Solana Could Boost Its Token Burns by 14X. Would That Make It a Better Buy?

Solana (CRYPTO: SOL) burns, or destroys, about 648 SOL per day in transaction fees as of early August. At the same time, it issues around 60,000 SOL each day, meaning that its supply inflates over time, diluting holders.

A new proposal seeks to change that. Solana Improvement Document 553 (SIMD-0553), a proposed protocol change, would lift daily burns to a projected 7,500 to 9,000 SOL, nearly 14 times as much. So would that 14X burn increase make the coin a better buy?

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This would strengthen the link between utilization and returns

As things stand, each transaction on Solana's network pays a flat fee, half of which is burned outright and half of which is paid to the block's validator, meaning it's still in circulation., 3rd section, and https://solana.com/docs/core/fees/fee-structure. SIMD-0553 aims to replace that structure with an "inclusion fee" for the validator, same as before, plus a "resource fee" priced based on the compute each transaction requests, which would be burned in full.

The advantage of that tweak is that heavy transactions, like those requiring substantial interaction with smart contracts, would pay more.

More importantly, the network would create a mechanism in which network activity would accelerate coin burns, which would, in turn, act as a countervailing force against new issuance. As a result, network activity would begin to function similarly to a stock buyback, offsetting a meaningful share of the remaining issuance and rewarding holders during periods of high network utilization. That would be tremendously bullish for the coin, assuming the proposal is adopted and implemented.

It's also important to interpret SIMD-0553 in its full context. At the top of that projected range, 9,000 SOL are burned each day, while 60,000 SOL are issued, still adding 51,000 SOL to the circulating supply daily. The new burns would be a huge improvement, but Solana's tokenomics would still leave a lot to be desired.

Another proposal is worth watching

In addition to SIMD-0553, there's another proposal, SIMD-0550, which calls for doubling the coin's annual disinflation rate to 30% from 15%.

That would pull the terminal inflation rate of 1.5% forward to 2029 from 2032, while also erasing 18.9 million SOL of scheduled new issuance. If it passes, it'd be bullish, as holders won't need to fear as much dilution, nor would they need to fear it for as long a period.

Both proposals would thus make Solana a better long-term buy. But investors probably shouldn't hold their breath about them being passed. Similar attempts in the past have faltered, and these two might as well.

So for now, keep an eye on how Solana votes to proceed. It'll be a green flag to buy more if either SIMD makes it through.

Alex Carchidi has positions in Solana. The Motley Fool has positions in and recommends Solana. The Motley Fool has a disclosure policy.