Multichain Capital partners Tushar Jain and Vishal Kankani introduced a proposal to address the inflation of Solana’s native crypto, SOL. 

The goal is to use a market-driven mechanism to adjust Solana’s emissions dynamically, moving away from the network’s current fixed-rate issuance model.

Solana’s existing emissions mechanism, established in 2021, follows a rigid, time-based schedule that doesn’t consider the network’s activity or economic conditions. Critics have dubbed it “dumb emissions” for its inability to adapt to market realities.

Changes to emission

The proposed solution aims to introduce “Smart Emissions,” a programmatic, market-based mechanism that will dynamically adjust SOL issuance based on staking participation. 

Key features of the proposed mechanism include reducing emissions when stake participation exceeds a recommended target rate of 50% and setting an upper bound at the current emission curve to reduce emissions until they reach a stable mark of 1.5%.

These adjustments would use a formula tied to staking participation, MEV revenues, and validator commissions, ensuring that changes are proportional to network conditions.

The proposal argues that reducing inflation would spur greater adoption of SOL in DeFi, and lower “risk-free” inflation rates could stimulate the development of new protocols and economic activity.

The proposal cited that SOL stakers earned 2,1 million SOL, worth roughly $430 million, in Maximum Extractable Value (MEV) in the fourth quarter, highlighting the robust economic activity on Solana. 

With MEV revenues steadily increasing, the reliance on token emissions to attract stakers is waning. The proposal argues that Solana’s fixed emissions now result in unnecessary inflation, creating sell pressure and diluting token value.

Market perception and risks

High inflation affects token holders and creates a perception of instability in the network. The authors liken Solana’s current inflation model to a public company issuing new shares every two days, leading to continual downward price pressure. 

The proposal aims to instill confidence among investors and stakeholders by transitioni

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Author: Gino Matos