Digital asset investment giant Grayscale is launching a new product offering exposure to one of the hottest digital assets today, Solana. Revealed exclusively to Forbes, the Solana Trust will be the 16th offering in Grayscale’s expanding product line that caters to institutional and high-net worth investors.
It is easy to see why Grayscale would offer exposure to Solana. Though its performance was muted this month as part of the overall market volatility, the blockchain’s native token SOL is still one of the best performing assets of 2021, especially among major cryptocurrencies, up 687% year to date. These returns dwarf those of some of its major competitors, such as Ethereum, Algorand, Cardano, Polkadot, which are all vying to be the dominant home for decentralized finance applications, NFT trading, and blockchain-based gaming. Its only other major competitor to offer a similar return is Avalanche, which has grown 680% in 2020 but has a fraction of Solana’s market capitalization ($62.32 billion v. 26.97 billion).
Solana is also the preferred network of 29 year-old billionaire Sam Bankman-Fried, founder of crypto exchange FTX and the richest person in the industry with a net worth of $26.5 billion. His frequent and public endorsement of the network has been invaluable in boosting its public profile among developers and investors.
“In many investors’ minds, there’s a continued appetite to invest in Solana,” says Grayscale CEO Michael Sonnenshein. “In some sense, it is a more cost-effective blockchain [than Ethereum], and today we are seeing over 500 decentralized apps and about 1.2 million monthly active users on the network. When you kind of take a step back, and you see how quickly it has been able to ramp up, it’s certainly pretty impressive.”
In fact, institutional money has been flowing into Solana for several months at this point. According to new data from the London-based asset manager, Coinshares, approximately $250 million has been invested into SOL-based exchange-traded products (ETPs) in total, $42.2 million of which has flowed only this month. The company wrote in a research report dated November 29, “In terms of inflows relative to assets under management (AuM), Polkadot and Solana continue to be the winners, with inflows representing 8.6% (US$11.5m) and 5.9% (US$14.6m) of AuM respectively last week.” Most of these funds (over $190 million) are invested with a similar product from the Switzerland-based 21shares, which launched on June 29, 2021.
However, performance and investor interest aside, Sonnenshein made clear that a major reason for offering this product now is Solana’s near and long-term potential, especially when it comes to identifying new use cases for blockchain technology. “What’s been interesting about Solana is that it gives users the ability to learn, experiment, and build. They generally have more budget to experiment on the protocol than some other more established blockchains like Ethereum, because of lower transaction fees.” An average transaction on Solana costs a fraction of a cent, while Ethereum users currently pay a little over $40 per transaction, pricing out many users.
This potential is already starting to turn into traction. According to Austin Federa, head of communications for Solana Labs, “as of late November, Solana has $14.45 billion in value locked in applications on the network and over 1,750 developers working on products. It is estimated that over $2 billion of venture capital has been invested into the ecosystem.”
Part of this hefty sum includes a $100 million fund devoted to building Web 3.0 products on the network. The fund, jointly led by Solana Ventures and Seven Seven Six, venture capital firm spearheaded by Reddit co-founder Alexis Ohanian, was announced at Solana’s flagship Breakpoint conference in Lisbon this month.
Despite this progress, Solana has been experiencing growing pains. For instance, the network shut down for approximately 17 hours in September due to transaction load management problems.
Additionally, while developers claim that the network can handle 65,000 transactions per second through a novel means of coordinating the activities of its nodes, Solana is more centralized than some of its prominent competitors, mainly Ethereum. Though part of this is by design–to handle the throughput necessary for certain applications, such as decentralized exchanges that match the performance of Nasdaq. Developers also claim that as hardware becomes cheaper, node distribution will grow.
That said, for investors looking to get exposure to Solana via a trust, it is important to read the fine print. For instance, 21shares products are only available on certain European exchanges. Additionally, Grayscale will require a $25,000 minimum investment, charging its standard 2.5% management fee. On the other hand, New York-based Osprey Funds offers a similar product, launched this past September, with a $10,000 minimum. It is waiving its 2.5% fee until at least January 2023.