As of Wednesday, Solana is trading around the $74 level, down roughly 8.5 percent over the past month. However, two important governance proposals seek to tighten the cryptocurrency’s circulating supply, indirectly creating strong demand pressure on SOL.
SOL proposal looks to increase burn rate
Solana validators are signalling support for two linked governance proposals – SIMD-0550, and SIMD-0553. In simple words, the two proposals are geared toward simultaneously reducing new SOL issuance and increasing the amount of SOL burned daily.
SIMD-0550 seeks to introduce resource-based transaction fees. Essentially, it will lift daily SOL burns from around 650 SOL to as much as 9,000 SOL per day – almost a 14x increase. This would translate to approximately 2.7 to 3.3 million SOL burned annually at full implementation.
Meanwhile, SIMD-0553 is aimed toward doubling SOL’s disinflation rate from 15 percent to 30 percent. As a result, the proposal will pull the 1.5 percent terminal inflation floor forward from 2032 to 2029, and remove approximately 18.9 million SOL in future emissions worth roughly $1.36 billion at current prices.
For the uninitiated, the SOL disinflation rate determines how quickly Solana’s annual token issuance decreases over time, in turn, slowing the creation of new SOL. A faster disinflation rate reduces the growth of the token supply more quickly, which can increase scarcity if demand remains strong.
As of Wednesday, the SOL inflation rate sits at 3.82 percent, down from 8 percent at the start of the smart contract project. It’s worth highlighting that SIMD-0550 does not change the terminal target – it only accelerates the pace of getting there.
Taken together, the two proposals seek to attack SOL supply from both ends. They will not only burn more of what SOL coins exist today, but also issue fewer SOL in the future.
Timeline of the proposals
Initial signalling vote for the proposals opened on Tuesday. Both the proposals must attract roughly 40 million SOL in validator support to clear a 15 percent signaling threshold, before a formal vote by August 18.
As of Wednesday, support stands at 24.94 million SOL, or 5.8 percent of the 432.65 million staked – approximately 38 percent of the way to the threshold, led by validator Helius.
Similarly, DeFi Development Corp., the first U.S. public company with a Solana treasury strategy, announced formal support for both proposals on Tuesday, and plans to vote in favor if they advance.
Should the proposals pass, it could lead to positive price action for SOL in the short term. Meanwhile, institutional interest in SOL continues to improve, as the SOL ETF ratio jumped to 1.5 on July 27.
