Solana Economics - Figment
Solana Economics
Published
February 3, 2021
Solana is a blockchain dedicated to implementing a new high-performance, permissionless blockchain. Figment supports staking on Solana with a 7% commission fee. They enabled token inflation, and therefore rewards, in February 2021. Learn more about Solana’s economics by reading below.
Quick Takes
- Inflation set at 8% for the first year
- Delegation and unbonding will take ~2.5 days
- Token supply in circulation is 261M
- Maximum supply of SOL is 488M
- Current Reward rate is 30%
Token Economics and Network Participation
Network Economics Overview
The SOL token on Solana’s network is used for two things:
- Staking – SOL token holders can stake to validators operating on Solana.
- Fees – Validators have a commission, and Delegators are charged with rent on the network.
Solana Economics
Solana validators and their delegators earn rewards for each epoch, which is every 48 hours. Rewards come from token inflation and are distributed proportionally to delegators based on their stake.
Token supply inflation is set at 8% at launch and will decrease annually until reaching 1.5%. The predicted inflation helps with the overall stability and security of the network. Rewards based on the token inflation rate will likely incentivize staking, at least for the first few years. Ultimately stakers should look to capture transaction fees from network usage.
According to the Solana team, this is how SOL tokens will be issued and how the supply will grow over the next 15 years.
Staking rewards are funded by minting new tokens, aka inflation. As transaction volumes increase, stakers should expect to capture transaction fees as well. For a refresher, check out this article on how inflation and rewards are related.
Staking SOL
Delegators earn staking rewards proportional to what they have staked. Validators charge a commission fee. When the protocol distributes rewards, validators will take a percentage off the top, while the rest goes to their delegators. Every ~48 hours, staking income is automatically allocated and staked by the protocol.
To start earning rewards, after delegators deposit stake to a validator, that SOL is subject to a “warm-up” period. When a delegator wishes to withdraw their stake, there is a “cool-down” period where staking rewards are illiquid. These periods are also known as bonding/unbonding periods, and on Solana, they only last roughly 48 hours (i.e., one epoch).
When staking, delegators should consider:
Reward Rate
Inflation is fixed; therefore, the reward rate will fluctuate based on staking participation. The current percentage of the network that is staked is roughly 32% and increasing. As this increases, the rewards rate will decrease.
Rewards are calculated by dividing inflation by the current staking rate. At the current rate, delegators can expect a staking APR of 25%.
The Solana Token
Solana’s native token, SOL, has a maximum supply of 488,585,135. The current circulating supply is 263 Million.
The community holds 38% of tokens. The Solana Foundation is dedicated to supporting projects and building long-term commitments on Solana. The token pool is used for bounties, incentives programs, marketing, and grants.
- The system also has micropayments that are conducted with fractions of SOLs called lamports.
- Solana supports SPL tokens, which are an ERC-20 equivalent.
- The foundation issues SPL tokens for on-chain governance.
- SPL token can also be integrated with exchanges and projects that want to build on Solana.
- As an ERC-20, the SPL token has more functionality outside of the ecosystem.
We’ve seen Solana introduce token inflation via a governance protocol; they’ve also conducted a token burn event last year and consistently burn portions of token transaction fees.
When a transaction is sent through the network, it carries a fee for delegators known as a commission rate. These fees are meant to provide compensation to the validators for the CPU/GPU resources.
In addition to transaction fees, based on Solana’s design of having Clusters to process Proof-of-History transactions, there is an additional rental fee for those who open stake accounts and actively submit transactions. Rent is currently set at 19.055441478439427 lamports per byte-epoch.
Risks
Slashing is not currently enabled on Solana at this time, but the Solana team has a contingency plan. Right now, the team is implementing manual safety checks rather than automatic slashing.
Currently, the penalties for slashing on Solana include 100% slashing when the node is acting maliciously; examples of this include double-signing, signing illegal transactions, and voting for illegal forks.
When there is a safety violation, the whole chain will halt, requiring the team to manually check for the node(s) that caused the violation and propose that the stake be slashed after the network is restarted. 100% of the stake would be slashed, or, theoretically, the validators could try to vote to slash the offending node.
If a node is slashed, all the delegated stake from that node would be removed.
Solana’s leadership is dedicated to their network’s longevity by investing in the community through grant programs, community outreach, and hosting hackathons.
Further Readings