The Growing Pains and Transformation of Solana: The Rejected SIMD Proposal 0228

When the Solana ecosystem entered a period of transition, the SIMD 0228 proposal became the focus of market attention. The proposal sparked heated debate, and although it did not pass, it achieved the highest voting participation rate in history. This article will provide an in-depth look at the background, controversy, and implications of this proposal, as well as its implications for Solana's future. (Synopsis: Solana will welcome SIMD-0123 and 0228 upgrades, and validator revenue may shrink by 95%?) (Background supplement: Behind the undervalued Solana DeFi: How to break the "ecological internal friction" between high-yield pledges and lending agreements? Summary SIMD Proposal 0228, an important decision that recently affected the hearts and minds of all Solana's ecosystem participants, was ultimately denied. The voting participation rate hit a record high in Solana history (close to 50% of the total token supply), but the final support vote percentage was not enough to reach the supermajority threshold required for passage (66.67%). The background of such a proposal is that Solana gradually returned to a calm phase from the on-chain frenzy brought by Memecoin after Trump issued coins. Weekly trading volume has fallen 90% from nearly $100b at the beginning of the year to no more than $10b, which is lower than the trading volume at the beginning of Memecoin's rise. Along with Memecoin, Solana became the most successful public chain of this cycle. When Memecoin's cycle faded and Solana faced a phase of transformation and repositioning, it was at this time that Solana's largest capital backer, Multicoin, put forward the 0228 proposal. As soon as the proposal came out, it caused fierce debate in the community. Twitter became the main battleground, with different stakeholders arguing and voting until the last minute of the vote. During the proposal debate, we can see many shadows of the previous time when the Ethereum community was driving change. The proposal itself has a short window, puts forward many long-term considerations and short-term solutions, and of course, there are many interests that are not easy to say directly. But transparency allows us to see the current attitudes and strategies of many Solana leaders. Although the proposal was rejected, its proposer, Tushar from Multicoin, called it "a victory" due to the high participation rate of voting and extensive community discussion, demonstrating Solana's decentralized governance capabilities. Solana's proposal governance, who is behind the game, what does it mean, why did it not pass, and is the process just and successful? Let's look at them one by one. SIMD 0228 – Hasty Proposal What is Proposal 228? 228 By dynamically adjusting the inflation rate based on the loan-to-value ratio, the goal is to maintain a 50% loan-to-commit ratio and reduce the SOL additional issuance rate over the long term. Solana's current inflation model is a curve that gradually declines over time. At the launch of the mainnet (March 2019), an inflation rate of 8% was set and decreased over time, with the current inflation rate being around 4.8% and the long-term target inflation rate of 1.5%-2%. If this proposal is passed, the short-term staking yield will be reduced (between 1% and 4.5% depending on the staking ratio) and the long-term inflation rate will approach 1.5%. The current pledge rate is 70%, so if 228 passes, the pledge SOL yield will be reduced in the short term, the additional issuance will be reduced in the long run, and the pledge yield will be adjusted in real time according to the pledge ratio. Unlike SIMD 0123, where validators can choose whether or not to opt in, 0228 is mandatory, meaning that once activated, it will affect the interests of all stakers. The proposal was made by Tushar and Vishal at Multicoin Capital and supported by Max, a researcher at Anza and former Consensys. The reasons include: # Reduce unnecessary token issuance, reduce inflation costs Solana's current fixed inflation model is a "dumb emissions" because it does not take into account the actual economic activity or security needs of the network. Based on an inflation rate of 4.8% at the beginning of 2025, new issuances will be worth approximately $3.82 billion per year (based on a market cap of $80 billion). This high inflation is essentially a dilution of SOL holders, especially with the current 65.7% pledge ratio – cybersecurity is already fully guaranteed. By passing this proposal, it means that the concept of staking has shifted from "overpaying to ensure security" to "finding minimum necessary payments". Interestingly, this is exactly the argument that some KOLs in Solana have previously attacked Ethereum's economic security, that is, too many assets are underpinning an economic security that is considered a "meme". # Free up capital and promote the development of the DeFi ecosystem The current high loan-to-loan ratio (65.7%) has led to a large number of SOLs being locked, inhibiting the flow of capital in the DeFi ecosystem. Marius, founder of Kamino, points out that "staking encourages hoarding, but reduces financial activity." Similar to the reason why high interest rates in traditional finance inhibit investment. It is worth noting that the main Defi protocol proponents on Solana are also VCs who put forward proposals, so releasing liquidity into DeFi is also a motivation that cannot be ignored. # Reduce the "leaky barrel effect" and improve the autonomy of the ecosystem The leaky barrel effect refers to the value within the ecology, which produces great wear and leakage during economic activities. Since additional SOLs are regarded as ordinary income and are taxable in the United States, the amount of additional SOLs generated by inflation will be proportional to extract value from the entire ecology. For Solana, about $650 million in taxes and about $305 million in exchange cuts have been incurred out of the ecosystem. From a first-principles point of view, in essence, Solana has entered a stable stage, and the inflation pattern set by the initial pat on the head has become unreasonable. The development of chains to increase economic activity as a North Star should also improve inflation schemes. Placeholder partner Chris concludes that the real gains should come from demand-side overflows to the supply side, rather than following a fixed inflation setting that favors a cold start. In the long run, there is some truth to the arguments of the proponents. When a public chain ecology passes the cold start stage, it naturally needs a more idealized economic system to promote economic development. Opposition The faction, led by Lily, president of the Solana Foundation, is opposed to passing the proposal. The point of contention is mainly whether to implement this proposal in such a short period of time, rather than a proposal with greatly changed asset attributes that will affect participants in different links (network layer engineers, product layer developers, economic layer institutions), and the current discussion is mostly in the core network layer personnel and product layer personnel, and the product layer and institution-led economic layer groups farther away from the information channel have fewer voices. Therefore, the adoption should not be rushed until the argument is not perfect. The concern raised by many naysayers is the fear of the loss of small validators. Small nodes are inferior to large nodes in terms of scale effect and bargaining power, so reduced inflation will eliminate these small nodes first, which will hurt Solana's degree of decentralization. But the pen...