Solana Validator Earnings at Risk Amid Key Network Upgrades
VanEck’s Matthew Sigel warns Solana's network upgrades could significantly impact validator earnings and increase centralization risks.
By Tylt Editorial Team
New proposals could reduce validator revenue by up to 95%.
Smaller validators may struggle with high operating costs and lower rewards.
Solana’s strong network activity continues, but concerns remain.
VanEck’s head of digital assets research, Matthew Sigel, has raised concerns about upcoming Solana network upgrades that could drastically impact validator earnings and increase the risk of centralization. On March 4, Sigel detailed three major proposals—SIMD 096, SIMD 0123, and SIMD 0228—that aim to improve Solana’s economic structure but might also slash validator revenue.
SIMD 096, which was implemented on February 12, redirected 100% of priority fees to validators, eliminating the previous mechanism that burned half of these fees. This led to increased staking payouts but discouraged off-chain trading agreements between validators and traders.
The next proposal, SIMD 0123, is currently up for a vote and could further impact node operators. If passed, it would require validators to pay priority fees to stakers, further reducing their income.
The most contentious of the three, SIMD 0228, is scheduled for a vote on March 6. It aims to adjust Solana’s inflation rate based on staking participation. If staking levels remain at 63%, the annual inflation rate would drop from 4.7% to 0.93%. While this would lower token dilution and benefit SOL’s value by reducing sell pressure, it would also cut staking rewards, further disadvantaging validators.
Validators already face significant financial burdens. The daily mandatory voting fees amount to 1.1 SOL, equating to around $58,000 annually. Additionally, hardware costs average $6,000 per year. Only 458 of Solana’s 1,323 validators currently hold enough stake to operate profitably, putting smaller operators at risk of being forced out. This could lead to further centralization of the network, a major concern for decentralization advocates.
Several community members have proposed lowering voting fees to alleviate financial strain on validators. Despite the controversy, Sigel believes that reducing inflation would ultimately strengthen SOL’s market position by decreasing selling pressure.
Despite these challenges, Solana’s network activity remains robust. In February, the blockchain recorded $109 billion in decentralized exchange volume, outperforming Ethereum for the fifth consecutive month, according to DeFiLlama. While Solana’s dominance in the sector remains evident, the ongoing economic adjustments could significantly reshape the validator landscape.
