The efficiency magic of the SOL treasury: 2.5 billion dollars, not losing to Ethereum's 30 billion?

Written by: Nom

Compiled by: Luffy, Foresight News

TL;DR

Compared to DAT (cryptocurrency treasury) of Ethereum or Bitcoin, SOL DAT is more efficient in absorbing the current trading supply (which is different from the circulating supply).

The recently announced $2.5 billion SOL DAT plan is equivalent to a financing scale of $30 billion for Ethereum or $91 billion for Bitcoin.

We are finally about to shake off the impact of SOL held by FTX's bankruptcy liquidation on the market (although FTX's narrative impact still needs to be eliminated).

The inflation problem of SOL will still hinder its price increase and needs to be addressed urgently, with the inflation scale of SOL being about 3 times the amount unlocked.

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, just waiting for the subsequent changes.

I personally hold SOL spot, stake SOL, and lock SOL, so I may be biased. Of course, I hope the tokens I hold increase in price, so in my view, a sideways movement in token prices is a bad thing.

Bad news: FTX's bankruptcy liquidation involves your money

Like many blockchain projects that you are familiar with and love, Solana also sold tokens to investors through multiple rounds of financing, with a large number of tokens flowing into FTX. When FTX went bankrupt, it held 41 million SOL in liquidated assets, most of which were sold through several rounds of trading, primarily taken over by institutions such as Galaxy and Pantera, with exercise prices of about $64 and $102 (plus fees). Considering Solana's current price of about $190, these trades are now quite profitable. Through in-depth analysis of the staking accounts, the remaining amount of "liquidated SOL" to be unlocked is about 5 million, with a nominal value of approximately $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, with Sol Markets also joining in with a plan of $400 million. Including fees, these DATs have a total scale of approximately $2.5 billion. There are concerns that this will not have a substantial effect 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, as of 2028, there are still about 21 million SOL waiting to be unlocked, with a nominal value of approximately $4 billion based on current prices. Rough estimates suggest that "liquidating SOL" accounts for about 1/4 of all remaining locked SOL.

Another issue with Solana's inflation lies in its own inflation rate. When mentioning Solana's inflation rate, it is usually said to be 7%-8% including the unlocked amount, but the actual inflation rate is about 4.5% of the circulating supply. This means that if the circulating supply at the 839th epoch is about 608 million coins, the new supply due to inflation after a year will be about 27.5 million coins, plus 10 million coins from the unlocked amount, bringing the circulating supply to approximately 645.5 million coins, with an inflation rate of 6.2%. Again, this is just a rough calculation, and more experienced analysts should provide more accurate charts.

The surge in circulating supply shows that the claim of a "fixed" inflation rate is not accurate: it will rise significantly at two points in time, while being lower at other times.

"Alright, bookworm, your math isn't accurate either. Why should I read these?"

The focus is on 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 is foreseeable that a certain proportion of people will sell. I assume that in the coming year, the inflation of 37.5 million SOL will be completely sold. If we want the price to rise, this is not a good thing. Therefore, we need capital inflow, which may come from DAT, or from ETFs like SSK (launched by REXShares). Ideally, every penny used to buy SOL should flow into the market, pushing the price up. But if there is an opportunity to buy locked or discounted SOL, then there is no need to buy it in the market. So let's assume that those DAT institutions will 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 the price of SOL is $200, which is purely optimistic speculation), an annual capital inflow of about $7.5 billion would be needed, which translates to approximately $20.5 million per day. If DAT can buy SOL at a discount from liquidating SOL or other locked SOL channels, it can improve the efficiency of capital inflow.

Raise $400 million to buy SOL at a 5% discount, which translates to an inflow effect of $420 million, making it more cost-effective than directly investing $400 million. The only question is how to weigh the time value of currently buying SOL from the market against reducing selling pressure in the future.

In the next 3 years, Solana's inflation scale will exceed the unlocked amount (the locking plan ends by the end of 2028), and FTX's SOL only accounts for 1/4 of the remaining unlocked amount—so there is actually no need to worry about DAT buying liquidated SOL instead of buying from the market. As long as there is enough liquidated SOL for sale, any of 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

Investing in SOL is more efficient than investing in ETH or BTC for two main reasons.

Trading Supply

First, circulating supply does not equal market tradable volume, 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, of the current 608 million SOL on Solana, 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 we consider this part as the purchasable supply, it roughly calculates to about 350 million / 508 million SOL being locked, accounting for 57.5%, and cannot be bought (at least you have to wait for two days to unlock). In comparison, the staking rate of ETH is 29.6%, with LSTs accounting for 11.9%. The higher the market tradable volume, the harder it is to push the price, but the differences in ETH's unlocking plans and various DeFi platforms on different chains clearly also have an impact.

Relative funding impact

The valuation of Solana is far lower than that of ETH and BTC. Solana currently has a circulating market cap of 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 differences in circulating supply brought about by staking, the efficiency gap could widen to 11 times that of ETH and 36 times that of BTC. The good news is that these DAT will reduce market supply and can also generate token earnings through staking (we have assumed that this portion will be sold), making subsequent buying behaviors such as ETFs more impactful on market prices. Since its launch, SSK has seen an inflow of about $2 million per day, but offsetting inflation requires a 10-fold inflow of funds, which may only be realized after more ETFs are approved.

Summary

Compared to the DAT of ETH or BTC, the SOL DAT is more efficient in absorbing the current trading supply (which is different from the 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 if more subsequent plans are introduced, it could reach 5%.

The recently announced $2.5 billion SOL DAT plan is equivalent to a financing scale of $30 billion for ETH or $91 billion for BTC. SOL DAT needs a promoter like Michael Saylor or Tom Lee, as the narrative is key.

We are finally about to get rid of the impact of FTX liquidating SOL on the market (although the narrative impact of FTX still needs to be eliminated).

The inflation issue of SOL will still hinder its price increase and needs to be addressed urgently, with the scale of inflation being about 3 times the unlocking amount.

The current inflow of funds into ETFs is insufficient, but a larger scale of product approvals is expected by the beginning of the fourth quarter, and SOL remains a potential choice for institutional investors.