The Solana ecosystem is experiencing notable shifts as both its core infrastructure and meme coin market face challenges. Upcoming protocol upgrades aimed at improving network sustainability could significantly reduce validator revenues, raising concerns about decentralization and profitability. Meanwhile, Pump.fun, a leading Solana-based token launchpad, has seen a sharp decline in trading volume as meme coin enthusiasm wanes amid market downturns and increased scrutiny over scams and insider trading.
Solana's Protocol Upgrades Spark Controversy Over Validator Revenues and Network Sustainability
Solana’s blockchain network is set for a crucial decision in March, as validators prepare to vote on two significant protocol upgrades aimed at reshaping staking rewards and the inflation rate of the native SOL token. While asset manager VanEck acknowledges the importance of these changes for the network’s long-term health, concerns are mounting over their potential impact on validator earnings.
According to VanEck’s head of digital asset research, Matthew Sigel, the proposals could slash validator revenues by as much as 95%, which may pose existential threats to smaller operators. Despite the controversy, Sigel maintains that reducing inflation and restructuring staking rewards are necessary steps to fortify Solana’s sustainability.
Solana Improvement Documents (SIMDs) 0123 and 0228 have become flashpoints of debate within the Solana community. These proposed changes could significantly alter the incentive structure for validators and stakers, two critical groups ensuring the network's security and efficiency.
The first proposal, SIMD 0123, seeks to introduce an in-protocol mechanism that would distribute Solana’s priority fees to validator stakers. Priority fees are the extra costs traders pay to ensure their transactions are processed faster. Currently, these fees account for nearly 40% of Solana’s network revenues, but validators are not required to share them with stakers. This proposal aims to change that dynamic.
By redirecting priority fees to stakers, SIMD 0123 could boost staking rewards and discourage off-chain trading agreements between traders and validators—a practice that can create inefficiencies in decentralized networks. “This change reinforces on-chain execution,” Sigel explained in a post on X, adding that it could create a more transparent and equitable revenue-sharing model.
Staking is an integral part of Solana’s network, requiring users to lock up SOL as collateral with a validator in exchange for earning rewards. However, stakers also bear risks, such as slashing penalties if a validator acts dishonestly or is offline for prolonged periods. With more of the network’s revenue flowing directly to stakers, the proposal could create a stronger incentive for long-term participation in securing the blockchain.
While the redistribution of staking rewards is contentious, the second proposal, SIMD 0228, has been described by Sigel as the “most impactful” of the two. It introduces a dynamic inflation model designed to inversely track the percentage of staked SOL tokens.
Solana’s current inflation rate is 4%, a sharp decline from its initial 8% but still well above its long-term target of 1.5%. At present, inflation declines at a fixed rate of 15% annually. Under SIMD 0228, the protocol would adjust inflation based on the amount of SOL staked. If a higher percentage of SOL is locked in staking, inflation would decrease, thereby lowering the dilution of existing token holdings.
Sigel believes this model could reduce selling pressure from stakers who treat staking rewards as income. By lowering inflation, the proposal might also improve long-term token value stability, making SOL a more attractive asset for institutional and retail investors alike.
The proposed inflation adjustment was drafted primarily by Multicoin Capital’s Vishal Kankani, according to blockchain research firm ChainCatcher. Multicoin Capital, a venture capital firm, has a significant stake in Jito, Solana’s most popular staking pool. Jito is widely used by validators to optimize earnings from block production, and as of December 2023, more than 93% of Solana validators have integrated Jito’s software.
Despite the potential benefits for network sustainability, the proposals have sparked fierce debate due to their impact on validator earnings. Some estimates suggest that revenue for validators—particularly smaller operators—could drop by as much as 95% if both SIMD 0123 and 0228 are implemented.
This has raised concerns about the centralization of Solana’s validator network. If smaller validators struggle to remain profitable, larger players could consolidate more control over the blockchain, potentially reducing decentralization and resilience against attacks.
VanEck remains optimistic about the broader impact of the changes. “While these changes may reduce staking rewards, we believe lowering inflation is a worthy goal that strengthens Solana’s long-term sustainability,” Sigel noted. However, critics argue that the network must strike a balance between reducing inflation and ensuring validator viability.
