Solana’s Biggest Change Yet? 2 Protocol Upgrades Set to Shake the Network with a 95% Revenue Drop for Validators

Solana validators will vote on two major protocol upgrades; these proposals focus on changing staking incentives and adjusting inflation mechanisms. The planned Solana protocol upgrades have sparked heated discussions as critics fear they might significantly reduce validator revenues. Supporters believe these updates will improve the network’s long-term sustainability. The timing adds to the stakes as digital asset ETFs are gaining traction. Many investors are closely watching the outcome. 

Solana Validators to Vote on Controversial Upgrades

Two protocol upgrades for Solana are set to be voted on by validators this March. The first of these proposals is about ensuring sufficient rewards for stakers. The second proposal is set to change and adjust the inflation rates for the SOL token. These Solana Improvement Documents, or  SIMDs, have caused major controversies. This is because, according to VanEck’s head of digital asset research, these upgrades will reduce validator revenue by as much as 95%. 

Boosting Staking Rewards: Solana’s Big Update Explained

The first proposal, which will be voted on March 6, is called SIMD 0123. This update will increase the SOL staking rewards. Staking is about putting SOL tokens in a lock in a validator’s system. This way, the staked SOL token is used as collateral, and shakers can earn payouts from the network. Staking also comes with its risks, as stakers can lose their SOL as collateral. The staked SOLs are also in danger in case of a security risk or weakness in the validator’s system.

To increase SOL staking rewards, this update will add a mechanism that distributes the Solana network’s priority fees among validator stakers. These fees are collected from traders who want to make their transactions faster. These fees represent 40% of the Solana revenue, and before this update, validators did not share these fees with stakers. Till now, validators only paid voting rewards and other such rewards. The SIMD 0123 update also aims to reduce off-chain trading and encourage on-chain trading and transaction.

Solana’s Inflation Overhaul: a Risky Move?

The second proposed update, which aims to lower inflation rates, was written mostly by Multicoin Capital’s Vishal Kankani. This venture capital firm has a considerable position in Solana’s most popular staking pool. Jito is now used by more than 93% of Solana validators, as it maximizes block-building earnings. Sigel VanEck’s head of digital asset research has called this update the “most impactful proposal under consideration.”. Called SIMD 0228, this Solana update will change the SOL’s inflation. This proposal makes inflation inversely track the percent of token supply staked.

Solana has several upcoming protocol upgrades, known as SIMDs, aimed at enhancing its technical capabilities and economic framework. These changes could help stabilize and strengthen Solana's position in the crypto ecosystem moving forward.

Solana recently implemented SIMD 096…

— matthew sigel, recovering CFA (@matthew_sigel) March 4, 2025

Sigel added this update is “reducing dilution and lowering selling pressure from stakers who treat staking rewards as income.”. As reported in February, Solana’s inflation rate was much more than its targeted 1.5% amount. The Solana inflation rate is lower than it started at 8% and stands at 4%. Solana’s inflation is currently in decline, with a rate of 15% per year. “While these changes may reduce staking rewards, we believe lowering inflation is a worthy goal that strengthens Solana’s long-term sustainability,” Sigel added.  Matthew Sigel mentioned in his X post that this change could jeopardize smaller operators.

Solana’s Evolution: Upgrades and the ETF Revolution

These proposals come at a time when the trend of digital asset-based ETFs is on the rise. Asset managers are now encouraging regulators to approve and list SOL ETFs in US exchanges. The feature of ETF staking has also been mentioned, with issuers seeking permits from US regulators. Based on Bloomberg’s predictions, SOL ETFs have a 70% chance of being approved in 2025. So, with Solana protocol upgrades and ETFs in the way, SOL has a crucial year ahead.