Solana is currently grappling with significant market challenges, as a large percentage of its investors find themselves facing losses. Despite the blockchain’s successful outreach to Wall Street through the introduction of spot Exchange-Traded Funds (ETFs), the SOL native token has been under severe pressure, experiencing a 32% drop over the last month amidst a general risk-off attitude that has seen Bitcoin stagnate around $80,000.
The network’s struggles are reflected in the on-chain data analysis by market intelligence firm Glassnode, which estimates that approximately 79.6% of the circulating SOL supply is being held at an unrealized loss. The firm described this situation as “top-heavy,” indicating that a significant volume of coins was acquired at elevated prices, resulting in potential sell pressure as these holders may opt to unload their assets.
This selling trend occurs despite a robust demand from traditional finance. Recently launched US spot Solana ETFs have seen about $510 million in net inflows, accumulating total net assets of around $719 million. The continual influx of capital into these products, juxtaposed with the declining SOL price, highlights a liquidity mismatch, where legacy holders and validators are selling tokens more quickly than institutional investors can absorb them.
In response to these market conditions, Solana contributors introduced a new proposal, SIMD-0411, on November 21. The proposal aims to directly tackle the sell-side pressure by altering the network’s emissions schedule. Currently, Solana’s inflation rate decreases by 15% annually, but SIMD-0411 seeks to double this rate of disinflation to 30% per year. This change aims to reduce cumulative issuance by 22.3 million SOL over the next six years, effectively eliminating about $2.9 billion in potential sell pressure.
Furthermore, SIMD-0411 intends to reshape Solana’s economic incentives. In the context of traditional finance, high-risk-free rates deter risk-taking; a similar principle applies in the crypto world where high-staking yields encourage funds to remain passive. Under the proposed plan, staking yields would be lowered significantly, compelling capital to transition from passive staking into more active roles within the ecosystem, such as lending and trading.
Investors are keenly interested in how this potential supply shock will affect the token’s price. Analysts outline three scenarios: a bear case, where demand fails to grow, resulting in gradual market stabilization; a base case, where slight demand growth alongside reduced supply creates upward price pressure; and a bull case, where high network activity could lead to deflationary conditions, aligning the asset’s value more closely with its usage.
With the proposal, there are inherent risks, particularly for the validators who maintain network security. The reduction in inflation may lower their revenue, although the expected implementation of the “Alpenglow” consensus upgrade is poised to optimize costs related to validator voting. This dual approach aims to maintain profitability for most node operators despite the expected changes in revenue.
If implemented successfully, SIMD-0411 holds the potential to rejuvenate Solana’s market position while simultaneously encouraging active engagement within its ecosystem. The forthcoming adjustments may propel the blockchain towards a more sustainable economic model, fostering a renewed sense of optimism among investors.