The Bigger Picture: SOL ETFs and Institutional Interest
The proposed upgrades come as Solana’s native token, SOL, gains traction among institutional investors. Asset managers are actively lobbying US regulators to approve SOL-based exchange-traded funds (ETFs), which would provide traditional investors with exposure to Solana without directly holding the token.
Bloomberg Intelligence estimates that SOL ETFs have a 70% chance of approval in 2025, reflecting growing institutional confidence in the blockchain. Additionally, some issuers are pushing for cryptocurrency staking to be included in ETFs, which could further enhance returns and adoption.
A more sustainable inflation model, combined with a structured reward system for stakers, could strengthen Solana’s case for regulatory approval. If successful, these upgrades might pave the way for increased adoption and capital inflows from institutional investors.
With the validator vote scheduled for March 6, the future of Solana’s tokenomics hangs in the balance. If the proposals pass, the blockchain’s staking and inflation mechanisms will undergo a fundamental shift, potentially reshaping how rewards are distributed and how SOL’s supply grows over time.
While the changes could make Solana a more sustainable and investment-friendly network, they also pose risks to validator decentralization. Whether the Solana community can navigate these competing priorities will determine the blockchain’s trajectory in the years ahead.
For now, all eyes are on Solana’s validators as they prepare to make a decision that could shape the future of one of the crypto market’s most promising networks.
Pump.fun’s Trading Volume Plummets 63% as Meme Coin Frenzy Cools Amid Scandals and Scrutiny
In related news, Solana’s leading token launchpad, Pump.fun, has seen a staggering 63% drop in trading volume from January to February 2025, signaling a sharp downturn in the meme coin market. Data from Dune Analytics reveals that trading activity on the platform plunged from $119 billion to $44 billion over the two-month period, with only $2.1 billion recorded in the past four days.
The decline aligns with mounting regulatory scrutiny and a series of high-profile scandals that have cast a shadow over the once-thriving meme coin ecosystem. New token launches on Pump.fun have also dwindled, with listings dropping from a peak of nearly 1,200 per day on Jan. 24 to under 300 per day in early March.
Despite the downturn, February 2025 remains Pump.fun’s fourth-highest month for trading volume since the platform’s launch in January 2024, reflecting the still-substantial interest in Solana-based token launches.
Pump.fun co-founder Alon Cohen attributed the decline to broader market conditions, noting that the slowdown in trading activity aligns with a general downturn in altcoins and memecoins.
While trading volume on the platform has nosedived, Pump.fun’s revenue over the past 30 days still stands at a healthy $74 million, per Dune Analytics. Cohen emphasized that despite lower overall trading activity, Pump.fun’s share of revenue across the on-chain ecosystem remains stable, suggesting that the platform is maintaining its foothold in the market.
The downturn in meme coin trading is not just due to market cycles. The once-booming sector has been plagued by allegations of fraud, insider trading, and rug pulls, causing traders to exercise greater caution.
The so-called “Libragate” scandal has become the poster child for meme coin-related controversies. The incident saw a token launched by a group involving Hayden Davis surge in popularity after being endorsed by Argentine President Javier Milei, only for it to collapse in what many are calling a $107 million rug pull. A staggering 86% of investors suffered losses exceeding $1,000, further eroding trust in the sector.
As scrutiny over such schemes intensifies, regulatory bodies are stepping in. On Feb. 27, the US Securities and Exchange Commission (SEC) clarified that meme coins are not considered securities—a relief for some traders. However, the agency also warned that fraudulent activities and manipulative practices in the space will not go unpunished.
The Changing Face of Meme Coin Trading
Anastasija Plotnikova, co-founder and CEO of blockchain regulatory firm Fideum, said that the meme coin landscape has shifted from a community-driven movement to one rife with predatory tactics.
According to Plotnikova, the sector has become dominated by insider trading rings, pump-and-dump schemes, and sniper groups, replacing the organic and community-driven ethos that once characterized meme coins. The result has been an unhealthy and increasingly risky market for average traders.
The recent slump in meme coin activity and Pump.fun’s declining trading volume suggest that the market is at a crossroads. While some traders continue to chase speculative gains, many are re-evaluating their approach in the wake of scandals and regulatory warnings.
Despite the slowdown, meme coins remain an integral part of the Solana ecosystem, and platforms like Pump.fun continue to generate significant revenue. However, whether the sector can recover from its recent reputational damage and adapt to evolving regulations remains to be seen.
