VanEck prices Solana at $330, calls on institutions to hold SOL

Recently, the asset management company MarketVector under VanEck published an article, highlighting the many advantages and potential of Solana, while also discussing why institutions have been slow to adopt Solana. Contrasting with VanEck's report, it is noted that both have set Solana's target price at around $330-$335, which is approximately half of Ethereum's current market value.

VanEck Subsidiary Urges Institutions: Missing Out on Solana Would Be a Huge Loss

MarketVector's Director of Digital Asset Research and Strategy, Martin Leinweber, pointed out that Solana processes transactions 3000% faster than Ethereum and has seen a 1300% increase in daily active users due to its significantly lower transaction fees compared to Ethereum. However, its market value is only 22% of Ethereum's. He stated that these disparities highlight Solana's potential scalability advantages, but also raise questions as to why there hasn't been a noticeable trend of institutions shifting from Ethereum to Solana.

Leinweber emphasized that choosing the right Layer 1 solution will likely be a successful long-term investment in the cryptocurrency world.

Among retail investors, the advantages of Solana over Ethereum have been recognized. Yet, Ethereum's first-mover advantage and institutional familiarity are reasons why institutions have not widely adopted Solana. Leinweber cautioned that the market operates in cycles, and assets like Ethereum can also face overheating issues. Therefore, he warned that institutions should carefully consider investing in undervalued assets like Solana in a timely manner to avoid missing out on significant opportunities.

He also mentioned the possibility of including quality Layer 1 solutions such as Solana and Ethereum in index investments. While this idea has been around for some time, he believes it is a good way to balance investments in Solana and Ethereum. MarketVector predicted in this report that Solana's market value could reach 50% of Ethereum's, reaching a price of $330.

VanEck Projects Solana Valuation to Reach $335, Not Concerned About Public Chain's Losses

In a previous report, VanEck priced Solana at $335 using their own valuation framework. However, they also noted that Solana's value capture potential is not as strong as Ethereum's. Despite its immense potential, they are not optimistic about Solana surpassing Ethereum by 2030. While Solana boasts better network efficiency, it lacks the momentum of developer and user adoption. With a market value of $74.2 billion, its Total Value Locked (TVL) is only $5.45 billion. The proportion of daily active users is not outstanding, with 184,000 out of 5.5 million users.

Another interesting issue is "How will Solana generate long-term profits with lower transaction fees?" Token Terminal previously pointed out that due to its low transaction fees, Solana generated less than $100 million in revenue in the hot market of 2024 Q1, while its network operating costs amounted to $800 million.

Blockchain transaction fees must be cheap enough for widespread use, while ensuring validators receive sufficient rewards for network verification. Blockchains like Solana dilute existing token holders by issuing additional tokens to compensate validators, paying them from the inflation of the currency. If there is no economic activity or if on-chain transaction fees are too cheap, the model of paying validators solely through currency inflation is not sustainable in the long run.

VanEck estimates that by 2030, Solana will have 534 million monthly active users, resulting in an annual transaction volume of around $600 billion. Although Miner Extractable Value (MEV) will be Solana's most important value capture mechanism, accounting for 67.5% of all revenue,

VanEck states that even if Solana fails to attract $600 billion in transactions annually, they have ways to increase the token's value. One way is to increase transaction prices, which may reduce transaction volume, but if there are economically valuable activities, Solana should be able to capture some of that value effectively.

In addition, Solana can reduce the token supply by increasing the amount charged for on-chain data storage in tokens. Running DApps or using wallets on Solana requires payment in SOL based on the storage size for on-chain data storage costs. Anyone using Solana can choose to forgo paying this fee by simply keeping enough SOL in their account to cover 2 years of rent. If Solana chooses to do this, it would significantly reduce the supply of SOL.

However, there should be no immediate concern about Solana's network operating at a loss in the short term. Despite operational costs exceeding revenue, Solana's pricing strategy has captured a significant market share. The price of SOL tokens has also soared, and the actual losses in operational costs should be a drop in the bucket compared to the foundation's token holdings' gains.