SIMD-550: Why Solana Should Double Disinflation

Actionable Insights

• SIMD-550: Double disinflation proposes updating Solana’s inflation schedule by increasing the disinflation rate from -15% to -30%, doubling the pace of inflation decline. This allows inflation to reach the long-term terminal rate of 1.5% in 2.8 years (H1 2029), rather than 5.7 years (H1 2032).
• Our modeling indicates the proposal would reduce emissions by 18.9M SOL, or ~$1.51B, over six years, while gradually reducing nominal staking yields from ~5.84% to ~4.34%, ~3.00%, and ~2.25% over the first three years.
• Doubling disinflation is expected to have a muted impact on the number of profitable validators, with 2 validators out of 738 transitioning from profitable or breakeven to unprofitable in year one, 13 in year two, and 30 in year three.
• SIMD-550 is an updated version of SIMD-411 (Nov ‘25), which was closed due to inactivity while the ecosystem waited for new tooling that allows not just validators but also stakers to participate in governance. The original doubling disinflation discussion thread was set up by Austin Federa (Mar ‘25).
• SIMD-550 can be seen as one component of a broader, renewed effort to improve Solana’s tokenomics. Other components include SIMD-553, which proposes adding a new resource fee that is burned, and Alpenglow’s Validator Admission Tickets (VAT).

Introduction

Solana has moved beyond the need for aggressive bootstrapping. The network has matured into a high-throughput, institutional-grade ecosystem, and the elevated token issuance that helped support its early growth has reached its natural conclusion. We believe Solana’s monetary policy should evolve accordingly: away from bootstrapping and toward a more sustainable inflation schedule suited to a mature network.

In this article, we make the case for reducing inflation and, more specifically, for why SIMD-550 is the preferred approach. We then present our modeling of the proposals’ expected effects, including changes to the inflation curve, emissions, total supply, nominal staking yields, and validator profitability.

The Case for Inflation Reduction

This section outlines the broader rationale for reducing Solana’s inflation rate, independent of the specific mechanics of SIMD-550. Many arguments are built on the economic considerations raised during the SIMD-228 discussion.

Inflation’s Job is Largely Over: Inflation was necessary to bootstrap the network. That is, it was necessary to distribute stakes, secure a young chain, and seed participation. That job is largely over: Solana is an established network with strong institutional, enterprise, and developer segments. The bulk of the unlocks are behind us. Now, continued high issuance mostly adds unnecessary selling pressure without the buying that bootstrapping it used to provide.

Plugging the Leaky Bucket: High token inflation increases selling pressure, as some stakers, especially in certain jurisdictions, treat staking rewards as ordinary income and must sell a portion to cover taxes. Max Resnick’s analysis outlined a 17% “leaky bucket” tax on inflation (i.e., the gap between ordinary income and the 20% long-term capital gains rate). When governments, centralized exchanges, and custody providers take significant cuts of staking rewards, even small reductions in issuance can save the network hundreds of millions of dollars per year.

Distortion of Price Signals: Inflation creates persistent downward price pressure, distorting market signals and hindering fair price comparison. In traditional financial terms, PoS inflation is akin to a publicly traded company executing a small share split every two days. Most charts, dashboards, retail investors, and external observers fail to account for inflation in their analysis, distorting perceptions.

A healthy price chart is one of the most effective marketing tools for any ecosystem, influencing not just traders but all participants. In crypto’s psychologically driven markets, price serves as a Schelling point, acting as the key indicator of an ecosystem’s overall health.

Penalizing Network Use: High inflation penalizes the active on-chain use of SOL for activities such as participating in liquidity pools, trading NFTs, or placing order-book bids. Higher staking returns encourage hoarding and reduce financial activity. The effect mirrors traditional finance: higher interest rates raise the risk-free rate and reduce borrowing and spending. In Solana’s case, the “risk-free rate” is the native staking yield.

While Solana’s mature and robust Liquid Staking Token (LST) infrastructure may help mitigate some of these adverse effects by enabling active use of SOL without dilution, it also introduces additional costs. These include additional smart contract risk, user experience friction, liquidity fragmentation across tokens, potential slippage when swapping in and out of LSTs, and the burden on users to understand the mechanics of staking liquidity.

Renewed Focus on Solana’s Tokenomics: SIMD-550 can be seen as one component of a broader, renewed effort to improve Solana’s tokenomics. It sits alongside the following proposals:

• SIMD-326: Alpenglow and SIMD-357: Alpenglow VAT Implementation, which seek to remove vote fees—the highest recurring cost for validators—with Validator Admission Tickets (VAT).  
• SIMD-525’s amendment, which proposes to scale down VAT with slot times.
• SIMD-553: Resource and Inclusion Fee proposes splitting today’s 5,000-lamport signature fee into two components: a base inclusion fee of 2,500 lamports per signature, paid to the leader, and a resource fee (calculated as requested cost units multiplied by the resource fee rate), which is burned.

