Enhancing Reward Transparency: Solana's SIMD-123 Protocol Update

Introduction to SIMD-123

SIMD-123 represents an important advancement in the Solana protocol, transforming priority fee sharing from an off-chain mechanism to one that’s enforced on-chain. This change allows validators to automatically distribute priority fee revenues to their delegators at the end of each epoch, a process that was previously subject to auditing challenges due to manual off-chain handling.

Understanding the Context: SIMD-0096

To appreciate the significance of SIMD-123, it's essential to consider its predecessor, SIMD-0096. It established that priority fees must now be fully allocated to validators, thereby altering the revenue model for Solana validators. Prior to this, priority fees were split, with half sent to validators and half burned.

Key sources of income for Solana validators include:

1. Base fee: A fixed transaction fee of 5000 lamports.
2. Maximal Extractable Value (MEV): Derived from the transaction ordering within slots.
3. Priority fees: Extra fees users pay for quicker transaction inclusion.

With SIMD-0096, all priority fees are now directed exclusively to the slot-producing validator, eliminating the previous 50% burn. While the base fee continues to adhere to a 50/50 split between validators and the burn, SIMD-0096 passed with about 77% community support, strengthening validator incentives and discouraging off-the-books deals.

Features of SIMD-123

SIMD-123, aptly named “Priority fee distribution,” introduces a protocol-level system for distributing priority fee income to delegators. This mechanism aligns with the pre-existing structure for inflation rewards. Validators will assign a priority fee commission rate to their vote accounts, which specifies how revenue is allocated from each block produced.

At the close of each epoch, the protocol automates the distribution of funds to the validator’s delegators based on their stake. This establishes a consistent method for cost allocation:

1. Separately defined priority fee commissions allow validators to charge varying rates for inflation rewards and priority fees.
2. Commission rates are expressed in basis points, capped at 10,000 basis points (100%).
3. The commission rates are based on the vote account state from the previous epoch, preventing any mid-cycle changes that might retroactively affect revenue.

The Role of Alpenglow

Coinciding with SIMD-123's release is the introduction of Alpenglow, expected between Q3 and Q4 of 2026. For additional context, see Figment’s overview on Alpenglow. Alpenglow redefines Solana’s consensus mechanism, replacing critical components like Proof-of-History and TowerBFT with two new elements:

1. Votor: Focused on voting and achieving finality.
2. Rotor: Responsible for block propagation.

This overhaul promises significantly faster finality, aiming for approximately 150 milliseconds compared to Solana's current multi-second finality. Alpenglow has already been tested on a community cluster since 2026 and is poised for mainnet activation after further audits.

While SIMD-123 and Alpenglow are distinct proposals, they share a common goal of improving the transparency and efficiency of network operations. By embedding revenue sharing directly into the protocol, both initiatives enhance how rewards are generated and shared among participants.

Impact on Solana Delegators

SIMD-123 enables all delegators to receive priority fee rewards that were once only accessible through customized agreements with validators. As a direct result, delegators can expect an increase in their Staking Reward Rate (SRR), though this will depend largely on network activity and individual validator performance.

For institutional delegators, the introduction of on-chain priority fee rewards means greater transparency and ease of comparison among validators. This facilitates more straightforward auditing and reconciliation of rewards, alleviating the burdens of previous off-chain arrangements.

Current Status and Future Considerations

Approved by a stake-weighted community vote in March 2025, SIMD-123 garnered support from approximately 74.91% of voters. It remains in development and is anticipated to launch alongside the Agave 4.2 client. Until its mainnet debut, crucial questions linger regarding its precise rollout schedule and its interactions with existing MEV distribution methods that currently operate outside the core protocol. After activation, delegators should closely examine both inflation and priority fee commission rates, as each can influence net rewards.

Need Guidance on SIMD-123 or Alpenglow?

Figment provides institutional-grade infrastructure in six countries, supporting Solana staking across multiple data centers. Our expert team is available to assist you in navigating the implications of these protocol changes on your validator choices and reward tracking. Contact us today for expert support.

For Further Information

• SIMD-0123: Block Revenue Distribution (pull request and specification) – Solana Improvement Documents, GitHub
• SIMD-0096: Reward collected priority fee in entirety (specification) – Solana Improvement Documents, GitHub
• Solana validators to receive full priority fees as SIMD-0096 gains approval – The Block
• Alpenglow: A New Consensus for Solana – Anza
• Solana Set for Major Overhaul After 98% Votes to Approve Historic Alpenglow Upgrade – CoinDesk, September 2, 2025

The post Enhancing Reward Transparency: Solana's SIMD-123 Protocol Update appeared first on Figment.