VanEck’s head of digital assets research, Matthew Sigel, has warned that upcoming Solana network upgrades could significantly impact validator earnings while raising centralization risks.
Sigel outlined three major proposals — SIMD 096, SIMD 0123, and SIMD 0228 — in a post on X on Mar. 4. These proposals seek to improve Solana’s (SOL) economic framework but have the potential to reduce validator revenue by up to 95%.
Solana’s SIMD 096, implemented on Feb. 12, redirected 100% of priority fees to validators, eliminating the previous system that burned half of these fees. Staking payouts increased as a result, but off-chain trading agreements between validators and traders were deterred.
SimD 0123, which is currently up for vote, would further divert revenue away from node operators by requiring validators to pay priority fees to stakers.
SIMD 0228, the most contentious proposal scheduled for a vote on Mar. 6, would modify Solana’s inflation rate based on stake participation. The network’s yearly inflation rate would decrease from 4.7% to 0.93% if staking levels stayed at 63%. This would lower token dilution but also reduce staking rewards, much to the disadvantage of validators.
Validators are mainly concermed about the high operating costs required to run nodes. These include mandatory voting fees of 1.1 SOL each day (about $58,000 yearly) and hardware expenditures of approximately $6,000 annually. Since only 458 of Solana’s 1,323 validators own a sufficient amount of stake to turn a profit, smaller operators risk being forced out.
Lowering voting fees has been proposed by several community members as a way to alleviate financial strain. Despite the controversy, Sigel maintained that reducing inflation would benefit SOL in the long run by lowering sell pressure and supporting the token’s value.
Solana’s network activity remains strong. With $109 billion in February, the blockchain has surpassed Ethereum for the fifth consecutive month, demonstrating its dominance in decentralized exchange volume, according to DeFiLlama data.
The current plans, however, might render operating a node unfeasible for small validators, which could result in even more centralization.
