Solana community voted in favor of fair distribution of priority fees

Solana community voted in favor of fair distribution of priority fees

Mar 20, 2025
Solana community voted in favor of fair distribution of priority feesSolana community voted in favor of fair distribution of priority feesVideo Thumbnail

The Solana community, those holding and staking SOL (the native token), voted in favor of the Solana Improvement Document (SIMD) proposal SIMD-0123, aiming to enhance the distribution of priority fees between validators who verify transactions on the Solana blockchain and stakers who secure the network by locking up SOL.

They also voted against SIMD-0228, and we’re relieved. Here’s why: The document proposed linking SOL’s token issuance to the staking participation rate, making inflation responsive to network conditions rather than a fixed schedule. 

The implementation of SIMD-0096 in February, doubled validator rewards by keeping all priority fees after they’ve been removing 50% out of the circulation (known as the burn mechanism), to redirect them to validators. 

However, it also means inflation would increase; the proposal aimed to address that issue but was rejected due to concerns over economic instability and reduced validator rewards. In other words, many smaller validators depend on staking rewards to cover operating costs. A sharp reduction in emissions could make it harder for them to stay profitable, leading to validator exits.

SIMD-0228: A Dynamic Inflation Model (Rejected)

Currently, Solana follows a fixed disinflationary model, starting at 8% annual inflation, decreasing 15% yearly, until reaching 1.5% permanently. SIMD-0228 proposed a dynamic inflation system, adjusting SOL issuance based on staking participation:

  • Low staking participation: Higher emissions (to incentivize staking and strengthen security).
  • High staking participation: Lower emissions (to prevent unnecessary dilution).

While this would have adapted to market conditions, the proposal was rejected due to concerns over economic instability and reduced validator rewards. Critics argued that unpredictable inflation could discourage institutional participation and drive smaller validators out of the network, increasing centralization risks.

SIMD-0123: Fairer Priority Fee Distribution (Approved)

The community approved SIMD-0123, which redistributes priority fees between validators and stakers. Currently, validators receive 100% of priority fees, a change introduced by SIMD-0096 to boost security. However, this led to concerns over fairness, as stakers (who delegate SOL to validators) were excluded from these rewards.

With SIMD-0123, validators can now share priority fees with stakers via smart contracts, improving transparency, fairness, and decentralization.

While there are risks associated with the implementation of the approved proposal:

  • Lower validator earnings: Could weaken validator incentives.
  • Operational complexity: Smart contract-based distribution adds technical challenges.
  • Validator competition and centralization: Larger validators may offer higher fee shares, attracting disproportionate staking power.

There are also some benefits crucial to Solana’s financial health: 

  • Fairer rewards: Stakers receive a portion of priority fees, encouraging broader participation.
  • Improved transparency: On-chain verification reduces reliance on validator trust.
  • Reduced off-chain manipulation: Direct protocol-based fee-sharing enhances security.

The approval of SIMD-0123 enhances staking incentives and security, potentially increasing staking participation. The rejection of SIMD-0228 is also a win because it would maintain its fixed disinflationary model. While validator centralization risks remain, these changes could boost Solana’s long-term sustainability and institutional confidence in its economic framework.

Welcome to 21shares
Country of residence
Exchange
Investor Type
Retail Investor
Qualified Investor
Choose your investor type to continue.

General Disclaimers

This website belongs to and is issued by 21 Shares (consisting of 21Shares AG and itsaffiliates). 21Shares publishes this website solely to provide information on 21Shares and itsproducts. This website does not constitute a public offering of financial products. Nothing on thiswebsite should be considered advice or a recommendation to any person to subscribe for financialproducts or investment services and activities. No information published on this website constitutes a solicitation, offer or recommendationto buy or sell any investment instruments or to conclude any other transactions or any legal actswhatsoever.The website may contain forward-looking statements. 21Shares makes no assurance that productsbased on crypto currencies, digital assets and indices referencing them will provide positiveinvestment returns. Do not invest before carefully considering the risks associated with investing insuch products and read in detail all pre-contractual documentation and periodic reports. Refer to thesection entitled “Risk Factors” in the relevant Prospectus (consisting of all its Supplements) and theFinal Terms for details on the risks associated with an investment in the products offered by theissuers before investing. Seek your own independent investment advice on all applicable legalrequirements, exchange control regulations and taxes in your jurisdiction.Charts and graphs are provided for illustrative purposes only and past performance is not anindication or guarantee of future results. The investment performance of any security referred to onthis website can be volatile and can go up or down in value and you can lose your entire investment.Exchange rates may affect the value of investments. Investments in foreign currencies areadditionally subject to exchange rate fluctuations and therefore carry a higher level of risk.Therefore, 21Shares cannot guarantee that any capital invested will maintain its value or increase invalue.21Shares does not guarantee the accuracy, completeness, timeliness or availability of the websiteinformation and will not be responsible for any errors or omissions, regardless of the cause, for theresults obtained from the use of the content. 21Shares will not be liable for damages (includingdamages for loss of earnings, business interruption, loss of information or other economic losses ofany kind whatsoever) arising from the use, in any form or for any purpose, of the data andinformation contained on the website.The entire content of the website is protected by copyright, with all rights reserved by 21Shares. Youmay save or print individual pages or sections of the website only if copyright and proprietary noticesremain intact. Any saving or copying of data acknowledges that copyrights and ownership rightsremain with 21Shares. The website does not grant any license or right to use images, trademarks,logos, or software, and downloading or copying any part does not transfer title.This website and the materials herein are directed only to certain types of investors in certainjurisdictions in which 21Shares’ products may be distributed. Accordingly, the website is notdirected at any person in any jurisdiction in which (by reason of that person's nationality, taxresidence or otherwise) publication of or access to the website is prohibited. Persons in respect ofwhom such local restrictions apply must not access the website.

Agree and continue