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Solana Boosts Validator Earnings with New Governance Proposal

Solana validators are poised to see an increase in earnings following the approval of a new governance proposal. On May 27, the Solana community voted in favor of proposal SIMD-0096, which allocates 100% of priority fees to network validators and removes the network’s token burning mechanism.

The proposal was approved by a significant majority, with 77% of votes cast in support.

Priority fees on Solana are optional fees that users can pay in addition to base transaction fees to prioritize their transactions over others. Currently, these fees are split between validator rewards and a token-burning mechanism designed to control SOL inflation, which stands at 1.5% annually. However, the changes from SIMD-0096 won’t be implemented for several months.

Efficiency vs. Inflation

The proposal to redirect all priority fees to validators arose from concerns that the existing system could encourage private deals between network users and block producers, potentially compromising network integrity.

“For instance, under the current model, a transaction submitter might choose to pay a block producer a 75% priority fee directly to expedite their transaction, rather than a 100% priority fee where the block producer only receives 50%,” the proposal explained.

Reactions from prominent validators were mixed. Everstake, Jito, and Solend supported the proposal, believing it better aligns incentives and enhances network efficiency. Conversely, Step Finance, Triton, and Solana Compass opposed the change. Hanko Baggins from Bandito Stake expressed concerns that removing the burn mechanism could lead to excessive SOL inflation.

“While increased fees would benefit our holdings, I am uneasy about eliminating the burn mechanism,” Baggins stated.

Anatoly Yakovenko, Solana’s co-founder, backed the proposal, highlighting the inefficiencies in the current system’s Jito tips—priority fees paid to validators to prioritize transactions. Yakovenko argued that the existing model forces users to pay twice the priority fee to compete with Jito tips, calling it a system flaw that results in users overpaying.

Solana’s Performance and Congestion Issues

Solana’s transaction fees reached a record high of $0.06 on March 18 due to prolonged network congestion. Although fees have since decreased to $0.016, they remain higher than on several leading Ethereum Layer 2 solutions, such as Arbitrum, Linea, and Starknet. According to Dune Analytics, over 56% of transactions on Solana failed throughout May.

Despite its rapid price growth at the end of 2023, Solana has faced significant network congestion and outages in recent years. A surge in bot activity caused a 17-hour outage in September 2021. In 2023, another major outage occurred due to heavy network traffic following a software upgrade, and in February, the network experienced five hours of downtime.

Nevertheless, Solana continues to achieve impressive transaction throughput. CoinGecko research shows that Solana reached a peak daily average of 1,504 transactions per second (TPS), making it 46 times faster than Ethereum’s peak of 22.7 TPS. However, Ethereum is enhancing its capacity through Layer 2 solutions, significantly increasing its TPS on L2.

Solana’s high throughput is primarily due to its unique Proof of History (PoH) consensus mechanism, which allows for efficient and rapid transaction processing.

As of now, SOL is trading at $157, having declined by 7% over the past seven days, according to CoinMarketCap.

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Disclaimer: Not Investment Advice

it’s crucial to understand that the information provided here is not to be construed as investment advice. The crypto market is dynamic and highly speculative, and decisions should be made based on thorough personal research and consideration of individual risk tolerance. Always consult with financial professionals and conduct your own due diligence before making any investment decisions. The intention of this exploration is to present insights and trends, not to provide specific investment recommendations.

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