Solana: Analyzing the next ETF contender
With the launch of Bitcoin and Ethereum spot ETFs this year and the upcoming appearance of US presidential candidates at a Bitcoin conference, crypto is finally squeezing its way into the mainstream.
The phrase “I work in the crypto industry” is no longer met with puzzled looks. While explaining “what is crypto” might still be necessary, more people have at least heard of Bitcoin and Ethereum, thanks to the efforts of crypto advocates and major institutions like BlackRock and VanEck.
Spot ETFs are excellent avenues to popularize cryptocurrency, boosting public awareness and market confidence. The approval of Ethereum spot ETFs marks a significant regulatory milestone, indirectly addressing long-standing debates over Ethereum’s classification as a security or commodity.
With Ethereum's spot ETF now launched, attention is turning to Solana. VanEck submitted the first Solana spot ETF application in late June, followed by 21Shares. This growing interest is reflected in the 30-day DEX volume, where Solana surpassed Ethereum for the first time.
Opinions vary on the likelihood of Solana’s ETF approval, but the blockchain is undoubtedly under the spotlight. Known for its high transaction speed and low transaction fees, Solana aims to synchronize global information at lightning speed. According to CoinGecko, Solana is currently the fastest blockchain, with a daily TPS of 1,054, outpacing Sui by 23.4%.
Messari's Q2 report on Solana also highlights growth and progress across various sectors, showcasing a thriving ecosystem.
Catching our attention is its progress in the following areas:
1. With the increasing volume of pump.fun, Solana is becoming the new hub for memecoins, a key narrative in this market cycle.
2. Expanding into the real world through DePIN projects and stablecoin collaborations with PayPal.
3. Technical innovations like Solana Actions, Blinks, and ZK compressions to enhance user experience and reduce educational costs for new users.
A healthy ecosystem is crucial for many aspects, including the prospects of ETF approval.
To better understand Solana’s potential, let's delve into the actual performance of the Solana ecosystem.
A new hub for memecoins
In the current market cycle, memecoins have emerged as a key narrative, bridging the gap between the broader real world and the crypto realm through internet memes, celebrity endorsements, and US political factors.
With its fast transaction speeds and low fees, Solana has become the ideal platform for trading these volatile and high-volume memecoins. In June, the Solana network launched nearly 460,000 new tokens, predominantly memecoins. This outpaced the Ethereum network, which deployed fewer than 260,000 new tokens during the same month.
Ref: https://solscan.io/analytics#tokens
Ref: https://etherscan.io/chart/deployed-contracts
This year also saw the launch of Pump.fun, a memecoin launchpad on the Solana blockchain, simplifying the process for users to issue their memecoins. Celebrities like Iggy Azalea and Caitlyn Jenner have leveraged this platform to create their own tokens.
Pump.fun has achieved significant success, with average daily fees reaching $525,000, surpassing Uniswap Labs in monthly revenue generation.
Moreover, memecoin trading has significantly driven DEX activity, with WIF, MEW, POPCAT, and GME ranking among the top 10 tokens by Q2 trading volume.
Expanding into the real world
The initial vision of blockchains is to optimize this deteriorating world. It only makes sense to bridge the technology with the real world more. Decentralized Physical Infrastructure Networks (DePIN), recently highlighted by US asset management firm VanEck in its 15 crypto predictions for 2024, could offer an answer.
Solana, leveraging its fast speed and high throughput, is becoming a hub for DePIN applications, nurturing projects such as Helium, Hivemapper, Render, and Teleport.
Ref: https://messari.io/report/state-of-solana-q2-2024
Stablecoins, serving as the most direct connection between cryptocurrency and fiat currency, have also seen new progress within the Solana ecosystem.
In late May, PayPal expanded its PayPal USD (PYUSD) stablecoin to Solana. This expansion has led to centralized exchanges incorporating token extensions to support PYUSD. Following this move, several Solana dApps, including Jupiter and Kamino, integrated PYUSD, contributing to a 90% increase in supply and pushing its market cap past $500 million after expanding to the Solana network.
Meanwhile, USDC continues to dominate as the primary stablecoin on Solana, with its market cap growing by 5.5% quarter-over-quarter to $2.2 billion. In July, the USDC Treasury minted an additional 250 million USDC on the Solana network, further cementing its position.
Technical innovations for broader onboard
Both Web2 and Web3 evolve through the parallel development of technology and applications. Solana, launched in March 2020, continues to optimize its infrastructure.
On June 21, 2024, Solana introduced ZK Compression, a technology that compresses multiple account states into a single on-chain account. This innovation reduces storage costs, making data storage up to 10,000 times more efficient. This allows developers to build scalable applications directly on Solana’s layer-1 without needing additional layers.
On June 25, 2024, Solana introduced Solana Actions and Blinks to simplify blockchain interactions. Solana Actions are APIs that enable direct blockchain transactions. Meanwhile, Blinks are URLs that facilitate these actions on social media platforms, starting with X and potentially expanding to Discord and Reddit.
Blinks enhances user experience by simplifying interactions, increases Solana’s traffic through effective social platform integration, and lowers Web 3 participation barriers by abstracting complex blockchain operations into simple URL clicks. $SEND, the first token launched via Blink, raised over $100 million, setting a new record on Solana.
However, Blinks also increase fraud risks by making it easier for scammers to exploit users with misleading links on X. Additionally, Blinks are currently limited to desktop use, which could limit their effectiveness given the predominance of mobile users.
New technologies, including those from Solana, must stand the test of time and practical application. While potential fallouts exist, the spirit of innovation is something we should all embrace.
Disclaimer
The Solana spot ETF mentioned in the above content is speculative and based on market analysis at the time of writing and should not be interpreted as guaranteed outcomes. Market conditions can fluctuate widely and unpredictably due to numerous factors such as regulatory changes, market demand, and global economic developments.
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