Solana Validators to Receive A Massive 100% of Priority Fees After Recent Governance Proposal

Solana validators will see an increase in their rewards as a recent governance proposal has been passed, granting them 100% of priority fees from transactions on the network.

The proposal received a favorable vote of 77% 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.

What Are Priority Fees in Solana?

In Solana, priority fees are additional charges that users can pay to expedite the processing of their transactions.

Under the previous system, half of the fees from priority transactions were eliminated, while the other half went to validators.

However, this setup led to 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 allocating all priority fees to validators, the aim is 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.”

Following the announcement of the successful proposal, the SOL token has experienced a 1.6% increase in the past 24 hours, trading at $166 during Asian afternoon hours on Tuesday, as reported by CoinGecko.

The SIMD-0096 proposal might negatively impact the Solana Network by making SOL more inflationary, noted Laine, a Solana staking validator.

“The reality is that the current priority fee mechanism provides for side deals which create opacity and prevent free, transparent and equitable access to block space for all network participants,” she wrote in a recent post on X.

Despite the yearly issuance increase of 4.6%, Laine pointed out that priority fees were absent in May 2023, suggesting that the effective inflation rate would revert to approximately 9.9% annually.

SIMD-0096 net change to inflation is just 4.6%

Many dissatisfied comments happening relating to the SIMD-0096 proposal about validators enriching themselves and removing burn which harms deflationary mechanism.

Our role here is primarily to help facilitate the vote, regardless…

— Laine ❤️ stakewiz.com (@laine_sa_) May 10, 2024

Solana ETFs Could Be Next to Hit Market

Crypto investor and trader Brian Kelly has suggested that Solana could potentially become 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 also serves as the founder and CEO of the BKCM Digital Asset Fund, posed the question, “The trade now is, who’s next?”

He then 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.