Lightspeed Newsletter: The SOL ETF filing breakdown
Solana’s pathway to a spot ETF will be different because of its unlock schedule, staking demand and the political backdrop
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Lightspeed was the pace at which I had to skim a 100+ page regulatory filing this morning. The forbidden combo of pre-11 am coffee and Celsius were the only way this newsletter got filed on time.
But when Solana sees big news, we want to be the place you’ll find the most in-depth take:
What to know about spot solana ETFs
This morning, the New York-based asset manager VanEck became the first American firm to file for a spot solana ETF. For an overview of the news, I recommend this story from my colleagues Katherine Ross and Ben Strack.
But for all the excitement and price-pumping surrounding VanEck’s filing, solana’s pathway to a spot ETF looks differently from bitcoin or ether’s — specifically as pertains to its unlock schedule, staking demand, and political backdrop.
VanEck’s case for a spot SOL ETF largely hinges on its case that solana is a commodity, and not a security. Interestingly, this could be complicated by the fine print in FIT21, a digital asset framework bill that passed the US House and is awaiting a vote in the Senate.
FIT21 says digital commodities must have only been distributed to end users in the prior year. This wording is somewhat vague, but Blockworks Research analyst Spencer Hughes told me this criteria sounds to him like a requirement for all tokens to be fully vested.
And, the educated reader will note, roughly 20% of solana tokens are still vesting, according to Solana Beach. Solana token unlocks are set to continue until 2028, according to gelato.sh.
So, Solana’s locked tokens could be a hang-up. The lack of staking rewards is a question, too.
Like its ether ETF, VanEck’s solana ETF would not stake its holdings to earn extra yield. But staking is much more common on the Solana network than on Ethereum. 65% of the total SOL supply is staked, as opposed to 27% of Ethereum. Around 12.5% of staked SOL is locked, according to gelato.sh, but the difference is still notable.
Demand for VanEck’s spot SOL ETF would hinge on investors being willing to forfeit staking yield — which currently sits at 5.7% on user-friendly Coinbase. Brian Rudick, senior strategist at GSR, told me this may be a moot point.
“A lot of people make a big deal about a lack of staking with the US spot ETFs, since it introduces an opportunity cost,” Rudick said, but countered that single digit yield doesn’t matter much given how volatile solana is.
Rudick penned a well-timed report on Solana’s ETF odds ten minutes before VanEck’s filing went public this morning. In it, he argues that decentralization and demand will determine which crypto gets an ETF next.
On the demand front, many say Solana would need to prove itself with a CME futures market before regulators would approve spot ETFs. Bitcoin and ether both had futures markets before spot ETF approval, something solana currently lacks.
Solana futures trading successfully could also quell regulators’ fears of market manipulation, a notion that VanEck digital assets research head Matthew Sigel called “stupid.” Sigel noted that other commodity ETFs were approved without futures markets, and issuers could watch for market manipulation together with crypto exchanges.
Solana’s decentralization could also be a sticking point for regulators. Solana’s nakamoto coefficient, or number of entities who would need to collude to disrupt the blockchain, is listed as around 20 on some venues, but Helius’ Mert Mumtaz has argued the real figure is closer to seven.
Elixir chief operating officer Tim Wang argued that decentralization is “less of a concern.”
“[I]t’s unlikely anyone at the SEC understands the nuances of ‘sufficiently decentralized’ and takes a stance on what that means between ETH and SOL,” Wang wrote.
Of course, this is all overshadowed by the coming US presidential election and the Trump campaign’s pledge to take a friendlier approach to crypto than the Biden administration has. While a second Trump presidency would not necessarily spell an immediate end to the Gensler SEC regime, the common view in crypto is that the Trump administration would push for more favorable crypto policy.
Investors were happy to brush off the myriad uncertainties this morning though as SOL erased two weeks of losses in half an hour on the ETF news. Solana was trading at around $148 at press time.
— Jack Kubinec
Zero In
It was a morning to forget for Solana shorts:
Solana short liquidations — where a price increase forces traders holding short positions in futures markets to close their positions at a loss to prevent their accounts from falling into negative equity — spiked on exchanges at around 9:00 am as news of VanEck’s spot SOL ETF filing went public, according to Coinglass data. Roughly $4.4 million in shorts were liquidated between 9:00 and 9:10.
The $6.83 million in short liquidations since 8:00 pm last evening is already the highest daily total since late May, when markets pumped on ether ETF news.
— Jack Kubinec
The Pulse
VanEck’s announcement of its spot solana ETF was met with a mix of euphoria and skepticism from the online crypto world. Many in the community have eagerly awaited a SOL ETF following the recent approval of bitcoin and ether ETFs. However, the lack of a solana futures market and existing regulatory challenges pose significant hurdles.
VanEck seems to believe it can overcome these issues by highlighting Solana’s scalability, low fees, and robust security, arguing that SOL should be treated as a commodity. Matthew Sigel, VanEck’s head of digital assets research, emphasized Solana’s decentralized nature and high utility.
Adam Cochran, founder and general partner at Cinneamhain Ventures and a seasoned blockchain investor, expressed skepticism on Twitter, noting that the absence of solana futures and ongoing SEC claims make approval unlikely. He pointed out that CME futures are typically a prerequisite for ETF approval, which solana currently lacks. Cochran warned that filing prematurely could give the SEC more ammunition against the crypto industry.
Responses to Cochran’s position were mixed. Some agreed, citing regulatory risks, while others saw VanEck’s move as a strategic push to set legal precedents. The general sentiment on social media was cautiously optimistic, with users hoping this filing could eventually lead to broader acceptance and innovation in crypto ETFs.
— Jeffrey Albus
One Good DM
A message earlier this week from Nick Ducoff, head of institutional growth at the Solana Foundation:
Updated June 27, 2024 at 7:22 pm ET: Updated to reflect that Ducoff’s message in One Good DM was not in reference to the ETF news.
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