Solana Votes to Redirect All Priority Fees to Validators, Abandoning 50/50 Fee Split

By Ben Knight May 28, 2024 In Solana, Stock Market
Logos of the cryptocurrency Solana (SOL) on a heap on a table. Copy space. Web banner format
Source:AdobeStock
  • Solana’s token mechanism is set for a massive shake-up.
  • Originally, priority fees were split 50/50 between validators and being burned, helping facilitate a deflationary currency.
  • The changes will now ensure 100% of priority fees collected are distributed to the relevant validators.
  • The community is undecided on the changes, with many claiming it will improve decentralisation while others suggesting that inflationary measures should be avoided.

Solana has passed one of the most controversial bills in the DeFi blockchain’s history. The proposal, SIMD-0096, is set to radically alter Solana’s current tokenomics, with the community tentatively prepared to embrace the changes. 

In the past, such polarising developments to key networks have resulted in community splitting (in what’s known as a fork). Solana is likely to avoid such a drastic reaction, however, the impact of the “upgrades” will have a lasting effect on both the blockchain and its community. 

Related: Standard Chartered Says Solana, XRP Could See ETF Launch by 2025

77% of Validators Voted In Favour of New Proposal

So, what’s the deal with SIMD-0099? Why has it split pundits down the middle?

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Essentially, the proposal will fundamentally change Solana’s token distribution. Traditionally, transaction fees on the blockchain were handled on a 50-50 basis – network validators received half, while the other half was burned. The result of this was a largely deflationary currency.

The new changes, passed with a vote of 77%, are set to ensure that network validators receive 100% of priority transaction fees, removing the burning mechanism almost entirely. Priority fees are incurred when blockchain users want to speed up the settlement of their transactions (important when milliseconds can impact DeFi earning strategies).

The vote receiving over ¾ support suggests that the community should be (mostly) happy about the changes – however, remember, validators control the Solana vote. So in essence, validators voted in favour of giving themselves more money, which is hardly a shock.

The negatives of the new proposal are fairly obvious. Solana will become steadily more inflationary with more tokens in circulation – although some believe it would only increase inflation by an insignificant amount.

On the flipside, there are plenty of positives to mull over too. Incentivising more validators to contribute to the network will provide a greater level of security and decentralisation to Solana, something it has come under fire for. It may also add a level of stability during periods of congestion, which has seen several network dropouts in the past. 

The implementation of the new token distribution is still a few months away, but the market has reacted strongly, with SOL trading nearly 10% lower on the week.

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Ben Knight
Author

Ben Knight

Ben Knight is a writer and editor from Melbourne with a passion for all things music and finance. He enjoys turning complex topics – especially the technical details of cryptocurrency – into digestible bites that anybody can understand. He acquired his Master’s in Writing, Editing and Publishing from RMIT in 2019 and has run his own creative writing business ever since.

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