According to Duo Nine, From December 2020 to December 2023, Solana’s token inflation surged from 46 million to 427 million tokens. This makes a 900% increase in just three years.
Yet, underneath, various factors come into play. This includes the high costs users pay to keep the network running. Let’s explore more about what is happening in Solana now.
What’s Going on with Solana’s Inflation?Â
This astonishing surge has left the cryptocurrency community pondering the implications of such rapid inflation on the Solana ecosystem.
One of the hidden facets of Solana’s inflation is the substantial cost users bear to use the network. According to a source, users are collectively paying $100 million in fees every month to facilitate transactions on the Solana blockchain. This sizeable amount reflects the high demand for Solana’s services but also raises questions about the sustainability of the current fee structure.
I just learned that Solana is not self-sustainable and the only reason why it is cheap is that the foundation is subsidizing $100M of gas fees a monthđź’€
Source: https://t.co/fAJ9fUAxtk
Also, block rewards are fixed in $SOL (6% in annual inflation), while transaction fees are… pic.twitter.com/FuiJYkhwWJ
— Mardeni (🧱, 🚀) (@Mardeni01) December 24, 2023
While this approach has enabled users to enjoy cost-effective transactions, it has introduced a potential risk. The inherent challenge arises when inflation leads to a crash in token prices, triggering a domino effect. As token values decline, subsidies decrease, validators may exit the network, and the entire chain faces the risk of coming to a halt.
The Challenge of Never-Ending Solana Tokens
The concept of Solana’s infinite supply has sparked concerns of a potential death spiral towards zero. The equation is straightforward: increasing inflation causes token prices to drop, leading to a decline in subsidies. If validators leave because they’re not making enough money, the chain may shut down in the future.
there’s this one too pic.twitter.com/gzjMzDAGXq
— Jack The Oiler (@Jacktheoiler) December 24, 2023
While Solana’s model appears sustainable during bullish market conditions, questions loom large about its resilience in a bear market. In a market downturn, holders may find their SOL holdings devaluing daily, driven by continuous inflation.
Conclusion
Solana’s impressive rise in inflation and the hidden costs associated with its operation underscore the intricacies of managing a high-performance blockchain. The current economic model, reliant on subsidies, inflation, and low transaction fees, faces challenges that may manifest in a bear market.
Disclaimer
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