Does Solana make money? Financial analysis shows annual profits can reach 2 billion USD
If SOL is successful, it will be valuable.Original Title: What's the value of SOL if transactions are cheap?
Original Author: mhonkasalo
Compiled by: 深潮 TechFlow
A common question about Solana is the feasibility of $SOL as an (investable) asset. Some statements you might hear in crypto discussions on Twitter/X include:
- Solana may be useful, but it does not capture value.
- Solana validators are subsidized, making the system unsustainable.
- Optimizing for low fees will always mean $SOL has no value.
Assuming the Solana network is resilient and decentralized, the goal in these systems is to minimize costs as much as possible.
Fast and cheap equals practical. And given that 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 utility. This is how we maximize end-user value.
If we aim for billions of DAU, then extracting rent from a group of about 10,000 active users is not what we are optimizing for.
In any case, the focus of this article is not to argue which scaling path is best, but to point out that if product-market fit is achieved, realizing exciting profit/revenue numbers is quite easy.
If SOL succeeds, it will be valuable.
The Mathematics of SOL Assets and Their Value Capture
A few facts:
- The gas fees paid by Solana users yesterday were about $100,000.
- 50% goes to validators, 50% is burned: $50,000 for service provision. $50,000 allocated to token holders. A mechanism similar to ETH burn.
- Solana's inflation rate is about 5.7%. Starting from 8%. Decreasing by 15% each year. The long-term target is 1.5%.
It is important to note that these parameters are modifiable for all blockchains. It is crucial to have enough incentives to keep validators honest, and then you can start "paying" token holders:
- Base fee per transaction (in addition, you will always have priority fees).
- Revenue sharing (dynamic, algorithmic, fixed).
- Inflation rate (i.e., subsidies).
Today, Solana is not profitable (similar to the previous Ethereum):
- Solana supply = 562,119,561 SOL
- 5.7% inflation = 32,040,814 SOL = $1,440,875,405
- Annual revenue = $100,000 x 365 = $36,500,000
- Net loss = -$36,500,000 = -$1,404,375,400
- Break-even needed = $1,440,875,405 / $36,500,000 = 39.48 times
This means that Solana needs to increase 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 Solana's case, accessing specific parts of the state, such as NFT minting, priority fees will start to dominate.
However, let's complete this exercise with some parameters:
- Solana's current TPS is 3,000, and it will reach 100,000+ with Firedancer. Assuming half of the block space is filled, we will see a 15-fold increase from today's fees.
- Assuming additional priority fees double the total fees, we now have a total of 30 times.
- Honestly, Solana can double the base fee without affecting users, so we have reached 60 times.
- Overall, in this scenario, Solana's profitability is about 2 times.
Note that this is a completely hollow way to conduct this exercise. Solana can earn more than this:
1 million Firedancer TPS, half-filled blocks = 150 times fee increase.
- 4 times uplift from additional priority fees = 600 times fee increase.
- Keeping the base fee unchanged (after all, Solana transactions are cheap).
- Reducing emissions to a long-term 1.5% = 2000 times profit increase.
- Solana's profit is 70 times its emissions, generating about $22 billion in revenue annually. Look at this P/E ratio.
It sounds simple; before paying fees to validators after subsidies, Solana could earn over $2 billion in profit annually (from which you can decide the appropriate amount to burn).
The focus of this article is not on the math, but on the fact that if Solana successfully serves large-scale end-user applications, it will make a lot of money. You just need to be optimistic about the blockchain, optimize for users, and then the rent-seeking issues can be addressed later.
