Solana Economics

Rewards validators in two ways
- Protocol-based rewards
  - New tokens created on a predetermined inflation schedule
  - Generated from inflationary issuances
  - Given on a protocol-based inflation schedule
- Transaction fees
  - Participant-to-participant transfers

Terminology

Total Current Supply
- Total amount of tokens that have been generated
- Excludes tokens burnt
- 500,000,000 SOL were instantiated in the genesis block
Inflation Rate (%)
- Annualized growth rate of the Total Current Supply at any point in time
Inflation Schedule
- Deterministic description of token issuance over time
- De-inflationary schedule
  - Inflation starts at its highest value and the rate reduces over time
- Parameterized by three numbers:
  - Initial Inflation Rate (%)
    - Rate when inflation first enabled
    - Token issuance rate can only decrease at this point
  - Dis-inflation Rate (%)
    - Rate at which inflation is reduced
  - Long-term Inflation Rate (%)
    - Stable, long-term inflation rate
Effective Inflation Rate (%)
- Inflation rate observed on the network
  - After accounting for other factors that can decrease Total Current Supply
    - 50% of each transaction fee is burned (remaining goes to validators)
    - Loss of private keys, slashing events, etc. reduce supply
Staking Yield (%)
- Interest earned on SOL network
- Used to avoid token dilution due to inflation
Token Dilution (%)
- Change in proportional representation of a set of tokens within a larger set due to introduction of new tokens
- Staked or un-staked tokens due to the introduction and distribution of inflation issuance
Adjusted Staking Yield (%)
- Change in fractional token supply ownership of staked tokens due to distribution of inflation issuance
- Positive dilutive effects of inflation

Transaction Fees

Paid to process instructions on Solana
- Paid by submitter, collected by a validator
Each transaction is processed by the current leader validation-client
- Once confirmed as a global state transaction, the transaction fee is paid to the network

Why transaction fees?

Compensate validators
Reduce network spam
Provide long-term economic stability of the network through a protocol-captured minimum fee per transaction

Why burn some fees?

Helps retain leader incentive to include as many transactions as possible
Provides an inflation limiting mechanism that protects against "tax evasion" attacks (side-channel fee payments?) RESEARCH
Can help prevent malicious validators from censoring transactions

Calculating transaction fees

Calculated based on two main parts:
- Static set base fee per signature
- Number of compute units used during the transaction
Each transaction has a maximum number of compute units (compute budget)

Prioritization fee

Recently introduced (when?)
Additional fee paid to boost how a transaction is prioritized
- Results in faster transaction execution times

Storage Rent Economics

Accounts with data must pay "rent" to keep their state in memory