

As of May 2026:

  • SIMD-228 sits as GitHub PR #228 in the official Solana Improvement Documents repository
  • Author: tjain-mcc (Multicoin Capital)
  • A concrete mainnet activation timeline is not named in the PR
  • Anza’s parallel roadmap post Anza26 does not mention issuance reform directly, but SIMD-0123 (Block Revenue Distribution) as a related validator economics initiative
  • Discussions are running in Solana Foundation channels, devs, and staker communities

Important: a SIMD does not yet mean implementation. The process involves discussion, feedback iterations, and potentially multiple voting rounds before mainnet activation would be on the table.

What to Watch

  • How validator communities position themselves on the proposal (liquid staking providers, solo validators, exchange validators)
  • Whether alternative issuance models (e.g. from Helius, Jito, Foundation research) are filed as competing proposals
  • How liquid staking token yields would change after possible implementation
  • Whether SIMD-228 comes alone or in a package with other validator economics reforms (SIMD-0123 block revenue, scheduler bindings, etc.)
  • How Anza and the Solana Foundation communicate the official sequencing of reform packages

What This Means for You

SIMD-228 is not yet an approved protocol update — it is an active governance proposal under discussion among validators, developers, and the Solana community. Anyone holding SOL, staking, or using DeFi protocols on Solana will find here the context to follow this debate: why the current emission schedule exists, what a thermostat model would change, and which interests are in tension. The reform has structural implications for the network — the proposal represents Solana’s broader shift away from static incentive mechanisms toward reactive, data-driven protocol parameters.

Want to navigate this yourself? This article explains the concept. For the step-by-step path — wallet setup, security, staking, DeFi, and taxes — see the Solana Guide.

Sources

Related SolanaHub Content:

Related glossary terms:

#solana #simd-228 #inflation #issuance #staking #validator-economics #anza