In January, the proposal by Multicoin Capital to alter Solana’s emission mechanism received a generally positive response. The proposal is being criticized more as the voting date approaches.
Lily Liu is the president of the Solana Foundation, and she has been the biggest skeptic so far. In an X spaces debate Tuesday afternoon, Liu urged Solana to take a more holistic approach to inflation — and said institutional investors could be scared off by unpredictable staking rewards.
SIMD-0228, a Solana Governance proposal, was drafted by Multicoin Capital and is currently under the guidance of Anza’s lead economist Max Resnick. The proposal aims to replace the current Solana pre-set emission curve with a new market-based inflation mechanism.
Solana gives SOL to those who suggest blocks. These validators will pass inflation on to SOL owners who stake SOL. SOL is siphoned away to pay taxes in jurisdictions that count staking reward as income, or by validators who are paid commissions (such as those run by central exchanges). Resnick compares the CEX and government portions to water dripping out of an a “leaky bucket.”
SIMD-0228 could lower Solana’s inflation rate from the current 4,5% down to less than 1 % under current stake levels. The water would be reduced in the leaky bucket. This proposal targets a 50% stake ratio down from the current 63%, however emissions will still be below their present level.
Simd-0228 is not without its critics, which may come as no surprise for a plan that will surely reduce revenue from validators.
Liu’s criticisms so far have focused on the fact that there has been no data collection or analysis of the anticipated impact of SIMD0228. She also criticised the way market-based rewards for staking could drive away large capital investors.
“Widely fluctuating yields turned away institutional demand” Liu also cited ATOM as an example of a company that has adopted the same market-based emissions approach.
Liu expanded on his position in an X Spaces interview Tuesday afternoon.
“We need to think about the asset ecosystem,” Liu noted that institutional investors had told her that they prefer dividends that are predictable. Liu called on Solana also to take his time and develop a more dependable dividend. “holistic” Perspective on monetary Policy
SIMD-0228 supporters argue that the proposal will help institutional adoption, as reducing emissions can aid in adoption of SOL ETFs which are currently awaiting SEC approval. Staking ETFs are not yet approved by the SEC, nor is it clear how staking rewards would affect ETF liquidity.
SIMD 0228 has been scheduled for voting on March 6, 2019.
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