A Question Posed in the Quiet
Galaxy Research analyst Lucas asked a question this month that sounds academic until you follow its logic to the end: how many tokens does a proof-of-stake network need to spend on security โ and is the inflation schedule currently paying for it an expense worth carrying?
No proposal. No EIP number. No SIMD reference. Just a research desk pulling at the load-bearing wall of the entire PoS security model. This is the rare moment where an institutional note isn't tracking price action but asking whether the two largest Layer-1 security budgets in crypto are assets โ or liabilities dressed up as infrastructure.
I've been auditing token models since the 2017 ICO era, when every whitepaper promised utility and almost none delivered. The Galaxy note carries a different scent. It's not solutionism, not a marketing brief. It's the poet's eye on the ledger's cold hard truth: supply is a line item, and someone at an institutional desk is finally asking whether the security it buys is worth the dilution. That's a conversation this industry has dodged for a decade.
Two Ledgers, Two Dependencies
Both Ethereum and Solana pay validators through a security budget model โ new issuance plus a slice of transaction fees, distributed as staking rewards. But they sit at opposite ends of a dependency spectrum.
Ethereum has EIP-1559, the fee-burn mechanism that made ETH genuinely deflationary for stretches after the Merge. The burn created a counter-inflationary circuit: more mainnet activity, more fees destroyed, less net supply. Then Dencun shipped in 2024. L2s moved activity off the base layer, mainnet fee revenue collapsed, and the burn fell off a cliff. Since then, ETH has been net inflationary at roughly 0.5% to 1% annually. The Galaxy note never says "Dencun," but every researcher in this space knows it's the elephant in the room.
Solana is a different animal. Its core promise is near-zero transaction fees โ fast, cheap, usable. That product decision drove extraordinary adoption. It's also a structural trap for validator economics, because when fees are near zero, security has exactly one funding source: new issuance. SOL launched with first-year inflation around 8%, on a declining schedule targeting 1.5%. Staking ratios sit above 50%, among the industry's highest. Validators aren't earning fee income; they're earning dilution. "Cheap and fast" is subsidized by the coin itself.
Here's the cold hard truth the market hasn't internalized: Ethereum's real revenue share of staking yield is roughly 30-50%, with issuance covering the rest. Solana's is under 10%. Solana doesn't just use inflation โ in a very real sense, Solana is inflation. That's part of following the thread from hype to genuine utility, and it's exactly why the Galaxy question lands so differently on each chain.
The Security Budget Dilemma
The core tension is a two-sided ledger entry. Inflation is how PoS networks purchase security. Reduce issuance, and staking APR drops: for ETH, from roughly 3-5% toward something thinner; for SOL, from 6-8% โ and for Solana, the drop hits the validator ecosystem like a margin call. Small validators exit because their income is almost exclusively issuance. Validators get bigger, decentralization degrades, and the security equation doesn't resolve โ it just moves to a worse corner. You don't save money by cutting security spend; you pay in a different currency.
But the counterweight is equally real. If security budgets have diminishing marginal returns โ if doubling issuance doesn't double security, only doubles sell-pressure โ then inflation is dilution wearing a security costume. Galaxy's framing ("how many tokens do we need to ensure chain security") is asking whether these networks are overpaying for security in a token the market increasingly wants to price as a store of value.
Based on my audit experience across a dozen PoS networks, the marginal security per newly issued token is far lower than the market assumes. Bitcoin's halving schedule hardcodes scarcity precisely because it treats security as a fixed cost amortized over centuries. ETH and SOL treat it as a variable cost that scales with commitment. The latter sounds more adaptive. It's also considerably sloppier โ and it creates an incentive mismatch, because the people receiving the issuance are the ones voting on whether it should continue.
Here's where the Dencun connection becomes uncomfortable. The L2 boom โ arguably the best infrastructure narrative of the last two years โ is itself a contributor to ETH's return to inflation. Rollups absorb transaction activity, so less fee burn reaches the mainnet, so net issuance turns positive. One ecosystem's success is subsidizing a supply problem at the base layer. If core developers move to lower issuance, they're implicitly saying the L2 narrative was financed by weakening the base layer's security cash flow. That's the hard conversation nobody in the rollup camp wants to have.
Solana's path is more direct but no less political. Lowering inflation requires a governance proposal โ there's precedent, since the community has used SIMD-style proposals to adjust staking rewards and emission rates. But the political economy is brutal. The stakeholders who dominate validator voting are the same large validators and institutional stakers whose revenue shrinks the moment issuance drops. Governance on Solana can execute faster than Ethereum's multi-client consensus process, but speed cuts both ways when the motion is effectively "please vote to lower your own paycheck."
And the liquid staking layer entrenches the resistance. Lido, Rocket Pool, Jito, Marinade โ these protocols are the middlemen of the security budget, extracting a cut of issuance-based yield as core revenue. Lower inflation isn't just a validator problem. It's a revenue contraction across some of the largest DeFi applications in the sector. The resistance isn't technical; it's structural, and for these businesses, existential.
This is what the Galaxy note is quietly observing when it says "network stakeholders are tying security costs to token value." That's not a technical statement. It's the language of equity research โ treating issuance the way an analyst treats depreciation. If that framing catches hold, the market stops valuing ETH and SOL on growth narratives and starts valuing them on net-income-style metrics. That's a regime change disguised as a research question.
The Contrarian Ledger
The contrarian read cuts both ways, which is precisely what makes this note dangerous.
The obvious bullish interpretation: lower issuance tightens supply and lifts every existing token. But markets don't wait for proposals to pass. The moment a major institutional desk asks whether supply is excessive, the market begins pricing the probability that nothing changes โ and that's a bearish repricing, not a bullish one. I suspect a meaningful chunk of the "ETH supply overhang" concern is already baked into ETH's persistent underperformance against BTC, but this discussion is a confirmation of the fear, not a reversal.
The deeper counter-intuitive angle: the entire conversation is an indirect endorsement of Bitcoin. If the two largest proof-of-stake networks must publicly debate whether their issuance is too generous, Bitcoin's fixed-supply model stops looking old-fashioned and starts looking like the default benchmark. In a cycle where institutions are already hunting for digital gold, a note like this routes capital narratives back toward BTC. The scarcity premium just got research-backed.
And a third thread: the assumption that more inflation equals more security deserves a hard audit. High staking percentages don't create security; they create lock-in. Real security is the cost of mounting an attack, not the token count of willing stakers. If the market finally separates those two concepts, the inflation debate stops being a philosophical dilemma and becomes an accounting exercise โ one where PoS networks must justify every basis point of issuance.
What Comes Next
Watch the next three to six months for a formal Ethereum research post on issuance policy, or a Solana governance draft referencing SIMD-style inflation adjustment. This is how major economic shifts announce themselves: first a question, then a debate, then a proposal everyone pretends was inevitable.
The narrative arc is shifting from "inflation as security" to "security as expense." That reframing will re-price liquid staking derivatives, validator infrastructure, and L2 security assumptions long before any code changes land on mainnet.
The question Galaxy asked isn't really technical. It's philosophical: can a network buy loyalty with dilution forever, or does the ledger eventually demand a reckoning? Following the thread from hype to genuine utility, the answer is already visible in the spread between ETH and SOL โ one network that can burn its way out, one structurally married to its own issuance. The poet's eye sees the story. The ledger's cold hard truth is still counting.
