Solana Foundation president cautions SIMD-0228 could spook institutions
In an X Spaces debate, Lily Liu urged Solana to take a more holistic approach to inflation
Artwork by Crystal Le
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Multicoin Capital’s proposal to change Solana’s emissions mechanism was introduced in January to generally positive reviews. But as a vote on the proposal draws nearer, more critics are emerging.
Perhaps the most notable skeptic has so far been Lily Liu, president of the Solana Foundation. In an X spaces debate Tuesday afternoon, Liu urged Solana to take a more holistic approach to inflation — and said institutional investors could be scared off by unpredictable staking rewards.
SIMD-0228 is a Solana governance proposal penned by Multicoin Capital, currently being shepherded by Anza lead economist Max Resnick. It seeks to replace Solana’s current pre-set emissions curve with a market-based mechanism that raises or lowers inflation based on the percentage of Solana that is being staked.
Solana emits SOL to leaders who propose blocks. Those validators pass the inflation along to SOL holders staking SOL with them. Some SOL gets siphoned off along the way to tax obligations for jurisdictions where staking rewards count as income or validators (like the ones run by centralized exchanges) who charge commissions. Resnick likens the government and CEX portions as water dripping out of a “leaky bucket.”
SIMD-0228 would lower Solana’s inflation from its current 4.5% to less than 1% under current staking levels. This would put less water in the proverbial leaky bucket. The proposal targets a 50% staking ratio, down from 63% currently, but emissions would be lower than their present levels in any event.
Perhaps unsurprisingly for a proposal sure to cut into validator revenue, SIMD-0228 has its share of critics as well.
Liu’s critiques have so far focused on the lack of data collection and analysis on the expected impact of SIMD-0228, as well as how market-based staking rewards could scare away larger capital allocators.
“Widely fluctuating yields turned away institutional demand” from ATOM, which also adopted a market-based emission approach, Liu said.
In an X Spaces Tuesday afternoon, Liu doubled down.
“We need to think about the asset ecosystem,” Liu said, noting that she had gathered feedback from institutional players indicating that investors tend to like reliable dividends. Liu also called for Solana to slow down and take time to develop a more “holistic” perspective on monetary policy.
SIMD-0228 proponents argue the proposal is good for institutional adoption because reducing emissions could help adoption of SOL ETFs, which are in the process of gaining SEC approval. The SEC is yet to approve staking ETFs for ether, and it’s unclear how ETF liquidity would be affected by having staking rewards to think about.
The vote on SIMD-0228 is currently set for Thursday, March 6.
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