On August 8, 2025, Galaxy Research head of protocol research Lucas put a question on the record that most crypto analysts have spent years avoiding: how many tokens does a proof-of-stake network actually need to pay for security, and is the current inflation schedule worth the supply pressure it creates? This is not an academic exercise. It is a repricing event in progress. The question landed at a specific inflection point. Ethereum's EIP-1559 fee burn, once the engine of the “ultrasound money” narrative, has slowed to a trickle since the Dencun upgrade. ETH's net issuance flipped positive after years of deflationary stretches, now expanding roughly 0.5% to 1% annually. Solana's issuance schedule runs far hotter, starting near 8% at genesis and still in the mid-single digits years later. Two L1s. Two entirely different accounting models. One shared question. Data does not lie; it only reveals hidden patterns. The pattern on the ledger is that both networks are buying security with freshly minted supply, and that cost has become a line item in the institutional valuation of digital assets.
The security budget model is the settlement layer's armor. In proof-of-stake, validators lock capital to protect the chain, and the protocol compensates them with issuance. Inflation is not a design flaw; it is a procurement contract between network and validator. What differs between Ethereum and Solana is how the bill gets paid. Ethereum pairs issuance with EIP-1559's fee-burn mechanism: base fees are destroyed rather than distributed, creating a partial counterweight to new supply. This loop is what made ETH net-deflationary during the peak activity of 2021. Solana has no equivalent. Its fee market is intentionally near-zero, a product of the “cheap and fast” thesis. Consequently, validator compensation comes almost entirely from the issuance schedule. With staking participation above 50% of SOL supply, the economic exposure to any inflation change is direct and immediate. This divergence is not an implementation detail; it calibrates how sensitive each network is to the supply conversation.
That is where Galaxy's framing matters. Galaxy is not a random voice. It operates an institutional brokerage, a research desk, and a market-making arm; when its analysts raise a supply question, the client calls that follow reshape capital allocation. The report is not asking whether consensus code is secure or whether TPS figures remain competitive. It is asking whether the dollar-denominated cost of security is appropriate for these assets' market values. The core wording — “how many tokens of security budget are needed to ensure chain safety, and whether adjusting the inflation issuance schedule is worth it” — reveals a conceptual shift. Networks are transitioning from quantity-driven security to value-driven security. A chain's protection should scale with the dollar value at stake, not with the total volume of tokens emitted. That transition sounds academic, but it re-frames the debate. The field is no longer asking whether a chain is secure. It is asking what that security costs, and who is paying for it.
Ethereum's burn tells the first part of the story. Post-Dencun blob adoption changed the fee market's architecture. Before Dencun, L2s posted calldata to the L1, competing for scarce block space and generating substantial base-fee destruction. After Dencun, those same L2s post blobs, a separate and cheaper data market. The L1 base fee dropped, and the burn dropped with it. I have tracked this on a block-by-block basis since the upgrade went live: the emission curve turned positive for the first sustained stretch since the merge. The numbers are unambiguous — base-fee burn in 2025 is a fraction of its pre-Dencun level. The practical result is that ETH staking yields, roughly 3% to 5% APR, are paid overwhelmingly by issuance rather than user fees. If Ethereum compresses issuance further, yields decline. If yields decline, stake growth slows. If stake growth slows, the attack-cost floor rises more slowly than the market capitalization it protects.
Solana's dependency is more structural. The network's staking participation is well above 50% of circulating supply, among the highest in the industry, and its staking APR of roughly 6% to 8% is financed almost entirely through inflation. Solana's fee income is a rounding error in comparison. The network charges users pennies, so the security apparatus is subsidized from the treasury of the future. Validator economics on Solana are simple arithmetic: inflation is the largest line item in the node budget. I documented the same dynamic in the 2022 LUNA post-mortem, when I mapped UST outflows in the final forty-eight hours to twelve institutional-linked addresses. The lesson is permanent: when a protocol's economic foundation is publicly questioned, capital does not wait for confirmation. The SOL market is already pricing a range of inflation outcomes, and volatility widens with every research note that touches the topic.
Governance paths differ, and the friction is political. Ethereum's parameter adjustments flow through the All Core Devs process and client-level implementation — a slow, multi-client coordination exercise with high friction. Solana has an on-chain governance track: the SIMD proposal mechanism already produced inflation-related adjustments in 2023. But the political economy runs deeper than process. Liquid staking providers — Lido, Rocket Pool, Jito, Marinade — derive their revenue from protocol rewards. Issuance is their income. A proposal to cut inflation is, in effect, a proposal to cut their top line. The report's phrase, “stakeholders connecting security costs to token value,” anticipates exactly that conflict.
The institutional frame is the third layer. My 2024 ETF correlation study tracked 1.2 million BTC in exchange reserves over four months and found a 0.85 correlation between IBIT and FBTC inflows and net exchange outflows. Institutional flows are the marginal price-setter; retail is the lagging indicator. When Galaxy Research — a bridge between traditional finance and on-chain markets — declares the supply question fundamental, it is laying the groundwork for a re-rating of the entire PoS category. In a sideways market, where narratives fade quickly and ETF novelty wears thin, this is precisely the kind of fundamental question that redistributes positioning. In plain terms, investors are beginning to treat token issuance as a tax on holding. That tax is the direct subject of this report. Its magnitude determines whether ETH and SOL are stores of value or depreciating network assets.
The contrarian read rejects the obvious conclusion: lower inflation is not automatically bullish. The counter-intuitive result of cutting issuance is a thinner security budget, and thinner security budgets carry their own discount. Solana's risk is acute. Lower APR means marginal validators exit once their lock-up cycles mature. Fewer validators means greater stake concentration. Greater concentration is precisely the condition regulators cite when classifying a token as a security. The “lower supply, higher price” narrative collides head-on with the “more decentralized, more compliant” requirement. Cutting Solana's issuance to improve its float could simultaneously worsen its regulatory standing.
There is a second misread risk. The market may process Galaxy's question as a diagnosis rather than a remedy. If leading institutional research asks whether ETH and SOL simply have too much supply, marginal investors may sell into the uncertainty, pricing the “do nothing” outcome rather than the “fit it” one. The EIP-1559 precedent from 2021 is instructive: ETH rallied on the expectation of the burn, then sold off when the mechanism went live. If this discussion matures into a formal proposal, the buy-the-rumor-sell-the-news path likely repeats. There is a third layer as well: Ethereum's L2 ecosystem is an unwitting antagonist. Dencun's cheap blobs starved the L1 burn, and my own modeling of blob fee market saturation suggests the data space fills within two years — at which point rollup fees rise and L1 burn returns, not through design but through congestion. Correlation is not causation. Bitcoin's fixed supply is the cited benchmark, but Bitcoin's security budget runs on hardware and electricity, not token issuance. Copying Bitcoin's supply curve while maintaining a fundamentally different security funding model is a category error.
The next six months will reveal intent. If Ethereum's core developer community converts this research into a formal EIP, ETH gains a genuine supply-side catalyst. If Solana's governance accelerates its existing inflation decay schedule, the market must decide whether a tighter float justifies a more centralized validator set. Stakers will vote with their capital long before any proposal passes. The question has moved from the forum to the ledger. Security budgets are printed, priced, exposed, and revised. The ledger keeps its own accounts. The data is already showing where pressure gathers.
