What you’ll learn today

• Insight 1: Solana's $7.8 Billion Market Cap marks it as a crypto heavyweight.

• Insight 2: A 71.19% staking ratio showcases Solana's engaged community and financial strength.

• Insight 3: News, like VISA's involvement, needs cross-referencing with metrics for a full investment picture.

1. Market Overview

Market Cap

Market Cap’s Significance

This metric serves as an important indicator for evaluating the asset's relative size and significance in the broader cryptocurrency market.

Current value: $7.8 Billion

With a market capitalization of $196.42 billion, Ethereum's size substantially exceeds that of Solana. Despite this, Solana's market capitalization has increased by over 29% in the past 90 days, suggesting it is a network gaining momentum.

Daily Volume

Daily Volume's Significance

The daily trading volume of a crypto asset indicates investor interest and market liquidity. High volume facilitates easy buying and selling, while low volume may present challenges in executing trades without affecting the asset's price.

Current value:

With a Daily Volume of $138 million demonstrates robust market activity.

While it may not reach the towering heights of Ethereum's $4 billion in daily volume, Solana's figures are nonetheless impressive for a blockchain of its stature.

What This Daily Volume and size of the Market cap means

A relatively high Market Cap, when backed by substantial Daily Volume, could signify a stable and liquid investment environment. However, it's essential to compare these metrics with larger assets like Bitcoin and Ethereum. As the size of the asset decreases, its volatility generally increases.

2. Supply and Demand

Inflation Rate

Inflation Rate's Significance

Inflation Rate is a window into Solana's token supply dynamics. A high inflation rate can dilute the value of existing tokens, while a low rate might suggest scarcity, potentially driving up demand and price.

Current value: Witnessing a 7.31% Token Supply Growth

Compared to Ethereum's modest inflation rate of 0.11%, Solana has a notably higher rate at 7.35%.

Given that Solana is a relatively new blockchain, its higher inflation rate is designed to decrease by 15% annually.

What This Inflation Rate Means for You

Inflation impacts the real value of SOL holdings. Moderate inflation aids network security but can dilute token value. Without staking rewards, your share in SOL's total supply could decrease by nearly 7% annually.

Annualized Fee Revenue

Annualized Fee Revenue is a measure of Solana's financial activity. A higher revenue indicates a robust protocol with plenty of transactional activity, while a lower figure might suggest reduced network usage.

Current value: 14.70 Million

When you compare Solana's Annualized Fee Revenue of 14.22 million to Ethereum's staggering $2 billion, it's clear that Ethereum is a financial giant.

However, it's essential to understand that Solana, though smaller, is showing promising financial activity, especially when considering its relative age and market position.

Supply/Demand (S/D) ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal. A ratio below 1 implies more rewards are paid out than fees earned, potentially questioning the token's long-term value if sustained.

Current value:

▪️Annual Fee Revenue: $14.7 million

▪️Rewards Per Year: $541.69 million

▪️Ratio: 0.0271

With a calculated R/R ratio of approximately 0.027, Solana is leaning towards higher payouts.

Comparative Analysis: Financial Equilibrium Insights

In contrast, Ethereum's R/R ratio is approximately 1.17 ($2 billion USD / $1.64 billion USD), indicating a more balanced system where the fee revenue nearly matches the reward payouts. This could suggest a more sustainable model for Ethereum in comparison to Solana, at least from a financial equilibrium standpoint.

What This R/R Ratio Means for the SOL Hodler?

For a SOL token holder, understanding the R/R ratio is crucial. It provides insights into the token’s supply / demand dynamics.

An L1 truly succeeds when it enables very low transaction fees for individual transactions while the total number of transactions creates enough demand for the L1 token to make the L1 ecosystem self-sustainable over time.

None of the blockchains are here yet.

3. Security & Participation : Key Staking Metrics

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $7.72 Billion

With a Staking Market Cap of $7.72 billion, Solana certainly commands a substantial level of financial backing.

Yet, when viewed alongside Ethereum's staggering Staking Market Cap of $41.51 billion, Solana's figure appears more modest.

90 Day Trend: +26.98%

The growth of +26.98% over the past 3 months in Solana's Staking Market Cap is mainly due to the price appreciation of SOL.

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: SOL Staking Ratio: 71.19%

When compared to Ethereum's 20.51% and ADA's 62.41%, SOL's 71.19% staking ratio suggests a relatively high staking ratio.

90-Day Trend: +0.49%

The 90-day trend of a +0.49% change further indicates a stable or slightly increasing level of network participation.

