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Is Solana Inflationary Or Deflationary (Explained)

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This guide discusses token supply within the growing Solana ecosystem. Specifically, you will learn about SOL’s token supply, which is Solana’s native cryptocurrency asset.

We seek to answer the question of whether SOL’s total supply increases or reduces. Plus, the guide also delves briefly into how the Solana blockchain works and how it compares against its main rival, Ethereum.

Is Solana (SOL) A Deflationary Coin?

No, Solana is not a deflationary coin. A deflationary coin is one whose supply is decreasing. However, with Solana, the supply of SOL tokens is growing at a predetermined rate.

How Does Solana Deal With Inflation?

Solana adheres to an inflation schedule proposed to the community in October 2020 and adopted soon after. The schedule has three parameters:

  • An initial inflation rate;
  • A dis-inflation rate;
  • A final/long-term inflation rate.

The initial inflation rate is the rate at which the total supply of Solana tokens (SOL) is increased at the time when the schedule is implemented. It is worth noting that 500,000,000 tokens were created during the creation of the genesis block.

According to the proposal, these tokens were to be increased at the rate of between 7 and 9% per year.

A dis-inflation rate is a rate at which the inflation rate is reduced year over year (YoY). Again, the proposed figure was between 14 and 16%.

Finally, the long-term inflation rate is the final constant rate at which the tokens will be increased annually. It was proposed to be between 1 and 2%.

Following widespread discussions within the Solana community, these were the final figures that would dictate how the tokens were increased:

  • Initial Inflation Rate: 8%
  • Dis-inflation Rate: −15%
  • Long-term Inflation Rate: 1.5%

However, there are other factors that affect the total token supply, including the burn rate and slushing. According to Solana documentation, 100% of transaction fees are destroyed.

Slashing is the process in which rogue or misbehaving validators lose their staked tokens. They could lose all or part of their stake depending on their violation of operating rules.

Considering all these factors, the current Solana supply stands at 519,781,137 SOLs, 64% of which are in circulation, while the rest are locked up due to staking and other reasons.

Learn more about Solana Blockchain.

What Is Solana Circulating Supply?

Here’s the current supply for Solana tokens:

  • Total Supply (SOL) – 519,781,137 (100%);
  • Circulating Supply (SOL) – 333,305,488 (64%);
  • Non-Circulating Supply (SOL) – 186,475,649 (36%).

Is Solana A Fixed Supply?

No, Solana is not a fixed supply coin. More Solana tokens are released into circulation with time through the process of inflation. The number of tokens released will be reduced starting at an initial rate of 8% down to 1.5% over ten years.

As more coins are introduced into circulation, there are also others that are being removed or burned. Two instances lead to the removal of coins out of circulation:

  1. Burning of transaction fees; and
  2. Slushing.

Initially, 100% of transaction fees would be burned, but this rate is scheduled to reduce by half over a given period.

These saved fees will be awarded to the validator that would have processed the transaction.

Slushing happens either fully or partially, depending on the network rules. A validator found to be contravening network operation policies will be punished by losing part or the whole of their staked amounts.

Learn more: Does Solana Pay Dividends?

Is Solana A Good Crypto?

It depends. Solana could be both good and bad, depending on the circumstances. There are several applications for Solana, including being used to pay for transaction fees on the Solana network and speculation.

Traders who wish to profit from Solana could consider its potential by analyzing technical and fundamental factors to decide whether it is a good cryptocurrency to invest in.

Another investor could be considering supporting a project that is more environmentally friendly.

Solana is also a good cryptocurrency in this respect, given that it runs on a blockchain that utilizes Proof of Stake (PoS), a consensus mechanism that is not only fast and cheap but also energy-efficient leading to a more eco-friendly coin.

Is Solana Better Than Ethereum?

Solana is considered a direct rival to Ethereum, the leading smart contract platform. Ethereum is much older than Solana by a few years, which has given it a head-start when it comes to adoption and community awareness.

However, Solana has a few other advantages over Ethereum that are hard to ignore, especially for developers. These are:

  • It is faster;
  • Fees are much lower on Solana than on Ethereum;
  • Its energy-efficient;
  • Users can participate in passive income through staking.

Ethereum (currently) uses mining as a consensus mechanism, but its core developers are working on an upgrade that will see the network transition to staking.

Once it does, it could close the benefits gap between it and most of its rivals, such as Solana.

Using staking could mean that fees on Ethereum would fall, transactions would process much faster, and the network would attract more investors looking to profit from staking.

In the meantime, Solana does offer more value not just to developers but also to the users.

How Does Solana Blockchain Work?

Solana uses PoS staking as a consensus mechanism merged with a novel timestamping technology called Proof of History (PoH).

With PoS, validators are required to put up a stake in their assets to be able to verify transactions.

The network also elects a validator ‘leader’ to timestamp transactions as they happen before they can be verified by the rest of the validators.

This process helps the network achieve a high throughput of about 50,000 transactions per second (TPS), theoretically. The network, however, currently processes about 2,000 TPS.

How To Invest In Solana?

Solana is among the ten most valuable cryptocurrencies by market capitalization, making it a popular choice among investors.

Consequently, it is widely supported by most of the leading crypto exchanges, including:

  • Binance;
  • Coinbase;
  • FTX;
  • KuCoin; and
  • Kraken, among several others.

To invest in Solana, create an account with any of the above exchanges, verify your identity then proceed to fund your account. Once you do, you can then buy some Solana.

Also read 8 Best Mining Pools For Solana.

Final thoughts

Solana is an innovative cryptocurrency project. Despite its short history, the project has managed to curve a sizable piece of the market and compete with formidable rivals such as Ethereum.

Part of its appeal to investors, users, and developers is its approach to inflation. It strikes a nice balance between increasing supply through the introduction of new tokens and reducing supply from burning tokens.

This process helps regulate the value of each token.