Written by: mhonkasalo
Translated by: Deep Tide TechFlow
One common question about Solana currently is the feasibility of $SOL as an investable asset. Some statements you may have heard in crypto circles on Twitter/X include:
Solana may be useful, but does not capture value.
Validators on Solana receive subsidies, making the system unsustainable.
Optimizing for low fees will always mean $SOL has no value.
Assuming the Solana network is flexible and decentralized, the goal in these systems is to minimize costs as much as possible.
Fast and cheap equals practical. And given that there are no settlement failures in these systems, calling something a settlement or execution layer doesn’t make much sense.
Our goal is to maximize practicality. This is how we maximize end-user value.
If we’re trying to achieve billions of DAUs, then extracting rent from a group of about 10,000 active users is not the goal we are optimizing for.
In any case, the focus of this article is not to argue which scaling path is best, but to point out that if product-market fit is achieved, achieving exciting profit/revenue figures is quite easy.
If SOL succeeds, it will be valuable.
The math and value capture of SOL assets
Several facts:
The gas fees paid by Solana users yesterday were approximately $100,000.
50% goes to validators, 50% is burned:
$50,000 goes towards service providers.
$50,000 is allocated to token holders.
A mechanism similar to ETH’s burning.
Solana’s inflation rate is about 5.7%.
Starting from 8%.
Decreases by 15% annually.
The long-term goal is 1.5%.
It is important to note that for all blockchains, these parameters are adjustable. It is important to have enough incentives to keep validators honest, and then you can start “paying” token holders:
Base fee for each transaction (plus you will always have a priority fee).
Revenue sharing (dynamic, algorithmic, fixed).
Inflation rate (i.e., subsidies).
Today, Solana is non-profit (similar to past Ethereum):
Solana supply = 562,119,561 SOL
5.7% inflation = 32,040,814 SOL = $1,440,875,405
Yearly income = $100,000 x 365 = $36,500,000
Net loss = – $36,500,000 = $1,404,375,400
Break-even point = $1,440,875,405 / $36,500,000 = 39.48 times
This means Solana needs to increase transactions by about 40 times at today’s fee levels to break even.
Like any other blockchain, once block space is filled, or in Solana’s case, access to specific parts of the state, such as NFT minting, priority fees will start to dominate.
However, let’s complete this exercise with some parameters:
Solana’s TPS today is 3,000, and will reach 100,000+ with Firedancer. Assuming half of the block space is filled, we will see a 15x increase in fees from today.
Assuming additional priority fees will double the total fees, we now have a total of 30x.
Honestly, Solana can double the base fee without affecting users, so we have reached 60x.
Overall, in this scenario, Solana’s profit is about 2x.
Please note, this is a completely hollow way of performing this exercise. Solana can make more money than this:
1 million Firedancer TPS, half-filled blocks = 150x fee increase.
A 4x boost from additional priority fees = 600x fee increase.
Keep base fees the same (after all, Solana transactions are very cheap).
Reduce emissions to a long-term 1.5% = 2000x profit increase.
Solana’s profit is 70x its emissions, creating about $22 billion in revenue annually. Look at that P/E ratio.
It sounds simple, but Solana can earn over $2 billion in profit annually before paying fees to validators after subsidies (you can decide the appropriate amount of burn).
The point of this article is not the math, but if Solana successfully serves large-scale end-user applications, it will make a lot of money. You just need to be optimistic about blockchain, optimize for users, and then deal with rent-seeking later.
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