The Solana community has approved a significant governance proposal that redefines how network priority fees are distributed. This move marks a shift from the previous system and aims to better align incentives across the network’s ecosystem.
On May 27, the Solana community passed proposal SIMD-0096, which allocates 100% of priority fees to network validators and discontinues the token burning mechanism that was previously in place. The proposal received strong support, with 77% of votes cast in favor.
Priority fees on Solana are optional payments made by users on top of the base transaction fee. These fees ensure that a user’s transaction is processed ahead of standard transactions in the mempool. Under the old structure, priority fees were split evenly between validator rewards and a token burn mechanism designed to control SOL’s inflation, which currently stands at 1.5% annually.
However, the implementation of SIMD-0096 is not expected to go live for several months.
Balancing Efficiency and Inflation
The proposal to redirect all priority fees to validators originated from concerns that the previous system could encourage off-chain deals between users and block producers, potentially undermining network fairness and transparency.
For example, a user looking to prioritize their transaction might opt to pay a block producer 75% of the priority fee off-chain to ensure faster processing. This would allow both parties to benefit more than under the official model, where the user pays 100% of the fee but the validator receives only 50%.
Prominent stakeholders including Everstake, Jito, and Solend supported the proposal, arguing that it improves incentive structures and increases operational efficiency. On the other hand, entities like Step Finance, Triton, and Solana Compass voiced opposition to the change.
Hanko Baggins from Bandito Stake expressed concerns about the potential inflationary impact of removing the burn mechanism. “While our bags would significantly benefit from the increased fees, I am not comfortable with removing the burn mechanism,” Baggins stated.
Some community members echoed these concerns. A user with the handle dmoutouss commented, “Validators are leaning towards being greedy, which isn’t great news for retail investors.”
Anatoly Yakovenko, co-founder of Solana, publicly supported the proposal. He highlighted inefficiencies in the existing system, particularly around Jito tips—a portion of priority fees directed to validators to prioritize transactions.
Yakovenko argued that the burn mechanism effectively forced users to pay double during periods of high network demand. He described the fee burn as a bug in the system, one that led to overpayment by users and disproportionate gains for validators.
“Tokens aren’t burned, so validators get 100% of the tip. To be included in a block, users have to pay 2x the priority. It just breaks down,” Yakovenko explained.
Network Performance and Transaction Costs
Solana has faced ongoing challenges related to network congestion, which drove median transaction fees to an all-time high of $0.06 on March 18. Although fees have since decreased to around $0.016, they remain higher than those on several leading Ethereum Layer 2 solutions, including Arbitrum, Linea, and Starknet, according to data from GrowThePie.
This congestion has also contributed to a high rate of failed transactions. Data from Dune Analytics shows that more than 56% of transactions on Solana failed throughout the month of May.
Historical Context and Outages
Solana has experienced several notable outages in recent years. In September 2021, a surge in bot activity resulted in a 17-hour network outage. The following year, another significant outage was triggered by heavy traffic after a software upgrade, requiring validators to manually restart the network. In February 2024, the network suffered five hours of downtime.
Despite these interruptions, Solana has continued to achieve impressive throughput records. According to research from CoinGecko, Solana reached a peak daily average of 1,504 transactions per second (TPS)—making it 46 times faster than Ethereum, which peaked at around 22.7 TPS.
It is worth noting, however, that Ethereum’s scaling strategy heavily relies on Layer 2 solutions, which significantly boost its overall transaction capacity beyond mainnet limitations.
Solana’s high throughput is largely attributed to its unique Proof of History (PoH) consensus mechanism, which helps order transactions efficiently before they are processed by the network.
At the time of writing, SOL has declined by 7% over the past seven days, reflecting both market conditions and ongoing community discussion regarding network upgrades. For those interested in tracking real-time network metrics and validator performance, you can explore more network analytics here.
Frequently Asked Questions
What are priority fees on Solana?
Priority fees are optional payments made by users to ensure their transactions are processed ahead of others in the network queue. They are paid in addition to the base transaction fee.
How does SIMD-0096 change fee distribution?
The proposal reallocates 100% of priority fees to validators, removing the portion that was previously burned. This aims to improve validator incentives and reduce off-channel negotiations.
Will this update increase SOL inflation?
Since the burn mechanism is being discontinued, some analysts expect a slight increase in inflation. However, supporters argue that improved validator reliability and network efficiency could offset long-term inflationary effects.
Why was the proposal implemented despite opposition?
The proposal passed with 77% approval from voters. Proponents believe it enhances economic incentives for validators, which is crucial for network security and scalability.
How will this affect everyday users?
Users may experience more predictable transaction pricing and inclusion. However, the change could also lead to moderately higher fee pressure during congestion periods.
Where can I monitor Solana validator performance?
Several analytics platforms provide real-time data on validator stats, rewards, and network health. You can view real-time network tools here for detailed insights.