This renewed focus is a natural outcome of teams pushing to modernize Solana’s arguably outdated tokenomics.

SIMD-550 as the Preferred Mechanism

Unlike prior inflation proposals that advanced to a governance vote, SIMD-550 reduces emissions by accelerating Solana’s existing disinflation schedule rather than introducing a new emissions mechanism. This approach offers several key benefits:

Simplicity: Doubling the disinflation rate requires modifying a single parameter, making it the simplest possible protocol change that delivers a meaningful reduction in inflation. This adjustment is straightforward to implement and will not consume core developer resources. It carries a low risk of introducing bugs or unforeseen edge cases.

Because the adjustment is intuitive, it can be easily communicated to all stakeholder groups, including retail stakers, non-crypto native institutions, and regulators, regardless of their technical background.

Predictability: Unlike dynamic inflation mechanisms, the effects of doubling the disinflation rate are predictable and easy to model. This provides strong certainty around future inflation and emissions.

The adjustment gradually reduces emissions over many years, avoiding abrupt shocks to the network or the economic system. The original long-term inflation target (1.5%) remains unchanged; this proposal merely accelerates the path to that established equilibrium.

Supply Reduction: Our modeling indicates that, over the next 6 years, total supply would be approximately 2.6% lower—a reduction of 18.9 million SOL—than under the current inflation schedule. At today’s SOL price, this equates to roughly $1.51 billion in reduced emissions. Excessive emissions create persistent downward price pressure, distorting market signals and hindering fair price comparison.

Flexibility: This adjustment does not preclude the community from adopting more sophisticated, dynamic, or market-driven emission systems at a later date, should they be desired. 

Rationale for Doubling

Doubling is a clean Schelling point. It provides the ecosystem with a clear number to reason with, and not a tunable dial that would invite endless bikeshedding.

The proposal to double Solana’s disinflation rate has emerged independently in multiple discussions (1, 2, 3). As a design target, doubling is simple to understand and easy to communicate.

This simplicity matters. Inflation policy can quickly turn into a debate over marginal adjustments and competing parameter choices. That dynamic contributed to the difficulty of reaching consensus around SIMD-228. 

SIMD-550 keeps the goal that already had a majority backing (i.e., reduce inflation) and strips out the complexity that stalled SIMD-228. Doubling the disinflation rate offers a clear and bounded change: large enough to materially reduce future emissions, but gradual enough to avoid abruptly changing validator, staker, or ecosystem incentives.

Why Now?

We discussed in the sections above how SIMD-550 is contextualized in a broader push to improve Solana’s tokenomics. However, an important point regarding this proposal's efficacy is that time is of the essence.

This proposal is the successor to SIMD-411, adopting the same substantive changes as that proposal and the other independent proposals that SIMD-411 formalized. If SIMD-411 had been voted on and passed when it was proposed, it would have saved ~22.3 million SOL in emissions.

Now, if SIMD-550 is passed, it will only save ~18.9 million SOL in emissions. This is a difference of ~3.4 million SOL. Every month the reduction is delayed, assuming it passes governance, it lessens the impact of the change.

Modeling the Effects of SIMD-550

Three parameters define Solana’s current inflation schedule:

• Initial Inflation Rate: 8%
• Disinflation Rate: -15%
• Long-term Inflation Rate: 1.5%

As of June 1st, the inflation rate stands at 3.82%. Under the current disinflation schedule of -15% per year, it will take approximately 5.7 years (H1 2032) to reach the terminal rate. Doubling the disinflation rate to -30% significantly shortens this timeline, bringing the network to its long-term terminal inflation rate in roughly 2.8 years (H1 2029). 

Yearly comparisons are provided below, with full numbers in this sheet.

This model, along with those that follow, assumes a 4.5-month lag before any change is activated, targeting a mid-October go-live date. This lag reflects the time required for a governance vote and the Alpenglow update. The actual activation date, assuming the proposal passes governance, will ultimately be determined by the core development teams.

For simplicity, SIMD-0525: Shorter slot times is excluded from this analysis, as it should not affect Solana’s inflation schedule. SIMD-0525 increases slots_per_year to account for shorter slot times, keeping annual inflation unchanged.

Why Inflation Is Behind Schedule

Solana’s inflation schedule was designed assuming 180 epochs per year, which corresponds to the protocol’s target 400 ms slot time (approximately 2 days per epoch). In practice, however, actual slot times were significantly longer, particularly throughout 2021–2023, meaning epochs took much more than 2 days to complete. Only since epoch 718 (December 2024) has the network consistently hit ~2-day epochs.

