Solana(SOL): Does the Supply Shock Narrative Apply?: Making Inroads
Judging by Bitcoin’s 2020, an argument can be made that illiquidity could have an effect on SOL’s overall growth. Through the model of a supply shock, it’s easy to see why.
Another day’s gone by and Solana continues to sit in the spotlight, despite a 15% drop in its’ coin’s price. Alongside the report that it can handle 50,000 transactions or even more, there’s something I recently stumbled upon. One source claims that Solana’s SOL coin supply is mostly staked. More specifically, they claim that it’s 74% staked. Now, this is tricky. One of the ways to independently verify this would be to go to reliable on-chain analytics and see if an independent metric exists such as illiquid vs. liquid supply of SOL. One problem with that, however, is that it doesn’t really measure staked vs. unstaked coins. Instead, it’s looking at moving vs. “unmoving” supply, which can include “HODLERs,” as well as stakers, and even wallets that just don’t move their coins for other reasons.
Even so, if you remember Bitcoin’s magnificent 2020, then you’ll recall that moving vs unmoving supply matters. In fact, if increasingly unmoving supply is coupled with increasing demand for an asset, then said asset can enter a true supply shock, causing it to exponentially grow due to demand that can’t be met fast enough.
Let me pause here for a moment.
I’m not saying that if, say, 90% of SOL’s supply were locked up in wallets and smart contracts, then it would exponentially rise in price. Price predictions are for those who are shilling their own bags or running some sort of long-con, for the most part. Yes, there are professional investors who make price predictions but they do so with the backing of their titles and their resultant authorization to do so.
Even more importantly, focusing only on the price of a coin misses the big picture.
The importance of a supply shock for Solana and SOL lies in the attention it can bring to the network. If you haven’t already, head to NBX Editorial’s Medium here, where I was the editor from July 2020-July 2021. In this post, I broke down the meaning of a supply shock to Bitcoin and mentioned three key points that I’d like to reiterate here.
First, since Bitcoin is a Proof-of-Work-based network, or more accurately, the first Proof-of-Work-based cryptocurrency, it has always had “halvings.” These are events that forever cut the Bitcoin issuance in half and occur roughly every four years. In the context of supply shocks, halvings matter because when less new bitcoins are being sent out into the world and demand continuously increases, the network and its’ coin tend to be cast in a powerful flywheel that propels it to yet unseen levels of growth.
See 2020 and Bitcoin’s rise to new all-time highs as well as more importantly, the unprecedented level of institutional interest that this generated. Institutions, as I’ve said before, tend to gravitate towards a rising market cap. They don’t always care solely about the price of an asset, like large swathes of individual investors do.
I can’t take credit for this idea.
It comes from Raoul Paul himself, who, indirectly, has definitely been a mentor to me in the world of investing.
Now, if you’re wondering why this discussion of halvings applies to Solana, it’s actually quite simple. No, a Proof-of-Stake network doesn’t experience halvings. What it does experience, however is rising staked coins versus falling circulating coins.
That’s the foundational metric to follow to build a toolset of metrics for studying a possible Solana supply shock over the long-term. In future posts, I aim to dig into more measures as they develop but keep in mind, Solana is an extremely new network. It will take time for it to have its’ own rich set of data, akin to what Bitcoin has through Glassnode and numerous other providers.
For now, I’ll leave you with one more, hopefully helpful idea.
Coin burn plus coins staked, coupled together with demand that outpaces available supply can lead to a Proof-of-Stake-based supply shock. If and when I discover that SOL is being destroyed and most of the supply is staked while adoption is rising, I’ll see that pattern as a possible key indicator for one.
With this in mind, Pyth’s launch on Solana might be its’ first, best bet for richly detailed, quality on-chain analytics. Check out some info on that from Bloomberg here.
Looking Ahead: What’s Next?
Though this post’s coming to a close, my analysis of Solana is just beginning. Right now, overall, I see a lot of promise for the network, but as is customary with new research pursuits, I currently have more questions than answers.
Anyone and everyone who is plugged into the Solana ecosystem, please do reach out and remember, everything that I do, I aim to spark further, deeper conversations and simply help to educate the world about the power of this little, yet powerful place many of us have now called home for years.
That being said, I leave you all with a question: how do you feel about supply shocks in crypto? Do you think they can be a major driver of a coin plus its’ respective network’s growth? Remember, we’re not thinking in terms of the price here but instead, of overall adoption.
With your answers or to kickstart any further conversation, feel free to reach out to me via Twitter or Discord@AriastheRaven#0117, and stay tuned for next time! Finally, most of my free time is now being taken up with my newsletter, which is completely free and focused on how the rise of the Metaverse improves things for everyone. Sub here.
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Disclaimer: I do not aim to garner any investment for the project from my efforts and no one should make any investment decisions based on what I write. All of my content is purely educational. Do not treat this post as an inducement to buy SOL(Solana’s native coin). In a day and age where you can never tell who isn’t just shilling their personal portfolios, this has to be said. Always do your own research before you put any financial resources on the line for anything.
