Solana Supply Crisis! 80% of Holders at a Loss—Can Accelerated Deflation Save the Market?

Solana faces a market structure crisis, as Glassnode estimates that about 79.6% of circulating supply holders are sitting on unrealized losses. The Solana community has proposed SIMD-0411, which would double the annual inflation decay rate from 15% to 30%, reducing total issuance by 22.3 million SOL over the next six years and eliminating around $2.9 billion in potential sell pressure at current prices.

79.6% of Supply in Loss—A Top-Heavy Crisis

(Source: Glassnode)

The pain in the SOL market is evident on-chain. With the token trading around $129, intelligence firm Glassnode estimates that about 79.6% of circulating supply is currently at an unrealized loss. In a November 23 post on X, Glassnode analysts described this position as “top-heavy,” a technical setup in which a large quantity of tokens was purchased at higher prices, creating potential sell pressure.

A top-heavy market structure is extremely fragile. When the vast majority of holders are in loss, any price rebound can trigger exit-driven selling as these holders rush to break even, creating a strong resistance zone. Worse, if prices continue to fall, some leveraged holders may be forced to liquidate, sparking cascading sell-offs. Historically, such extreme holding distributions are resolved in one of two ways: either through capitulation (a crash that flushes out weak hands) or a prolonged digestion phase (sideways trading until cost distribution rebalances).

(Source: SoSoValue)

Nonetheless, despite continued buying from traditional finance, a wave of selling is still obvious. According to SoSoValue data, since launch about a month ago, the US spot Solana ETF has absorbed a net inflow of approximately $510 million, growing its total net assets to nearly $719 million. This strong ETF inflow occurring alongside persistent price declines is highly unusual and underscores the severity of the supply-side pressure.

Despite the price slump, these funds continue to attract capital, indicating a severe liquidity imbalance: traditional holders and validators are selling tokens faster than institutional products can absorb them. This supply-demand mismatch is at the heart of Solana’s dilemma. While ETF daily net inflows are significant, they still pale in comparison to the overall market’s selling scale. More importantly, ETF-bought tokens are typically locked up for the long term, whereas sellers are often short-term holders seeking quick liquidity—this timing mismatch amplifies market pressure.

The 32% monthly decline is also notable. In a broader risk-off environment, Bitcoin prices have stabilized around $80,000, while Solana—higher up the risk curve—has faced heavier selling. As macroeconomic uncertainty rises, capital typically rotates from high-beta assets like Solana to low-beta assets like Bitcoin, a dynamic that’s now clearly visible.

SIMD-0411 Proposal Accelerates Deflation Through 2029

(Source: SIMD-0411)

Against this backdrop, Solana network contributors introduced a new proposal, SIMD-0411, on November 21. SIMD-0411 aims to directly address selling pressure, with the author likening the current emission plan to a “leaky bucket” that continually dilutes shareholder equity. Currently, Solana’s inflation rate decays by 15% annually. The new parameter would double that, causing the inflation rate to decay by 30% per year.

While the “final” inflation floor remains unchanged at 1.5%, the network would reach this milestone in early 2029—about three years earlier than the previously projected 2032. The intent is to fine-tune a single parameter, not overhaul the mechanism, to address governance and institutional risk concerns. However, the economic impact is significant.

According to baseline models, this adjustment will reduce cumulative issuance by 22.3 million SOL over the next six years. At the current market price of $129, this would eliminate about $2.9 billion in potential sell pressure. By the end of the six-year window, total supply will near 699.2 million SOL, versus 721.5 million SOL if no changes are made. While a 22.3 million SOL difference is only about 3% of total supply, it could have significant impact on the marginal supply-demand balance.

Two Core Changes in the SIMD-0411 Proposal

Supply Shock: 22.3 million fewer SOL issued over the next six years, eliminating about $2.9 billion in sell pressure

Incentive Restructuring: Nominal staking yield drops quickly from 6.41% to 2.42%, pushing capital from passive staking to DeFi applications

Compressing the Risk-Free Rate to Activate Capital

Beyond simple supply and demand, the proposal aims to overhaul Solana’s incentive mechanism. In traditional finance, high risk-free rates (such as Treasuries) suppress risk appetite. In crypto, high staking yields play a similar role. Currently, nominal staking yields hover around 6.41%, making capital more likely to be passively staked for validation rather than used in the DeFi economy.

Under SIMD-0411, nominal staking yields will drop rapidly: about 5.04% in year one, 3.48% in year two, and 2.42% in year three. By lowering the “threshold rate,” the network aims to force capital from passive staking into more active use—borrowing, liquidity provision, or trading—thereby increasing on-chain capital velocity.

The logic behind this incentive restructuring is: when staking yields fall below 3%, holders will seek higher returns in DeFi, increasing on-chain activity and fee revenue, eventually forming a positive feedback loop. However, the main risk is validator security. Lowering inflation reduces their income. The proposal assumes about a six-month lag before impact, which coincides with the planned “Alpenglow” consensus upgrade. Alpenglow aims to sharply reduce validator voting-related costs, so while total income falls, operating costs do as well.

Three Valuation Scenarios: From Slow Digestion to Deflationary Reversal

For investors, the key question is how this supply shock will translate into price. In a bear case, if user demand remains flat, reduced issuance won’t act as a catalyst immediately. “Relief” would come from gradually releasing sell pressure, not a surge in buying. With four-fifths of supply underwater, this would stabilize prices gradually rather than trigger a V-shaped rebound.

The base case assumes modest network demand growth, activating a “multiplier effect.” Over six years, market supply declines by 3.2%, while ETFs continue to hold circulating tokens, reducing the marginal amount available to buyers. This creates a scenario of steady demand and tightening supply—a setup that historically has driven prices higher.

The bull case is most optimistic. Solana burns 50% of its base transaction fees, but current issuance far exceeds burns. However, once inflation drops to 1.5% (projected for 2029), network activity during peak periods could fully offset issuance. In a high-throughput environment, if DEX or derivatives volumes continue to surge, the network could experience effective supply stasis or net deflation, directly tying asset value to usage rather than emissions.