Solana Supply Crisis Intensifies with 80% of Holders Facing Losses
Solana’s market structure is currently under significant strain, with approximately 80% of its holders experiencing losses. This situation arises amidst a backdrop of considerable interest from traditional finance, particularly through recently launched spot Exchange-Traded Funds (ETFs). Despite these institutional inflows, the SOL token has suffered a steep monthly drop of 32%.
Holding Dynamics of Solana
According to market intelligence firm Glassnode, around 79.6% of Solana’s circulating supply is held at an unrealized loss, indicating a dominant “top-heavy” positioning. This situation could lead to two potential outcomes: a wave of capitulation or a sustained period of selling pressure.
- Current Token Price: Approximately $129
- Recent Investment in ETFs: $510 million since launch
- Total Net Assets in ETFs: Nearly $719 million
Proposed Changes to Monetary Policy
In light of the prevailing sell-side pressure, Solana network contributors have introduced the SIMD-0411 proposal on November 21. This initiative aims to revise the current emissions schedule, which is perceived as a “leaky bucket” diluting holders.
The existing inflation rate decreases by 15% annually. The new approach intends to double this rate to -30% yearly, potentially stabilizing the value of Solana over the long term.
Key Aspects of SIMD-0411 Proposal
- Reduction in Cumulative Issuance: Expected to lower issuance by 22.3 million SOL over the next six years.
- Projected Total Supply by 2029: Approximately 699.2 million SOL, down from 721.5 million.
- Terminal Inflation Floor: Maintained at 1.5%.
Impact on Staking Yields and Market Velocity
The SIMD-0411 proposal also aims to adjust the incentive structure for capital flow within the Solana network. While current staking yields stand at around 6.41%, the proposal predicts a decline over three years, as follows:
| Year | Nominal Staking Yield |
|---|---|
| Year 1 | 5.04% |
| Year 2 | 3.48% |
| Year 3 | 2.42% |
Three Potential Outcomes for Valuation
Investors are keenly interested in how the proposed supply shock will affect Solana’s price in the coming months. Analysts have outlined three possible scenarios:
- Bear Case: If demand remains flat, the supply cut may only slow down selling pressure without boosting prices significantly.
- Base Case: Modest demand growth may create a favorable supply-demand dynamic, driving prices up.
- Bull Case: Future high network activity could lead to deflationary conditions, making the asset’s value closely tied to its utility.
Risks and Considerations
A major risk includes the potential revenue reduction for validators due to decreased inflation. However, the proposal indicates a six-month activation lag, which aligns with the upcoming “Alpenglow” consensus upgrade, aimed at lowering operational costs for validators.
In summary, Solana faces a challenging market situation, with a majority of its holders experiencing losses. However, the proposed changes to its economic model seek to enhance stability and foster growth in a competitive landscape.
