Solanas new proposal will reward validators with 100% priority fees

Original author: Frank, PANews

Where there are interests, there are conflicts, and where there are conflicts, there are rivers and lakes. Behind the seemingly calm proposal passed by the Solana validator community, there is an open and covert struggle for interests.

On May 28, the Solana validator community voted to approve the Solana Improvement Document (SIMD)-0096 proposal, which sends all transaction priority fees to validators, changing the previous distribution method of 50% destruction fees and 50% rewards to validators, aiming to improve validator income and network security. Although the proposal was passed as expected with 77% support, a multi-round battle broke out among validators in the proposal forum around token economic models, governance loopholes, and insider manipulation. PANews will conduct an in-depth interpretation of the topics discussed by the community and the potential impact that may occur after the proposal is passed.

For ecosystem health or validator manipulation?

In fact, according to information on Github, the proposal was proposed as early as December 2023. When it was first proposed, it was mainly a simple discussion by several core developers on Github through messages. From the initial discussion, Tao Zhu, who proposed the proposal, did not mention the reason for changing this ratio. Several developers who participated in the discussion almost unanimously agreed with the proposal, did relevant tests, and changed this function in the new version, allocating 100% of the priority fees to validators.

As late as March 12, Max Sherwood, co-founder of H2O Nodes, left a message on Github: “Doesn’t such a major economic change require community discussion? The economics of validators will be greatly affected. It can be said that it is at the expense of coin holders, who will see an increase in supply issuance. This does not seem to be a purely technical change. Where does this come from? There needs to be more awareness of the change and possibly some voting.”

Later, some developers who had participated in the discussion said that this document was a final draft and could be discussed by the community. It was not until May 9 that the Solana validator forum officially proposed this plan and started voting.

After the discussion officially began on the forum, multiple validators questioned the motives of this proposal. One validator, Freedomfighter, said: This proposal is full of lies and deception, designed to profit the only people who are allowed to vote. I dont care what backdoor methods it claims to achieve, the intention is obvious, greedy people will sacrifice others for their own benefit at all costs. No one even provides data about these relevant transactions, which are so important that this proposal was made. After reading everyones thoughts and opinions, I have concluded that this is 100% fake and a scare tactic designed to extract more funds for validators.

Exposing governance limitations, increasing validator rewards or leading to additional SOL issuance

The most questioning voices about this plan are mainly about the impact on the SOL token model. Solanas token adopts a time-dynamic inflation model. The initial inflation rate is 8%, and then it decreases by 15% every year. As of now, Solanas inflation rate is about 5%. And with the long-term development of inflation, the final inflation rate will stabilize at 1.5%. Some community members believe that the destruction of the previous 50% priority fee is an effective way to fight inflation, and can even help SOL tokens achieve deflation. Once 100% of the priority fee is given to the validator, this balance will be broken, affecting the direct interests of millions of SOL token holders.

There are also other people in the community who think that since the amount of priority fees is not large, the impact on inflation is small. However, some people in the opposition voices have also proposed that no matter how big or small the impact of this plan is on inflation, there should be rigorous data calculations to verify it before voting, rather than voting directly without investigation. According to PANews investigation, Solanas daily total on-chain fee is about 6,000 SOL recently. Once 100% is allocated to validators, the number of SOL added on the chain each year will be about 2 million or more according to this average level. This number accounts for about 0.5% of the current supply.

Validator Laine stated that the net inflationary economic impact is 0.2%, but did not indicate the specific source of his calculation. His statement was refuted by another member, Freedomfighter: The economic impact is still there, whether it is 0.2% or 1%, or whatever manipulative way you want to try to weaken the negative impact to make it sound favorable. Its like a criminal claiming but I didnt steal a dollar, I only stole a penny. The logic of trying to downplay obvious facts to promote this proposal is absolutely disgusting.

In addition to the inflationary impact on the token economy. The most questioned issue is the Solana governance limitations exposed by this voting process. In October 2023, the Solana community held a vote on governance rights, and the results showed that 71% of people voted for validators only. In the discussion of this round of proposals, some members said that the biggest beneficiaries of this proposal are validators, and the weight of the vote is also determined by large validators. Therefore, this is a round of voting in which a small group of people decide the fate of millions of people. From this starting point, it is not fair to other members of the entire Solana ecosystem. And once this starts, many subsequent proposals are likely to revolve around the interests of validators.

Or it may cause false volume to appear

In the previous 50% destruction scheme, since half of the priority fees would be destroyed, it was rare for validators and traders to jointly create false fees. However, with 100% priority fees being paid to validators, it is very likely that the above-described validators and traders will collude to create false transactions, which will lead to false transactions being processed first, which is even more detrimental to the balance of network performance.

In addition, some skeptics believe that this distribution mechanism may lead to the phenomenon of the rich get richer, that is, large nodes will further widen the gap with small nodes because they receive more priority fee rewards, thereby exacerbating the centralization problem of the network.

In the end, the proposal was successfully passed amidst many controversies, but PANews also noticed that the votes participating in this round of voting accounted for 51.17%, just over half. In fact, only 38.25% of the total votes voted in favor, and 10.93% voted against. About 49% of the votes did not participate in this vote. At present, it is still unknown how much impact the proposal of rewarding 100% of the priority fees to validators will have, but judging from the process of community debate, Solanas governance process does have many problems.

In contrast, the Uniswap Foundation is also conducting a similar fee switch vote recently, and the governance process of the Uniswap Foundation has lasted for more than three months, through temperature testing (community discussion), pre-voting, code auditing, on-chain voting and other processes. Perhaps Solanas governance community can learn from Uniswap to ensure that the vital interests of coin holders are not controlled by a few people.

This article is sourced from the internet: Solanas new proposal will reward validators with 100% priority fees

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