Staking Wallets

The number of Staking Wallets is more than a count; it's an indicator of network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 332,373 Active Wallets 

With 332,373 Staking Wallets, Solana has a thriving community.

In comparison, Ethereum has a significantly higher number of staking wallets at 781,320 and Cardano around 1.3 million.

90-Day Trend: +13.54%

What does these Key Staking Metrics mean for a SOL Hodler?

A high staking market cap and staking ratio indicate robust network security and strong community participation. However, compared to Ethereum and Cardano, Solana has fewer staking wallets, suggesting room for growth.

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: 7%

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

This metric tries to give you an indication into how reliable the expected reward rate for this asset is.

Current value: 100%

According to stakingrewards.com the reward stability for staking SOL is a 100%, but this metric may not be that very accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

Real Reward Rate

It is the the nominal reward rate of the network adjusted for inflation. This metric can provide insights into the actual, inflation-adjusted return that stakers or delegators can expect to receive for participating in the network, and can help the stakers understand the potential long-term value of their token holdings.

Why does it matter?

Higher real reward rates generally indicate greater potential returns for stakers or delegators, while lower real reward rates may indicate lower expected returns or potentially negative real yields in some cases.

Current value: -0.29%

What does it mean for a SOL staker?

A real yield can be negative when the nominal yield, or the reward rate generated from staking or delegating, is lower than the rate of inflation within the network.

In such a scenario, even though you may be earning more of the cryptocurrency through staking rewards, the purchasing power of your holdings could be declining.

This means that the real value of your assets, when adjusted for inflation, is diminishing, resulting in a negative real yield.

5. Risk Metrics

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) is indicates potential value dilution. If many tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $10.824

The gap between Solana's current market cap of $7.961 Billion and its FDV of $10.824 Billion is noteworthy.

What does FDV means for a SOL Hodler?

For a SOL holder, the FDV offers insight into potential token dilution. A gap between the current market cap and FDV suggests future tokens entering circulation, which could exert downward price pressure.

In contrast, Ethereum's FDV is essentially the same as its market cap, indicating limited risk of token dilution, thereby causing lesser selling pressure for the Token.

Slashing

Current Status: No Slashing Conditions

Compared to some networks that impose severe slashing conditions, Solana offers a more lenient environment. This can be attractive for new stakers.

Monitoring Network Decisions

While Solana currently has no slashing, it's essential to stay updated. Network decisions can change, and introducing slashing in the future might alter the staking landscape.

What No Slashing Means for Your Portfolio 

For a SOL token holder, the absence of slashing conditions means less risk when staking.

Upcoming Unlocks

Upcoming Unlocks aren't just dates on a calendar; they're potential market movers. When large amounts of tokens become available, it can lead to increased selling pressure, potentially affecting the token's price.

Current value of locked SOL: 56.6 million SOL (11.8% of total staked)

Current value of locked SOL owned by Alameda : 42.2 million SOL

What does this mean for a SOL Hodler?

For a SOL token holder or staker, the information about locked SOL stake poses several risks:

Concentration Risk: With Alameda owning 74.5% of all locked stake, this concentration could pose a risk to decentralization and network security.

Liquidity Risk: If Alameda's stake is large enough, its future liquidation could flood the market with SOL tokens, potentially driving down prices. In this case you have to also consider the trading volume of SOL.

Legal Uncertainty: Liquidation process, if similar to past cases, could take up to ten years, introducing long-term uncertainty.

Trust Factor: The involvement in a bankruptcy case, especially with actors like Sam Bankman-Fried could also affect investor and market sentiment negatively, impacting the token's reputation.

Network Governance: With a significant portion locked, the influence on network governance by other token holders could be limited, potentially skewing voting and other decentralized decision-making processes.

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• Stakingrewards.com - Your one stop shop to know everything from staking metrics to verified validator list.

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• solanacompass.com - Great source for deep dives into the Solana metrics.

• Coingecko.com - Go to source for everything related to crypto markets.

As we put the finishing touches on this "Just The Metrics" edition, Laura tried to convince me that her home-brewed latte has the perfect "golden ratio" of foam to espresso.

Sitting in a Cafè in Hamburg, we realized that even our coffee breaks aren't safe from our metric madness.

Keep sipping on that knowledge brew and crunching those numbers until next week! ☕📊 

Laura & Sooraj

#FollowTheMetricsNotTheHype

PS: If you like our newsletter you will love our book ‘A 3-Step Assessment Framework for Layer 1 Blockchains’

It's packed with an easy-to-understand assessment framework & examples of 6 major L1s to help you make metrics-based decisions 💡🤓

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