Solana faces a "top-heavy and bottom-light" dilemma, caught between a supply crisis and high-level trapping

Solana’s market predicament is worsening. The current SOL price has risen to $139.72, but this rally masks a concerning reality—approximately 79.6% of the circulating supply is in an unrealized loss state. This “head heavy, tail light” situation means a large number of tokens are trapped at costs significantly higher than the current price, creating substantial selling pressure potential.

Liquidity Dilemma of Spot ETFs

Ironically, the launch of Solana spot ETFs should have been a bullish signal. Since their debut about a month ago, US spot ETFs have accumulated approximately $510 million in net inflows, with total net assets swelling to nearly $719 million. However, the influx of institutional funds has not effectively absorbed market sell-offs.

Data reveals a key liquidity mismatch: traditional finance continues to buy, but existing holders and validators are selling at a faster pace. This has led to a 32% monthly decline in SOL, while the overall market remains under risk-off sentiment, with Bitcoin suppressed around $80,000. This is a typical scenario of “seeming incremental capital inflow, but actually old hands continuously dumping.”

SIMD-0411 Proposal: Aggressive Inflation Management

In response to this crisis, the Solana community proposed SIMD-0411 on November 21, aiming to alleviate supply pressure through accelerated de-inflation.

Core Reform Details:

The current annual inflation rate of Solana is down 15%, but the new proposal doubles this de-inflation rate to -30%. While the terminal inflation floor remains at 1.5%, the network aims to reach this target by early 2029, about three years earlier than the original plan for 2032.

This seemingly simple parameter adjustment will have profound economic impacts:

• Supply Shock: Over the next six years, approximately 22.3 million SOL will be reduced from issuance. At current market prices, this could eliminate about $2.9 billion in potential selling pressure.
• Terminal Supply: The total supply at the end of six years will approach 692.2 million SOL, compared to the original plan of 721.5 million.
• Staking Yield Compression: Nominal staking yields will gradually decline from the current 6.41% to 2.42% in the third year.

Economic Logic of Restructuring Incentive Structures

High staking yields will act similarly to the “risk-free rate” in traditional finance—when yields are high enough, capital tends to be passively staked rather than entering DeFi activities. By compressing staking yields, Solana hopes to steer capital from passive validation toward lending, liquidity provision, trading, and other active uses, thereby increasing on-chain capital circulation.

This is not just supply-side reform but a fundamental restructuring of incentive mechanisms.

Three Price Scenarios

Investors are most concerned about how supply shocks translate into price. Based on network demand strength, analysts propose three scenarios:

Bear Market Scenario - Slow absorption
If user demand stagnates, reducing supply can only ease selling pressure but won’t generate a surge in buying. In a market where a quarter of tokens are in loss, the result will be gradual stabilization rather than a V-shaped rebound.

Baseline Scenario - Asymmetric tightening
Assuming the network maintains moderate demand growth, the “multiplier effect” will come into play. A 3.2% supply reduction combined with ETF continued lock-up of circulating tokens will further shrink the market’s available supply for purchase. When stable demand meets rigid supply, history often repeats itself with price increases.

Bull Market Scenario - Deflationary turn
Solana burns 50% of its base transaction fees. If network activity continues to rise after 2029, the burn volume could fully offset issuance increases, even leading to net deflation. At that point, asset value will be directly linked to usage rather than issuance math.

Validator Income and Security Risks

Reducing inflation will directly impact validator earnings. The proposal assumes about a six-month delay in implementation, synchronized with the “Alpenglow” consensus upgrade. This upgrade aims to significantly lower validator voting costs. The economic logic is: although total rewards decrease, operational costs (voting fees) will also decrease proportionally, maintaining profitability for most node operators.

The key question is whether this assumption holds—if cost reductions are insufficient to offset reward declines, network security could be at risk.

Solana is undergoing a radical economic overhaul. The collision of supply crisis, high-position lock-ups, and incentive restructuring will determine the future of this blockchain over the coming years. For investors, the greatest risk is not the proposal itself but whether its implementation can truly achieve the intended economic effects.