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Multicoin Capital was one of the early investors in Solana. Now trying to change Network inflation mechanism.

Company based in Austin, Texas published This morning's Solana improvement document would change SOL emissions from the current fixed schedule to a market-based solution. The Multicoin proposal would likely lower inflation – relieving SOL holders – but would also lower staking yields, which is a boon for SOL holders.

In Solana terms, inflation refers to the network that issues SOL to validators who run the Solana software and help build the blockchain. Validators then pass this issuance along with some MEV rewards to stakeholders who delegate SOL to them.

In short, the Multicoin proposal sets a target stake rate of 50% for security and decentralization purposes. If more than 50% of the SOL is mortgaged, issuance will decline to discourage foreclosure by reducing the yield. If less than 50% of the SOL is mortgaged, issuance will be increased to increase returns and encourage foreclosure. The minimum inflation will be 0%, and the maximum will be based on the current Solana issuance curve.

Solana's inflation rate was initially set at 8%, and this figure will decrease by 15% annually until it reaches 1.5%. Seoul's inflation rate is currently around 4.8%, according to Solana Compass. said Anatoly Yakovenko, co-founder of Solana On Lightspeed Podcast The idea of ​​a fixed price is borrowed from the Cosmos blockchain, and inflation is just “accounting”.

Yakovenko doesn't care much about inflation, because the SOL issuance process neither creates nor destroys value, it simply moves value. The newly minted SOL is passed on to stakeholders, while non-shareholders see their holdings become relatively less valuable.

However, Multicoin sees lower SOL inflation as necessary for several reasons. Only new SOL is passed on to stakeholders which centralizes the network, high inflation reduces the utility of SOL for things like DeFi as there is a high opportunity cost of not participating, and only 9% of the accumulated SOL is liquid. Lower staking rewards can also reduce selling pressure in jurisdictions where staking rewards are counted as income for tax purposes.

Although issuance does not technically incur a cost to the network as a whole, the negative perception created by unlimited SOL dilution makes it worth reducing inflation from Multicoin's point of view.

There are some positive precedents here: Ethereum had anecdotal success in defining ETH as ultra-money after it became a proof-of-stake network and significantly reduced its issuance. But there is also a negative precedent in a different way: Cosmos adopted ATOM's market-based inflation mechanism, but its community elusive Where the limits should be - and ATOM's price is still down 34% over the past year.

In any case, Multicoin partner JR Reed told me that the proposal was inspired by perpetual swaps and their use of funding rates, not Ethereum's inflation-reducing mechanism.

There is another obvious outcome of the Multicoin proposal: the SOL return, which has already happened Historically It remains above 7%, and will decline if issuance declines. Growth in MEV rewards could offset lower inflation, but otherwise SOL would start paying lower dividends.

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