Solana’s supply crunch deepens as 80% of holders sit underwater, setting the stage for a high-stakes reset

Solana is facing a market structure crisis, as the vast majority of its investors are underwater.

This comes at a time when the blockchain has successfully courted Wall Street through spot Exchange-Traded Funds (ETFs) and is enjoying significant market momentum.

However, the SOL native token is buckling under a sustained selloff that has left it facing a 32% monthly drawdown and a broader risk-off environment that has pinned Bitcoin around $80,000.

As a result, the network’s developers have proposed a radical shift in SOL’s monetary policy that would accelerate its transition to scarcity.

The ‘top-heavy’ contraction

The pain in the SOL market is visible on-chain. As the token trades around $129, market intelligence firm Glassnode estimates that roughly 79.6% of the circulating supply is currently held at an unrealized loss.

In a Nov. 23 tweet on X, Glassnode analysts described the positioning as “top-heavy,” a technical setup where a significant volume of coins was acquired at higher prices, creating a wall of potential sell pressure.

Historically, such extreme readings resolve in one of two ways: a flush of capitulation or a prolonged period of digestion.

However, the selloff has notably occurred despite a steady bid from traditional finance.

Since their launch roughly a month ago, US spot Solana ETFs have absorbed approximately $510 million in cumulative net inflows, with total net assets swelling to nearly $719 million, according to data compiled by tracker SoSoValue.

That these funds have continued to attract capital while the spot price crumbles shows a massive liquidity mismatch: legacy holders and validators are offloading tokens faster than institutional products can absorb them.

Proposal SIMD-0411

Against this backdrop, Solana network contributors introduced a new proposal, SIMD-0411, on Nov. 21.

The SIMD-0411 proposal aims to address this sell-side pressure directly. The authors characterize the current emissions schedule as a “leaky bucket” that perpetually dilutes holders.

Currently, Solana’s inflation rate decreases by 15% annually. The new parameter would double that rate of disinflation to -30% per year.

While the “terminal” inflation floor remains unchanged at 1.5%, the network would reach that milestone by early 2029, roughly 3 years sooner than the previous projection of 2032.

The move is designed as a single-parameter tweak rather than a complex mechanism change, a simplicity intended to soothe governance concerns and institutional risk departments. However, the economic implications are substantial.

According to baseline modeling:

• Supply Shock: The change would reduce cumulative issuance over the next six years by 22.3 million SOL. At current market prices, this removes approximately $2.9 billion in potential sell pressure.
• Terminal Supply: By the end of the six-year window, total supply would sit near 699.2 million SOL, compared to 721.5 million under the status quo.

Compressing the Risk-Free Rate

Beyond simple supply and demand, the proposal aims to overhaul the Solana economy’s incentive structure.

In traditional finance, high risk-free rates (like T-bills) discourage risk-taking. In crypto, high-staking yields serve a similar function. With nominal staking yields currently hovering around 6.41%, capital is incentivized to sit passively in validation rather than entering the DeFi economy.

Under SIMD-0411, nominal staking yields would compress rapidly:

• Year 1: ~5.04%
• Year 2: ~3.48%
• Year 3: ~2.42%

By lowering the “hurdle rate,” the network aims to force capital out of passive staking and into active use, such as lending, providing liquidity, or trading, thereby increasing the velocity of money on the chain.

Three Scenarios for Valuation

For investors, the critical question is how this supply shock translates to price. Analysts view the impact through three potential lenses:

1. The Bear Case: Slow Digestion If user demand remains flat, the supply cut will not act as an immediate catalyst. The “relief” comes from a slower drip of selling pressure rather than a surge in buying. In a market where four-in-five coins are underwater, this would result in a gradual stabilization rather than a V-shaped recovery.
2. The Base Case: Asymmetric Tightening If the network sees even modest demand growth, the “multiplier effect” kicks in. With 3.2% less supply entering the market over six years, and ETFs continuing to sequester circulating coins, the float available for purchase shrinks at the margin. This creates a setup where steady demand meets rigid supply, historically a recipe for price appreciation.
3. The Bull Case: The Deflationary Flip Solana burns 50% of its base transaction fees. Currently, issuance overwhelms this burn. However, once the inflation rate drops to 1.5% (circa 2029), periods of high network activity could offset issuance entirely. In high-throughput regimes with sustained spikes in DEX or derivatives volume, the network could experience effective supply stagnation or net deflation, aligning the asset’s value directly with usage rather than emissions math.

Risks

The primary risk vector lies with the validators who secure the network. Slashing inflation cuts their revenue. However, the proposal assumes a roughly six-month activation lag, coinciding with the rollout of the “Alpenglow” consensus upgrade.

Alpenglow is designed to drastically reduce vote-related costs for validators. The economic argument is that while topline revenue (rewards) will fall, operating expenses (vote fees) will fall in tandem, preserving profitability for the majority of node operators.

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