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Solana financial analysis: Annual profit could reach $2 billion.

23-11-10 16:16

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Original Title: "What's the value of SOL if transactions are cheap?"

Original Author: mhonkasalo

Original Translation: Deep Tide TechFlow

One common question about Solana is the feasibility of $SOL as an investable asset. Some statements you may hear in cryptocurrency discussions on Twitter/X include:

Solana may be useful, but it does not capture value.

Solana validators have received subsidies, making the system unsustainable.

Optimizing low costs will always mean that $SOL has no value.

Assuming that the Solana network is elastic and decentralized, the goal of execution in these systems is to minimize costs as much as possible.

Fast and cheap equals practical. Moreover, since there are no settlement failures in these systems, it doesn't make much sense to call something a settlement or execution layer.

Our goal is to maximize practicality. This is how we maximize the value for end users.

If we try to achieve billions of DAU, then extracting rent from a group of approximately 10,000 active users is not the goal we are optimizing for.

Regardless, the focus of this article is not to debate which expansion path is the best, but to point out that if there is a fit between the product and the market, achieving exciting profit/revenue numbers is quite easy.

If SOL succeeds, it will be valuable.

The Mathematics and Value Capture of SOL Assets

A few facts:

Solana user's gas fee paid yesterday was about $100,000.

50% goes to validators, 50% is destroyed: $50,000 is allocated for service provision, and $50,000 is distributed to token holders. A mechanism similar to ETH burning.

The inflation rate of Solana is about 5.7%. It started at 8% and decreases by 15% every year. The long-term goal is 1.5%.

It is important to note that these parameters are adjustable for all blockchains. It is important to have sufficient incentives to keep validators honest, and then you can begin "paying" token holders.

Each transaction has a basic fee (in addition, you will always have a priority fee).

Revenue sharing (dynamic, algorithmic, fixed).

The inflation rate (i.e. subsidy).

Today, Solana is non-profit (similar to previous Ethereum):

Solana supply = 562,119,561 SOL

(Note: The content contains only numbers and symbols, so it is returned as is.)

5.7% inflation = 32,040,814 SOL = 1,440,875,405 USD

Annual income = 100,000 US dollars x 365 = 36,500,000 US dollars.

The net loss = -36,500,000 US dollars = 1,404,375,400 US dollars.

The required ratio to achieve breakeven is 39.48 times, which is calculated as follows: 1,440,875,405 USD / 36,500,000 USD.

This means that Solana needs to increase its transactions by about 40 times at today's fee levels to break even.

Like any other blockchain, once the block space is filled, or in the case of Solana, when accessing specific parts of the state such as NFT minting, priority fees will begin to dominate.

However, let's use some parameters to complete this exercise:

Solana's TPS today is 3,000, and it 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 that additional priority fees will double the total cost, we now have a total of 30 times.

To be honest, Solana can double the base fee without affecting users, so we have already reached 60 times.

Overall, in this case, Solana's profit is about twice as much.

Please note, this is a completely hollow way to conduct this exercise. Solana can earn more money than this.

100 million Firedancer TPS, half-full blocks = 150x increase in fees.

4x boost from extra priority fees = 600x increase in fees.

Keep the base fee unchanged (after all, Solana transactions are very cheap).

Reduce emissions to a long-term increase in profits of 1.5% = 2000 times.

The profit of Solana is 70 times its emissions, creating approximately $22 billion in revenue annually. Look at this P/E ratio.

It sounds simple enough, but before paying the validators after the subsidy, Solana can earn profits of over $2 billion per year (from which you can decide on an appropriate amount to burn).

The focus of this article is not on mathematics, but on how Solana will earn a lot of money if it successfully provides services for large-scale end users. You just need to be optimistic about blockchain, optimize for users, and then solve the rent-seeking problem later.