As a result, Solana’s inflation schedule has progressed more slowly than originally intended in calendar time. When comparing actual epoch durations to the planned 2-day cadence, the network is currently running 276 days behind where inflation would be if epochs had matched the target duration.

Reduced Emissions

Doubling the disinflation rate results in an estimated total supply of 708.54 million SOL after six years, 18.9 million SOL lower (2.6%) than under the current inflation path. At current SOL prices, this is a $1.51 billion reduction in emissions. Following the implementation of SIMD-0096, the share of issuance offset by burned transaction base fees is negligible (see chart) and has been excluded from this analysis. Full numbers in this sheet.

Nominal Staking Yields

Nominal staking yields were modeled under three plausible staking participation scenarios: 62%, 68%, and 74%, reflecting historical staking ranges (see chart). These modeled yields represent the baseline nominal returns of staking, excluding commissions or additional yield sources such as MEV and block rewards. They can be considered a worst-case scenario for staking yield during periods of very low network activity.

At the mid-range assumption of a 68% staking rate (which closely reflects current conditions), nominal staking yields decline by 0.91% after one year under a -15% disinflation scenario and by about 1.5% under a -30% disinflation scenario. The table and chart below provide full year-over-year comparisons. Full numbers in this sheet.

Validator Break-Even Stake Requirement

Using the following code, we can model the effect of this proposal on validator profitability. We assume $18,000 USD/year—based on server costs, an average commission of 2.75%, a SOL price of $80 USD, and annual voting costs of 201 SOL (i.e., Alpenglow’s VAT * 182.5 epochs, rounded to the nearest whole number). Using the current inflation rate (i.e., 3.827%), we can make a simple model of this proposal’s effects on validator profitability.

Ceteris paribus, we find the following for the amount of SOL a validator needs to stake to break even under the following scenarios:

Eventually, according to our assumptions outlined above, all validators would need at least 698,000 SOL to break even in the long term due to the 1.5% inflation floor. The 4.5-month grace period before doubling the disinflation rate to -30% attains this break-even amount in 2.8 years, compared to the current schedule’s 5.7, without introducing the same intensity of shocks as immediately doubling the disinflation rate. This also offers a more straightforward implementation compared to linear or quadratic easing, which, over a two- to three-year period, yields similar results.

Validator Set Profitability

In this spreadsheet, we captured real mainnet rewards data from a recent epoch (976) via the Trillium API, then evaluated validator profitability by estimating operational costs and totaling revenue across three sources: Jito MEV tip commissions, block rewards, and inflation reward commissions.

We compared how the number of profitable validators would change as inflation rewards decrease over six years, under both the -15% and -30% disinflation schedules. 

Outside the supermajority, 43.3%of validators have inflation commissions set to 0%.

With -30% disinflation, the number of validators who went from profitable or breakeven to unprofitable was 2 in year one, 13 in year two, and 30 in year three. After year three, the terminal rate is met, with no further changes in profitability.

Drawbacks

While we believe this proposal is the right path forward, it would be incomplete to present it as costless. Any meaningful change to Solana’s inflation schedule involves trade-offs which deserve to be acknowledged.

Governance Distractions: Inflation is a highly charged topic. Previous governance discussions around modifying the inflation schedule became unusually heated and divisive, ultimately distracting from more productive ecosystem work. With this proposal, we hope to avoid repeating those mistakes by encouraging a more constructive, focused, and evidence-driven governance process.

Yield Compression: SOL’s relatively high nominal yield has made it appealing to certain retail and traditional finance investors, some of whom characterize it as “a high-growth stock with a bond.” Increasing the disinflation rate will cause this yield advantage to diminish more quickly than it otherwise would.

Pressure on Smaller Validators: Reduced emissions may lead to a contraction in the validator set among operators who depend on staking commissions to cover their operational expenses. As staking rewards decline, a subset of validators may find it increasingly difficult to remain economically viable, potentially affecting overall validator diversity. 

Security Considerations: As staking yields decline, the network’s staking rate (i.e., currently 68%) could fall below levels considered optimal for security. However, this same dynamic would also play out under the current inflation schedule, since the terminal inflation rate of 1.5% remains unchanged. This proposal simply brings the network to the long-term rate sooner. Any challenges arising from lower yields would therefore need to be addressed regardless of whether the timeline is accelerated. The accelerated -30% disinflation schedule still takes multiple years to reach the terminal rate, providing ample time to make further adjustments if required.

Conclusion

We believe SIMD-550 represents a practical and effective path toward reducing Solana’s inflation while preserving the network’s long-term competitiveness. By accelerating disinflation now, the ecosystem can meaningfully reduce future emissions and improve SOL’s monetary profile through a clear, predictable change to the existing inflation schedule.

We encourage you to review the proposal, participate in the discussion on the Solana Forums SIMD-550 Discussion Post, and vote when the proposal goes live.