The Efficiency Magic of the SOL Treasury: Is $2.5 Billion Comparable to Ethereum’s $30 Billion?

Compared to the treasuries of Ethereum or Bitcoin, the SOL treasury is more efficient in absorbing the current trading supply.

Written by: Nom

Translated by: Luffy, Foresight News

TL;DR

• Compared to the DAT (crypto treasury) of Ethereum or Bitcoin, SOL DAT is more efficient in absorbing the current trading supply (which is different from circulating supply).
• The recently announced $2.5 billion SOL DAT plan is equivalent to a $30 billion Ethereum or $91 billion Bitcoin fundraising scale.
• We are finally about to get rid of the market impact from SOL held in FTX bankruptcy liquidation (although FTX's narrative impact still needs to be addressed).
• SOL's inflation issue will continue to hinder its price increase and needs to be resolved urgently. The scale of SOL inflation is about three times the unlocking amount.

Oh? Do you really want to read this? First, let me make a few points:

• I won't argue whether inflation is good or bad; I've talked enough about this and will just wait for future changes.
• I personally hold SOL spot, staked SOL, and locked SOL, so I may be biased. Of course, I hope the tokens I hold will appreciate, so in my view, sideways price action is a bad thing.

Bad News: FTX Bankruptcy Liquidation and Your Money

Like many blockchain projects you know and love, Solana also sold tokens to investors through multiple rounds of fundraising, with a large number of tokens flowing into FTX. When FTX went bankrupt, the liquidation assets held 41 million SOL, most of which were sold through several rounds of transactions, mainly acquired by institutions such as Galaxy and Pantera, with exercise prices of about $64 and $102 (plus fees). Given Solana's current price of about $190, these transactions are now highly profitable. Through in-depth analysis of staking accounts, the remaining amount of "liquidation SOL" pending unlock is about 5 million, with a nominal value of about $1 billion at current prices.

Why mention this?

Recently, Galaxy and Pantera announced $1.25 billion and $1 billion SOL DAT plans, respectively, and Sol Markets also joined with a planned scale of $400 million. After including fees, the total size of these DATs is about $2.5 billion. Some worry this won't have a substantial impact on Solana's price, as there is currently a large amount of locked SOL that may be purchased by these institutions. According to data from @4shpool, about 21 million SOL remain to be unlocked by 2028, with a nominal value of about $4 billion at current prices. Roughly estimated, "liquidation SOL" accounts for about 1/4 of all remaining SOL to be unlocked.

Another issue with Solana's inflation lies in its own inflation rate. When Solana's inflation rate is mentioned, including the unlocking amount, it's said to be 7%-8%, but the actual inflation rate is about 4.5% of the circulating supply. This means that if the circulating supply in epoch 839 is about 608 million, the new supply from inflation in one year will be about 27.5 million, plus 10 million from unlocking, bringing the circulating supply to about 645.5 million, with an inflation rate of 6.2%. Again, this is just a rough calculation; more accurate charts should be made by more experienced analysts.

The surge in circulating supply shows that the so-called "fixed" inflation rate is not accurate: it spikes at two time points and is lower at other times.

"Alright, nerd, your math isn't even accurate. Why should I read this?"

The key is one number: the amount of SOL entering the market each day. If someone gets tokens for free (staking inflation/unlocking), or at a discount (FTX's SOL), it's foreseeable that a certain proportion will be sold. I assume that the 37.5 million SOL inflation over the next year will all be sold. If you want the price to rise, that's not good. So we need capital inflows, which may come from DAT or from ETFs like SSK (launched by REXShares). Ideally, every dollar used to buy SOL should flow into the market, pushing the price up. But if there's a chance to buy locked or discounted SOL, there's no need to buy on the market. So let's assume those DAT institutions will buy before the unlocked SOL enters the market.

Is This a Bad Thing?

In short, no. To offset the selling pressure of 37.5 million SOL over the next year (assuming SOL price is $200, just an optimistic guess), about $7.5 billion in capital inflow is needed per year, or about $20.5 million per day. If DAT can buy SOL at a discount from liquidation SOL or other locked SOL channels, it can improve the efficiency of capital inflow.

Raising $400 million to buy SOL at a 5% discount is equivalent to bringing in $420 million in capital inflow, which is more cost-effective than directly investing $400 million. The only issue is how to balance the time value between buying SOL from the market now and reducing selling pressure in the future.

In the next three years, Solana's inflation scale will exceed the unlocking amount (the lock-up plan ends at the end of 2028), and FTX's SOL only accounts for 1/4 of the remaining unlocking amount—so there's actually no need to worry about DAT buying liquidation SOL instead of buying from the market. As long as there is enough liquidation SOL for sale, either Galaxy or Pantera can absorb the remaining amount, not to mention existing DATs like DeFi Dev Corp, SOL Strategies, or Upexi, as well as existing ETPs.

Good News: Trading Supply vs Circulating Supply

Capital invested in SOL is more efficient than capital invested in ETH or BTC for two main reasons.

Trading Supply

First, circulating supply does not equal market tradable supply, especially for staked assets. You can't buy staked SOL, but you can buy LSTs (liquid staking tokens). According to data from the @solscanofficial team, out of Solana's current 608 million SOL, 384 million are staked, accounting for 63.1%, and cannot circulate in the market. The amount of SOL corresponding to LSTs is 33.5 million; if this part is counted as purchasable supply, roughly 350 million / 508 million SOL are locked, accounting for 57.5%, and cannot be bought (at least not until a two-day unlock). In comparison, ETH's staking rate is 29.6%, and LSTs account for 11.9%. The higher the market tradable supply, the harder it is to push the price, though ETH's unlock plan and differences in DeFi platforms across chains also have an impact.

Relative Capital Impact

Solana's valuation is much lower than ETH and BTC. Solana's current circulating market cap is about $104 billion, while ETH and BTC are $540 billion and $2.19 trillion, respectively. From a relative valuation perspective, $1 invested in SOL DAT is equivalent to $5 in ETH DAT or $22 in BTC DAT. If you also consider the difference in circulating supply due to staking, the efficiency gap expands to 11 times that of ETH and 36 times that of BTC. The good news is that these DATs will reduce market supply, can also earn token yields through staking (we've assumed this part will be sold), and can make subsequent ETF buying behavior have a more significant impact on market price. Since its launch, SSK has seen about $2 million in daily capital inflow, but offsetting inflation requires 10 times that, which may only be achieved after more ETFs are approved.

Summary

• Compared to ETH or BTC DAT, SOL DAT is more efficient in absorbing the current trading supply (which is different from circulating supply). Currently, the supply managed by SOL DAT is less than 1%. With the implementation of the three newly announced plans, this proportion may rise to 3%, and could reach 5% if more plans follow.
• The recently announced $2.5 billion SOL DAT plan is equivalent to a $30 billion ETH or $91 billion BTC fundraising scale. SOL DAT needs a promoter like Michael Saylor or Tom Lee; narrative is key.
• We are finally about to get rid of the market impact from FTX's liquidation SOL (although FTX's narrative impact still needs to be addressed).
• SOL's inflation issue will continue to hinder its price increase and needs to be resolved. The scale of inflation is about three times the unlocking amount.
• Current ETF capital inflow is insufficient, but it is expected that larger-scale products will be approved by early Q4, and SOL remains a potential choice for institutional investors.