Inflation of SOL, DAT, and Future Investment Strategies.
Author: Nom
Translation: Deep Tide TechFlow
TL;DR
The Digital Asset Treasury (DAT) of SOL will be more efficient in accumulating current trading supply compared to the DAT of ETH or BTC.
The recently announced $2.5 billion SOL DAT is equivalent to $30 billion in ETH financing or $91 billion in BTC financing.
SOL from the FTX legacy is about to exit the market, but its narrative impact still needs further digestion.
The inflation issue of SOL remains a barrier to price increases, with its scale being about three times the unlocking amount, which needs to be addressed promptly.
Do you really want to read the full content? Let's first look at a few key points:
I will not discuss the pros and cons of inflation, as I have already spent enough time on this; I look forward to the upcoming changes.
I am a holder of spot SOL, staked SOL, and locked SOL (thanks to SPV on Estate SOL), so my perspective may be biased; I hope the tokens I hold appreciate, and stagnant prices are negative for me.
Negative Factors: FTX Legacy and Market Pressure
Like many well-known blockchains, Solana sold tokens to investors through multiple rounds of financing. A large number of tokens flowed to FTX. According to reports from @CoinDesk and @realDannyNelson, FTX held 41 million SOL at the time of its bankruptcy, most of which were sold through several rounds of financing, with major buyers including Galaxy and Pantera, at exercise prices of about $64 and $102 (plus related fees). At the current price of about $190 for SOL, these investments have significantly profited.
Through analysis of the staking accounts, there are currently about 5 million units of "FTX legacy SOL" remaining to be unlocked, with a total value of about $1 billion.
Why mention this?
Recently, Galaxy and Pantera announced SOL DAT plans of $1.25 billion and $1 billion, respectively, along with $400 million from Sol Markets, totaling about $2.5 billion (excluding related fees). The problem is that this may not have a substantial impact on the price of Solana, as the SOL locked in the market can be purchased or allocated by these entities. According to data from @4shpool (gelato.sh), there are still about 21 million units of SOL to be unlocked until 2028, with a total value of about $4 billion. Rough calculations (more detailed model analysis can be provided by professional financial analysts) show that "FTX legacy SOL" accounts for about a quarter of the remaining unlocking amount.
On the other hand, the inflation issue of Solana is also worth noting. The current inflation rate is generally considered to be 7-8%, but the actual inflation rate is about 4.5% of the circulating supply. This means that if the supply of about 608 million SOL in the 839th cycle is calculated, the supply will increase by about 27.5 million (inflation) and 10 million (unlocking) after one year, bringing the total circulating supply to about 645.5 million, with an inflation rate of about 6.2%. Again, this is just a theoretical calculation; I will let more experienced analysts take a look and provide you with more accurate charts.
From the sharp increase in circulating supply, it can be seen that the "static" inflation rate is not accurate; it can significantly increase at certain points in time and be smaller at others. We have completed the remaining large unlocking time points.
We need to focus on a key number: the amount of SOL entering the market daily. If someone receives tokens for free (e.g., through staking inflation or unlocking) or acquires tokens at a discount (e.g., FTX legacy SOL), it can be expected that a portion of these will be sold. I assume that the inflation amount of 37.5 million SOL in the coming year will all be sold. If I want the price to rise, this is bad news for me—see point 2. Therefore, we need capital inflow, which can be achieved through DAT or ETFs (e.g., $SSK) (thanks to the @REXShares team for creating and submitting the BONK ETF, which is openly recommended). Ideally, every dollar used to purchase SOL should enter the market, driving prices up. But when SOL can be purchased at locked or discounted prices, this method is less efficient. Therefore, we assume that greedy DAT actors will buy these tokens before unlocking.
Is that bad?
Short answer: Not bad. To offset the annual supply of 37.5 million SOL (assuming a price of $200 per SOL, idealized expectation), the market needs about $7.5 billion in capital inflow, or about $20.5 million daily (this is simplified, not considering trading days from Monday to Friday and bank holidays). If DAT can purchase tokens at a discount from FTX legacy SOL or other locked SOL areas, it will improve the efficiency of capital inflow.
For example, raising $400 million to purchase SOL at a 5% discount equates to $420 million in capital inflow, which is clearly better than directly injecting $400 million into the market. The only question is how to assess the time value of purchasing SOL from the market today versus future reduced sales.
In the next three years, the inflation rate of SOL will be higher than the unlocking amount (until the end of the locking plan in 2028), and FTX legacy SOL only accounts for a quarter of the remaining unlocking amount. Therefore, DAT prioritizing the purchase of legacy SOL rather than SOL on the market will not pose a significant impact on the overall market. Either Galaxy or Pantera could clear the remaining supply (assuming all legacy SOL is available for sale), not to mention existing DATs like @defidevcorp, @solstrategies_, or @UpexiTreasury (as well as existing ETPs).
Good News: Trading Supply vs Circulating Supply
The funds spent on SOL are more efficient than those spent on ETH or BTC for two main reasons.
Trading Supply
First, the circulating supply does not equal the tradable supply in the market, especially for staked assets. Staked SOL cannot be purchased directly, but staked token derivatives (LSTs) can be purchased. According to data from the @solscanofficial team, Solana currently has 608 million SOL, of which 384 million SOL are staked, accounting for 63.1%. LSTs account for 33.5 million SOL, so the actual tradable supply in the market is about 57.5% (about 35 million SOL are non-tradable, with at least a two-day delay). In contrast, the staking ratio for ETH is 29.6%, and LSTs account for 11.9%. The higher supply in the market makes it harder to achieve price fluctuations, while the lower trading supply of SOL helps drive prices up.
Relative Capital Efficiency
Solana's market capitalization is far lower than that of ETH and BTC, with a circulating market cap of about $104 billion, while ETH is $540 billion and BTC is $2.19 trillion. Therefore, every dollar invested in SOL DAT is equivalent to five times the effectiveness of investing in ETH DAT and 22 times that of BTC DAT. When considering the staked supply, this efficiency increases to 11 times and 36 times, respectively.
The benefit of these DATs is that they remove supply from the market, earn tokens through staking rewards (already accounted for in inflation above), and make subsequent tools like ETFs more effective in driving the market. Since its launch, SSK has seen about $2 million in daily capital inflow, but the inflation plan requires ten times the capital inflow—this may be achieved with the approval of more ETFs.
Why read this content?
I have never registered for Elon bucks, so this is a mystery for all of us.
Summary:
Compared to ETH or BTC DAT, SOL DAT will more effectively accumulate current trading supply (rather than circulating supply). Currently, less than 1% of the supply is managed by SOL DAT, and this proportion is expected to rise to 3% with the launch of new plans, potentially reaching 5% in the future.
The recently announced $2.5 billion SOL DAT is equivalent to $30 billion in ETH financing or $91 billion in BTC financing. SOL DAT needs a leading figure like Michael Saylor or Tom Lee to drive the narrative.
SOL from the FTX legacy is about to exit the market, but its narrative impact still needs further digestion.
The inflation issue of SOL still needs to be addressed, with its scale being about three times the unlocking amount.
Current ETF capital inflow is insufficient, but as larger financial instruments are approved, SOL is expected to become a focus for institutions starting in Q4.
Buy $BONK (not investment advice, please do your own research).
If you just want to get investment advice from posts like this, I suggest you find a more professional quantitative analyst to manage your assets.
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