Solana Proposal to Allocate 100% of Priority Fees to Validators Passes: Here's What You Need to Know

• Solana validators approved a proposal to award themselves 100% of priority fees, ending the previous 50/50 burn/reward split.

• The change aims to address perceived flaws in the current system and align incentives for network security and efficiency.

• Critics worry about increased inflation and potential negative impacts on SOL's long-term price, while proponents argue the change is necessary for a healthier network.

In a significant move for the Solana network, an important proposal to overhaul the distribution of priority fees has passed, with 77% of validators voting in favor. This decision ends the previous 50/50 split between burning priority fees and rewarding validators, allocating 100% of these fees to validators instead.

The proposal, known as SIMD-0096, aims to address perceived flaws in the existing system. Proponents argue that the current model incentivizes side deals between transaction submitters and block producers, potentially undermining network security and efficiency. The proposal intends to align incentives and promote a healthier network environment by awarding all priority fees to validators.

The vote witnessed a diverse range of Solana validators, including Everstake, Jito, Helius, Stakehaus, Leapfrog, Bonk, Solend, and Pico.sol, backing the change. However, the proposal also faced significant opposition, with validators such as Step Finance, Triton, GREED, Solana Compass, Shinobu, Orangefin, AG, Pumpkin Pull, and Edgevana voting against it, reflecting the breadth of perspectives within the Solana network ecosystem.

Critics like Hanko Baggins from Bandito Stake expressed concerns about removing the burn mechanism, a feature designed to counteract Solana's annual inflation rate. Baggins argued that while the increased fees would benefit validators in the short term, removing the burn could compromise the network's long-term health. Some users have also voiced concerns that this increased inflation rate may suppress SOL's long-term price.

Solana co-founder Anatoly Yakovenko countered these concerns, stating that the current system is "busted" and that the priority fee burn is effectively a bug. He argued that the existing mechanism forces users to pay double the priority fee to outbid tips, which are not burned and go entirely to validators.

Laine from Stakewiz offered a detailed analysis of the proposal's potential impact on inflation. He calculated that the change could lead to a 4.6% increase in Solana's issuance, bringing it roughly in line with levels from a year ago. He also emphasized that the proposal is just one part of a broader plan to improve block reward distribution and that other proposals like SIMD-0123 are already in the works.

While the vote has concluded, the activation of SIMD-0096 may still be months away as the current Solana Mainnet or upcoming upgrade does not support it. This delay could provide time for further discussion and development of complementary proposals like SIMD-0123, which aims to streamline block reward distribution, and SIMD-0109, which proposes a native tipping mechanism.