Solana's Inflation Reduction Proposal

Good afternoon, my degenerate crypto friends. How are you doing this fine afternoon? Today, I want to discuss the new Solana proposal that was passed to reduce inflation. I love Solana; it's my biggest investment, and it's really the only one where I have significant money because it increased so much after I bought it cheaply. I first made money with Solana in 2021. Initially, I was up 10x, and it was the first coin where I saw substantial profits. After that, it dropped significantly, but I kept buying, and it went up much more than 10x. I've held onto it since then, so we'll see where it ends up.

However, Solana has one major issue: inflation. I believe Solana is the most used token, possibly even more than Ethereum. It's a great bet for the near future, but the problem is its high inflation. Inflation discourages holding or speculating on an asset. Unlike Bitcoin, which has a finite supply, Solana's inflation was a concern for me.

Looking at the graph, Solana's price surged over 250,000 at the beginning of 2022 and again in 2023-2024. I remember it being around 300, though it doesn't show that here. Now, it's back to about 100. For Solana to return to its previous highs, the market cap must increase significantly due to inflation. Inflation has led to more Solana being printed for staking rewards. If you're holding long-term, you should stake your Solana to earn rewards. If not, you might want to move your money quickly.

Impact of Inflation on Solana's Market Cap

To reach previous highs, Solana's market cap needs to grow more than before. The market cap is the total value of all Solana in circulation. Inflation has increased the market cap because more Solana is printed for staking rewards. The recent proposal aims to reduce inflation faster. Solana currently creates SOL annually to pay rewards, with an inflation rate designed to gradually decrease to 1.5% per year. However, this still means your money loses 1.5% annually.

The argument for maintaining some inflation is to ensure enough Solana is available for transactions, not just hoarding. Currently, inflation reduces by 15% annually. For example, if inflation is 4%, it would decrease to 3.4% the next year. The new proposal doubles the disinflation rate to 30% annually, reducing inflation much faster. Although I believe it should eventually reach zero, there's an argument for incentivizing staking to support the network.

Effects of the New Proposal

The proposal means fewer new SOL will be created, with 19 million fewer SOL entering circulation over the next six years, reducing the supply by 2.6%. However, staking yields will decline, which might lead some to invest elsewhere. Crypto is volatile, and even with good returns, you can lose capital quickly.

This proposal has been accepted, which is great for Solana. I'm still optimistic about Solana in the long run. If we see a significant price increase and reach an all-time high, I might sell. I don't want to experience another round-trip with my Solana holdings. That's all for now. I found this topic interesting, and I'll see you in the next video.