- Solana’s revenues hit a multi-month low.
- Smaller validators struggle to compete.
- Solana is already facing criticism for centralization.
Solana often boasts of its low fees and scalability. Now, centralization risks might be greater than ever due to a key part of its network: its validators. They are responsible for keeping the network running and ensuring it remains decentralized.
As Solana’s fees are reaching a monthly low, many validators struggle to maintain the sophisticated and expensive equipment needed to run the Solana network.
Solana’s Lower Fees Risk Centralizing Network
Solana’s blockchain is experiencing significant pressure on its validator ecosystem. The smaller validators, essential to maintaining the decentralized network, struggle to survive as revenue sources dwindle.
Sponsored
Solana validators earn revenue proportional to the amount of SOL that holders stake with them. At the same time, validator costs are largely fixed, as pointed out in a recent Helius report. These expenses include the sophisticated equipment needed to run the network.
This means that a reduction in revenue can put smaller validators out of business. They will have to shut down if their revenue is insufficient to cover the costs. Notably, some 72% of validators rely on a special grant from the Solana Foundation, which aims to promote decentralization. However, this revenue source is dwindling as well.
Solana Foundation Cuts Grant for Smaller Validators
Solana Foundation’s Delegation Program (SFDP), a key grant to support smaller validators, has seen significant cuts. SFDP currently delegates 51 million SOL across the network, representing 13% of Solana’s total staked tokens. However, that figure was previously 100 million.
Furthermore, the Solana Foundation has reduced the maximum commission validators can charge from 7% to 5% and introduced a 10% cap on Jito Maximal Extractable Value (MEV) commissions. These commissions, while controversial, helped to support smaller validators. However, according to Dune, they represent just 5% of validator income.
Without the current grants, many validators would struggle to break even. Around 73% of validators participating in the SFDP program attracted less than 10,000 SOL, and 51% had less than 1,000 SOL.
Helius estimates that 897 validators, or 57% of SFDP participants, would go under. This would be a significant blow to Solana’s validator count and decentralization.
Why Solana’s Revenues Are Declining
Solana’s recent revenue decline is largely driven by a significant drop in network activity related to memecoin trading. Over the past year, Solana became a hub for memecoins, thanks to its low fees and easy-to-use Pump.fun platform.
As memecoin markets cooled off, Solana’s total transaction volume took a beating. On September 5, Solana’s network fees dropped to 571K. This is the lowest level since March 2024, showcasing how reliant Solana has become on memecoin activity.
On the Flipside
- Pump.fun is an easy way to launch memecoins. However, its high fees and dismal success rate for memecoins have made it a target for criticism.
- Alternatives such as Tron’s SunPump are taking away Pump.fun’s market share, which in turn impacts Solana’s trading volume.
Why This Matters
Solana’s decentralization becomes increasingly at risk if declining revenues push out smaller validators.
Read more about Solana validator income:
Solana Validators See Record Tips, as Secret Fees Plague Network Users
Read more about crypto-friendly banks under fire:
Another Crypto-Friendly Bank Under Fire For AML Violations
