Where there are benefits, there are conflicts; where there are conflicts, there is a community. Behind the seemingly calm proposal approved by the Solana validator community is a hidden battle for interests.
On May 28th, the Solana validator community voted to approve the Solana Improvement Proposal (SIMD)-0096, which would send all transaction priority fees to the validators. This proposal changes the previous allocation of 50% burnt fees and 50% validator rewards, with the aim of improving validator income and network security. Although the proposal received 77% support and was successfully passed, a fierce debate erupted among validators in the proposal forum regarding tokenomics, governance loopholes, and insider manipulation. PANews will delve into the key topics discussed by the community and the potential impact of the proposal.
For the sake of ecosystem health or validator control?
In fact, according to information on Github, this proposal was originally put forward as early as December 2023. At the time, it was mainly a simple discussion among a few core developers on Github through comments. From the initial discussions, the proposer Tao Zhu did not mention the reasons for changing this ratio. Several developers who participated in the discussion almost unanimously agreed on this proposal, conducted relevant tests, and implemented the feature in the new version, allocating 100% of the priority fees to the validators.
It wasn’t until March 12th that Max Sherwood, co-founder of H2O Nodes, commented on Github, “Doesn’t such a major economic change require community discussion? Validators’ economy will be greatly affected. It can be said that at the expense of holders, they will see an increase in supply. This doesn’t seem like a purely technical change. Where did it come from? We need to increase awareness of the changes and possibly conduct some voting.”
Subsequently, some developers who were involved in the discussion stated that this document was a final draft and could be discussed by the community. It wasn’t until May 9th that the proposal was officially introduced and voting was initiated on the Solana validator forum.
After the official discussion began on the forum, multiple validators questioned the motives behind this proposal. One validator, Freedomfighter, said, “This proposal is full of lies and deception, aimed at benefiting the only person allowed to vote. I don’t care how it claims to be achieved through backdoor means, the intention is obvious, greedy people will sacrifice others for their own benefit. No one even provided data on these relevant transactions, which are so important that this proposal was formulated. After reading everyone’s thoughts and opinions, I conclude that this is 100% false, a form of intimidation aimed at getting more funds for the validators.”
Exposing governance limitations, increasing validator rewards, or causing SOL issuance
The most questioned aspect of this proposal is its impact on the SOL token model. Solana’s token adopts a dynamic inflation model. The initial inflation rate was 8%, which decreases by 15% each year. Currently, Solana’s inflation rate is approximately 5%. With long-term inflation development, the final inflation rate will stabilize at 1.5%. Some community members believe that the previous 50% burnt fees were an effective way to combat inflation and even help achieve deflation for the SOL token. Once 100% of the priority fees are given to validators, this balance will be broken, affecting the direct interests of millions of SOL token holders.
Some members in the community also believe that even though the amount of priority fees is not significant, rigorous data calculations should be conducted to verify the impact on inflation before voting, rather than voting directly without investigation. According to PANews’ investigation, Solana’s daily on-chain fees are currently around 6000 SOL. If 100% is allocated to validators based on this average level, the number of SOL added to the chain per year would be more than 2 million, accounting for approximately 0.5% of the current supply.
Validator Laine stated, “The economic impact of net inflation is 0.2%,” but did not specify the source of his calculations. His statement was countered by another member, Freedomfighter, who said, “The economic impact still exists, whether it is 0.2% or 1%, or no matter what manipulative way you want to try to weaken the negative impact to make it sound favorable. It’s like a criminal claiming, ‘But I didn’t steal a dollar, I only stole a cent,’ trying to downplay obvious facts to push the logic of this proposal, which is absolutely disgusting.”
Apart from the impact on token economics, the most questioned aspect is the limitations of Solana’s governance exposed during this voting process. In October 2023, the Solana community conducted a vote on governance, with 71% voting in favor of “validators only.” In the discussion of this proposal, some members pointed out that the biggest beneficiary in this proposal is the validators, and the voting weight is determined by the larger validators. Therefore, this is a vote where “a small group of people decide the fate of millions.” From this perspective, it is not fair to other members of the Solana ecosystem. Furthermore, once this begins, many subsequent proposals may revolve around the interests of validators.
Potential appearance of false volume
In the previous 50% burnt fees proposal, there were rarely cases of validators and traders colluding to create false fees. However, with 100% of the priority fees being paid to validators, it is likely that validators and traders may collude to create false transactions, leading to the prioritization of false transactions, which would be detrimental to network performance balance.
In addition, some skeptics believe that this allocation mechanism may lead to a “rich get richer” phenomenon, where large nodes, due to receiving more priority fee rewards, further widen the gap between them and small nodes, exacerbating the centralization issue of the network.
In the end, despite the many controversies, the proposal was successfully passed. However, PANews also noticed that the voting participation in this round was only 51.17%, just over half. In fact, only 38.25% of the total votes were in favor, while 10.93% voted against. Approximately 49% of the votes did not participate in this vote. Currently, it is still unknown how much impact the proposal of allocating 100% of the priority fees to validators will have. However, based on the process of community debate, the governance process of Solana does have many problems.
As a comparison, the Uniswap Foundation is currently conducting a similar fee switch vote, but the governance process of the Uniswap Foundation has gone through multiple processes such as temperature testing (community discussion), preliminary voting, code audits, and on-chain voting over a period of more than three months. Perhaps the Solana governance community can learn from Uniswap to ensure that the vested interests of token holders are not controlled by a few.
