1/8
A short thread on "Economic Sustainability"
I believe this is a factor often overlooked when people compare $SOL to $ETH.
Shoutout to @epolynya for calculating the numbers I use here and coining the term (screenshot & link below)
reddit.com/r/ethfinance/c…
A short thread on "Economic Sustainability"
I believe this is a factor often overlooked when people compare $SOL to $ETH.
Shoutout to @epolynya for calculating the numbers I use here and coining the term (screenshot & link below)
reddit.com/r/ethfinance/c…
2/8
Most people seem to have no idea that Solana's transaction fees are essentially being subsidized by hype and VCs. The platform only collects $36.5mm in annual fee revenues and issues $4 billion of inflation rewards to validators. This is totally unsustainable.
Most people seem to have no idea that Solana's transaction fees are essentially being subsidized by hype and VCs. The platform only collects $36.5mm in annual fee revenues and issues $4 billion of inflation rewards to validators. This is totally unsustainable.
3/8
Further, Solana is already reaching capacity limits which hampers its ability to solve this economic sustainability problem by increasing TPS. Really the only option is to raise txn fees. Ceteris paribus, txn fees would have to be 115x higher just for the network to breakeven
Further, Solana is already reaching capacity limits which hampers its ability to solve this economic sustainability problem by increasing TPS. Really the only option is to raise txn fees. Ceteris paribus, txn fees would have to be 115x higher just for the network to breakeven
4/8
But does economic sustainability even matter? I'd argue yes—particularly in PoS networks—because the token must have value to secure the network. If the price of the token decreases (keeping issuance the same), so will security spend.
But does economic sustainability even matter? I'd argue yes—particularly in PoS networks—because the token must have value to secure the network. If the price of the token decreases (keeping issuance the same), so will security spend.
5/8
My view is that in the long run, all L1 tokens will be valued the same way capital assets have been valued for essentially 100 years: present value of future cash flows
We can shorthand PV as a multiple on profits where
Profits = Txn Fees - Security Spend
My view is that in the long run, all L1 tokens will be valued the same way capital assets have been valued for essentially 100 years: present value of future cash flows
We can shorthand PV as a multiple on profits where
Profits = Txn Fees - Security Spend
6/8
Solana's profits right now are basically -$4 billion
Ethereum's profits after the merge will be +$4-7 billion (~1-2% of current market cap)
Solana's profits right now are basically -$4 billion
Ethereum's profits after the merge will be +$4-7 billion (~1-2% of current market cap)
7/8
Yet $SOL is trading at more than 10% of $ETH market cap.
I don't think this is rational given that $ETH should have a much greater monetary premium assigned to it due to its superior decentralization/ security/ deflationary/ Lindy properties.
Yet $SOL is trading at more than 10% of $ETH market cap.
I don't think this is rational given that $ETH should have a much greater monetary premium assigned to it due to its superior decentralization/ security/ deflationary/ Lindy properties.
8/8
This is not to say that I don't think $SOL is valuable. It's playing a very important role in onboarding millions of people who've been priced out of the Ethereum ecosystem.
But calling it an "ETH-Killer" is terribly misguided. The fees will have to come up eventually.
This is not to say that I don't think $SOL is valuable. It's playing a very important role in onboarding millions of people who've been priced out of the Ethereum ecosystem.
But calling it an "ETH-Killer" is terribly misguided. The fees will have to come up eventually.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
