Solana validators face a changing situation: the foundation aims for decentralization, and half of the validators are facing a survival test.

Written by: Frank, PANews

With the SOL ETF being pushed onto the agenda by institutions, the Solana ecosystem seems to be accelerating the reform of decentralized governance. On April 23, the Solana Foundation launched a new policy that for each new validator added to the Solana Foundation delegation plan (SFDP), if certain validators have been eligible for the Solana Foundation delegation for at least 18 months on the mainnet and have less than 1000 SOL staked outside of the Solana Foundation delegation, three of them will be removed. The intention behind these policies is to enhance the independence of validators by reducing their reliance on the foundation. However, it seems that the ultimate result may still be the optimization of a large number of small and medium-sized nodes.

"One in, three out" optimization of the validator structure

The most striking part of the new policy is its "one in, three out" replacement rule. Specifically, for every new validator added by the Solana Foundation Delegated Program (SFDP), three existing validators will be removed.

The criteria for triggering removal are very clear and consist of two key conditions. First, the validator must have held the foundation's delegated status for at least 18 months; second, the validator must have less than 1000 SOL from external staking outside of the foundation's delegation. Together, these two conditions precisely target validators who have long participated in the delegation program but have failed to prove their independent viability by attracting community support.

It is worth noting that this policy took effect immediately after its announcement, indicating that the Solana Foundation is urgently advancing the decentralization process of the Solana network.

Affecting or involving half of the validators

According to official data, as of April 24, there are 835 validators participating in the foundation's staking through SFDP, accounting for 62% of the total number of validators on the Solana network. The total amount of SOL delegated through this program is approximately 40.5 million SOL, which accounts for 10% of the total staked SOL on the Solana network.

According to a report by Helius at the end of August 2024, approximately 51% of validators have a staking amount of less than 1000 SOL obtained from external sources. If this ratio does not change significantly, the current number of eligible validators is about 686. In the future, under the influence of this policy, these validators may be forced to exit the validator ranks if they fail to attract more SOL staking, mainly because many validators rely on the Solana Foundation's SFDP program for their survival.

As for why the support from the foundation is directly related to the life and death of many validators. Let's revisit the SFDP plan, which is one of the core mechanisms supporting the development of the validator network in the Solana ecosystem. The original intention of this plan is to guide growth in the early stages of the network, reduce the entry barriers for validators, and particularly help validators with less capital to participate in consensus and earn rewards by providing basic delegation, thus promoting the growth of the number of validators and the overall security of the network.

SFDP provides support for validators in various ways:

1. Stake Matching (StakeMatching): This is a key mechanism to incentivize validators to attract external staking. The foundation will match the external staking received by validators at a ratio of 1:1, with a maximum matching amount of 100,000 SOL. However, this matching is not unlimited. Once a validator's external staking exceeds 1,000,000 SOL, the foundation will no longer provide any delegation (including matching and remaining delegation).

2. Residual Delegation (: After completing all eligible staking matches, the remaining SOL in the SFDP fund pool will be evenly distributed among all other eligible validators. According to Helius's analysis, this portion of the delegation is currently about 30,000 SOL per validator. However, the foundation has indicated that as it increases its investment in the community-operated staking pool, this portion of residual delegation is expected to gradually decrease.

3. Voting Cost Assistance )VotingCostAssistance(: Running a Solana validator requires paying ongoing voting transaction fees, which can be a significant expense for new or smaller staked validators (approximately 1.1 SOL per day). To alleviate this initial burden, SFDP offers a time-limited voting cost subsidy program. For new mainnet validators applying for this support, the foundation covers 100% of the voting costs for the first 45 epochs (approximately 3 months) after they join the program, after which the coverage percentage decreases by 25% every 45 epochs until the subsidy stops after 180 epochs (approximately 1 year).

Is Solana caught in a paradox of becoming more centralized with each reform?

According to Laine's estimate in 2024, a validator needs at least 3,500 SOL in staked amount to balance the voting fees, excluding the cost of servers which is over $45,000 a year. Therefore, it can be said that if the SFDP plan is forced, a large number of small validators will have no choice but to shut down.

However, fortunately, this plan has two external conditions, which are having participated in the SFDP program for 18 months and the need to add a new validator to the SFDP. This also provides a buffer period for those validators who do not meet the conditions.

From the perspective of design intent, this plan is aimed at reducing validators' dependence on the Solana Foundation, enhancing validator independence and community support, and lowering the perception that the Solana Foundation exerts excessive influence over the ecosystem. However, from the perspective of foreseeable outcomes, if there are not enough new validators of sufficient quantity or quality to timely fill the vacancies after the removed validators exit, or if the new validators themselves struggle to survive in a competitive environment, then the total number of validators in the network may decrease, which could harm decentralization.

On April 22, Paul Atkins was sworn in as the new chairman of the U.S. SEC. This new chairman, who is friendly towards cryptocurrencies, will have 72 cryptocurrency-related ETFs waiting for approval after taking office. Although many of them may find it difficult to pass, SOL, which is the most vocal token, is likely to be one of the tokens that could be approved. In terms of the timeline, the final approval date for SOL is mainly concentrated in October 2025. However, Solana currently faces a significant issue similar to the reasons for multiple delays of Ethereum in the past, which is the insufficient level of decentralization that could lead to it being classified as a security. Therefore, this could be one of the main reasons why the Solana network must actively promote its level of decentralization at this time.

On the other hand, as more and more institutions in the market accept it, Solana's network is likely to welcome more and more large validators in the future. On April 23, Canadian Securities Exchange-listed SOL Strategies announced that it had secured a convertible note financing of up to $500 million, which will be used exclusively to purchase SOL and stake on validator nodes operated by the company. On the same day, DeFi Development Corporation, another U.S.-listed company, announced that it would increase its total position in SOL to 317,000 and plan to hold and participate in staking for a long time to obtain income.

Ultimately, whether it is the previously overturned SIMD-0228 proposal or the current "new policy" of the Solana Foundation, along with the increasing number of institutions entering the space, the end result seems to be that small and medium validators are struggling, and the barriers to entry seem to be getting higher. This outcome does not appear to help promote the level of decentralization. For Solana, how to lower the barriers for validators may be the true attitude towards advancing decentralization.