Written by: Nom
Compiled by: Luffy, Foresight News
TL;DR
Compared to 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 Ethereum's $30 billion or Bitcoin's $91 billion financing scale.
We are finally close to escaping the impact of SOL held by FTX's bankruptcy liquidation on the market (though FTX's narrative impact still needs to be eliminated).
The inflation issue of SOL will still hinder its price increase and urgently needs to be addressed, with the inflation scale about three times the unlocking volume.
Oh? Do you really want to read this? First, let me briefly mention 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 in spot, staked SOL, and locked SOL, so I may have biases. I certainly hope the tokens I hold increase in value, so to me, sideways price action is bad.
Bad news: FTX's bankruptcy liquidation relates to your money
Like many blockchain projects you're familiar with and love, Solana also sold tokens to investors through multiple rounds of financing, with a large amount of tokens flowing into FTX. When FTX went bankrupt, it held 41 million SOL among its liquidated assets, the majority of which were sold through several rounds of transactions, primarily taken over by institutions like Galaxy and Pantera, with exercise prices of about $64 and $102 (plus transaction fees). Considering the current price of Solana at about $190, these transactions are currently highly profitable. By analyzing the staking accounts in depth, the remaining amount of "liquidation SOL" yet to be unlocked is about 5 million, with a nominal value of around $1 billion at the current price.
Why bring this up?
Recently, Galaxy and Pantera announced SOL DAT plans of $1.25 billion and $1 billion, respectively, and Sol Markets also joined in with a planned scale of $400 million. Including transaction fees, the total scale of these DATs is about $2.5 billion. There are concerns that this will not have a substantial impact on Solana's price, as there is currently a large amount of locked SOL that these institutions may purchase. According to data from @4shpool, by 2028, there are still about 21 million SOL yet to be unlocked, with a nominal value of about $4 billion at current prices. Roughly estimated, "liquidation SOL" accounts for about 1/4 of all remaining SOL yet to be unlocked.
Another issue with Solana's inflation is its own inflation rate. When mentioning Solana's inflation rate, it is often said to be 7%-8% when accounting for unlocking volume, but the actual inflation rate is about 4.5% of circulating supply. This means if the circulating supply in the 839th cycle is about 608 million, the new supply from inflation after a year would be about 27.5 million, plus 10 million from the unlocking volume, leading to a circulating supply of about 645.5 million, with an inflation rate of 6.2%. This again indicates that this is just a rough estimate, and a more experienced analyst should provide more accurate charts.
The surge in circulating supply indicates that the claim of a 'fixed' inflation rate is not accurate: it will rise sharply at two points in time, while being lower at other times.
"Alright, nerd, your math isn't accurate either. Why should I read this?"
The focus is on one number: the amount of SOL flowing into the market daily. If someone gets tokens for free (staking inflation/unlocking), or acquires them at a discount (FTX's SOL), it is foreseeable that a certain proportion of people will sell. I assume that the inflation of 37.5 million SOL over the next year will all be sold. If we want to push prices up, this is not good. Therefore, we need inflows, possibly from DATs, or from ETFs like SSK (launched by REXShares). Ideally, every dollar used to buy SOL should flow into the market, pushing prices up. However, if there is an opportunity to buy locked or discounted SOL, then there is no need to buy from the market. So let’s assume that those DAT institutions would buy before the unlocked SOL flows into 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 a SOL price of $200, purely optimistic guessing), about $7.5 billion in capital inflows is needed each year, which is about $20.5 million per day. If DAT can buy from liquidation SOL or other locked SOL channels at a discount, it can improve the efficiency of capital inflows.
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 question is how to balance the time value of buying SOL from the market now versus reducing selling pressure in the future.
In the next three years, Solana's inflation scale will exceed the unlocking volume (the locking plan ends by the end of 2028), and FTX's SOL only accounts for 1/4 of the remaining unlocking volume—so it's unnecessary for DAT to buy liquidation SOL instead of purchasing from the market. As long as there is enough liquidation SOL available for sale, either Galaxy or Pantera can digest 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
The capital efficiency of investing in SOL is higher than that of investing in ETH or BTC for two main reasons.
Trading supply
First, circulating supply does not equal market tradable supply, especially for staked assets. You cannot buy staked SOL, but you can buy LSTs (liquid staking tokens). According to data from the @solscanofficial team, out of the current 608 million SOL, 384 million are staked, accounting for 63.1%, and cannot circulate in the market. The number of SOL corresponding to LSTs is 33.5 million. If we consider this part as purchasable supply, roughly speaking, about 350 million / 508 million SOL are locked, accounting for 57.5%, and cannot be purchased (at least have to wait two days for unlocking). In contrast, the staking rate for ETH is 29.6%, with LSTs accounting for 11.9%. The higher the market tradable volume, the harder it is to push prices, though the differences in ETH's unlocking plans and other chain DeFi platforms clearly also have an impact.
Relative capital impact
Solana's valuation is far below that of ETH and BTC. Solana's current circulating market value is about $104 billion, while ETH and BTC are $540 billion and $2.19 trillion, respectively. From a relative valuation perspective, investing $1 in SOL DAT is equivalent to investing $5 in ETH DAT or $22 in BTC DAT. When combined with the circulating supply differences resulting from staking, the efficiency gap will expand to 11 times that of ETH and 36 times that of BTC. The good news is that these DATs will reduce market supply and can also yield token earnings through staking (we assume this part will be sold), making subsequent buying behaviors like ETFs more impactful on market prices. Since its launch, SSK has seen about $2 million in daily inflows, but offsetting inflation requires a tenfold increase in capital inflow, which may take more ETF approvals to achieve.
Summary
Compared to ETH or BTC's DAT, SOL DAT is more efficient in absorbing the current trading supply (which differs from circulating supply). Currently, the supply managed by SOL DAT is less than 1%. With the implementation of three newly announced plans, this proportion may rise to 3%, and if more follow-up plans come, it may reach 5%.
The recently announced $2.5 billion SOL DAT plan is equivalent to ETH's $30 billion or BTC's $91 billion financing scale. SOL DAT needs a promoter like Michael Saylor or Tom Lee for the narrative to be key.
We are finally close to escaping the impact of FTX's liquidation SOL on the market (though FTX's narrative impact still needs to be eliminated).
The inflation issue of SOL will still hinder its price increase and urgently needs to be addressed, with the inflation scale about three times the unlocking volume.
Current ETF inflows are insufficient, but larger-scale products are expected to be approved by the beginning of the fourth quarter, and SOL remains a potential choice for institutional investors.
