Opinion: Why is a SOL ETF so Hard to Come By?

Original Author: 0xTodd, Co-Founder of Ebunker

Editor's Note: On June 27, according to information on the SEC's website, VanEck filed a Solana Trust application. The VanEck Solana Trust is for an ETF, making it the first Solana ETF application in the United States. Following the approval of Bitcoin and Ethereum ETFs earlier this year, discussions arose about the next crypto ETF, with optimism leaning towards a SOL ETF. However, Ebunker Co-Founder 0xTodd has remained pessimistic about a SOL ETF. In his latest tweet, he briefly outlined his personal views as follows:

I am pessimistic mainly because:

1. The ETF fee is too low
2. $SOL's market cap is also low
3. The number of institutions/retail investors willing to hold SOL naked is low (Staked SOL APR is as high as 8%, while the ETF is at -0.2%).

The product of these three factors may not be sufficient to cover the costs for these ETF issuing institutions.

If everything goes smoothly, it may proceed, but if faced with significant resistance later on, it is highly likely to be withdrawn.

After all, there is no motivation to push forward if there is no profit.

An analogy that is not very apt would be—already preparing to retake the college entrance examination (gaokao), but it does not hurt to list Tsinghua University or Peking University as your first choice.

Regarding the pessimistic view on the Solana ETF, 0xTodd previously provided a more detailed explanation in early June, and the full text was reprinted by Looper BlockBeats as follows:

Why is it challenging to get a SOL ETF? Because it may not be profitable. Last week, Cathie Wood's Ark Fund decided to withdraw the ETH ETF application.

Ark's BTC ETF ranks 4th (with a market share of 6%, the top 3 are BlackRock, Grayscale, and Fidelity), but is speculated to be "not very profitable."

This is mainly because the fee for the BTC ETF is relatively low compared to traditional ETFs, with many in the 0.19-0.25% range, and ETFs are engaged in a "fee war."

A rough estimate, based on the current size of the Ark BTC ETF, suggests an annual profit of approximately $7 million in management fees, implying a similar cost. Therefore, if the Ark BTC ETF is still hovering around the break-even point, then for Ark, forcefully promoting an ETH ETF may end up being a loss-making deal. Therefore, even for Ark, they can only reluctantly give up on the ETH ETF.

Purely from a business perspective, for a mainstream coin with a lower market cap, such as $SOL, where the market cap is 5% of that of BTC, in order to recoup the $7 million annual cost, an ETF would need to manage at least 20 million SOL tokens.

Currently, the crypto ETF leader, BlackRock, only manages 1.5% of the entire BTC market, whereas 20 million SOL would represent 4.5% of $SOL's circulating supply.

Furthermore, considering:

(1) SOL is inherently more difficult to fundraise for than the interest-less BTC. SOL's on-chain yield can reach approximately 8%, but ETFs prohibit including Staking functionality. Holding SOL through an ETF means naturally lagging behind SOL's on-chain 8% yield, while Bitcoin only lags behind a 0.2% management fee.

Take Grayscale as an example, with a peak of 600,000 GBTC shares, whereas SOL's peak is only 450,000, a proportion significantly lower than that of BTC.

(2) SOL's circulating supply is 460 million, but it may actually be much lower, well, you know, you know.

A lower circulating market cap requires bearing higher interest and regulatory pressures simultaneously while achieving a larger holding. Therefore, given SOL's current market cap and circulation, it is probably difficult for these institutions to make money.

From a business perspective, who has the motivation to drive trades that don't make money?

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