Solana validators are set to see a significant increase in their rewards following the passage of a recent governance proposal, which grants them 100% of priority fees from network transactions.
The proposal was approved with a 77% majority vote late Monday, according to data from the Solana governance system. Validators play a crucial role in blockchain networks by running software to validate transactions and ensure network security.
Understanding Solana’s Priority Fees
In Solana, priority fees are additional charges users can pay to expedite the processing of their transactions. Previously, half of these fees were eliminated, with the remaining half going to validators. This setup raised concerns about validators engaging in “side deals” with transaction submitters to receive more SOL tokens, as highlighted by the proposal creator, known as tao-stones, on the Solana governance forum.
By reallocating all priority fees to validators, the proposal aims to incentivize them to prioritize the security and smooth operation of the network. This change is part of Solana Improvement Document number 96 (SIMD-0096) and has been implemented through a feature called “Reward full priority fee to validators #34731.”
Market Reaction and Future Implications
Following the announcement of the successful proposal, the SOL token saw a 1.6% increase in the past 24 hours, trading at $166 during Asian afternoon hours on Tuesday, as reported by CoinGecko.
However, the SIMD-0096 proposal might have inflationary effects on the Solana network. Laine, a Solana staking validator, noted that the current priority fee mechanism allows for side deals that create opacity and hinder free, transparent, and equitable access to block space for all network participants. Despite the yearly issuance increase of 4.6%, Laine pointed out that priority fees were absent in May 2023, suggesting the effective inflation rate could revert to approximately 9.9% annually.
Potential for Solana ETFs
Crypto investor and trader Brian Kelly has suggested that Solana could be the next cryptocurrency to have a spot exchange-traded fund (ETF) in the United States. On a recent episode of CNBC’s ‘Fast Money,’ Kelly, who is also the founder and CEO of the BKCM Digital Asset Fund, posed the question, “The trade now is, who’s next?” He suggested, “You’ve got to think about Solana as probably the next one. Bitcoin, Ethereum, and Solana are probably the big three for this cycle.”
However, Nate Geraci, president of The ETF Store, expressed skepticism, stating that a spot Solana ETF might not materialize until a Solana futures product is listed on a major exchange or until Congress establishes a clear regulatory framework for cryptocurrencies beyond Bitcoin and Ethereum.
On May 23, the SEC officially approved 19b-4 applications from VanEck, BlackRock, Fidelity, Grayscale, Franklin Templeton, ARK 21Shares, Invesco Galaxy, and Bitwise for issuing spot Ether ETFs.