Is Solana in balance of profit and loss? Future annual profits may exceed $2 billion.

Is Solana Achieving a Balance Between Profit and Loss? Projected Annual Profits Could Exceed $2 Billion in the Future.

Author: Mhonkasalo, Source: Author’s blog; Translation: Songxue, LianGuai

One common argument against Solana is the feasibility of $SOL as an investable asset. You may hear different voices in the crypto media or on Twitter/X:

• Solana may be useful, but it doesn’t create value.

• Solana validators receive subsidies, so the system is not sustainable.

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• Optimizing for low fees means $SOL has no value.

My answer is: “Guys, what are you even talking about?”

Assuming the Solana network is scalable and decentralized (definition blurry, I can discuss this at another time), the goal in these systems is to make it as cheap as possible.

Fast and cheap equals practical. Given that there are no settlement failures in these systems, calling something a settlement or execution layer doesn’t really make sense.

Our goal is utility maximization. That’s how we maximize value for end users.

If we want to achieve billions of DAUs, searching for funding unnecessarily from a group of around 10,000 active users is not our optimization target.

Anyway, the purpose of this article is not to argue which scaling path is the best, but to point out that if the product and market fit is achieved, exciting profit/revenue numbers are easily obtainable.

If SOL succeeds, it will be valuable.

The Math Behind SOL Assets and Value Acquisition

A few facts:

• Yesterday, Solana Gas fees paid by users were around $100,000.

• 50% goes to validators, 50% gets burned.

• $50,000 goes to service fees.

• $50,000 gets distributed to token holders.

• Similar mechanism to ETH burning.

• Solana’s inflation rate is around 5.7%.

• Starts at 8%.

• Decreases by 15% every year.

• Long-term target of 1.5%.

It’s worth noting that these parameters are adjustable for all blockchains. The important thing is enough incentives to keep validators honest, and then you can start “paying” token holders:

• The base fee for each transaction (most importantly, you always receive priority fees).

• Revenue distribution (dynamic, algorithmic, fixed).

• Inflation rate (i.e., subsidies).

Currently, Solana is not profitable (similar to early Ethereum):

1. Solana supply = 562,119,561 SOL;

2. 5.7% inflation = 32,040,814 SOL = $1,440,875,405;

3. Annual income = $100,000 x 365 = $36,500,000;

4. Net loss = – $36,500,000 = $1,404,375,400;

5. Breakeven requirement = $1,440,875,405 / $36,500,000 = 39.48x

In order to achieve profitability at current cost levels, Solana needs to increase its transaction volume by about 40 times.

Total SOL cost

Modeling how Solana achieves breakeven and then profitability is almost too boring to model, just like any other blockchain, once block space is full or, in Solana’s case, access to specific domain states like NFT minting, priority fees will dominate.

However, let’s use some parameters to complete this exercise:

• Solana currently has a TPS of 3,000, which will increase to over 100,000 with the use of Firedancer. Assuming half of the block space is filled, our fees will increase by 15 times from today.

• From that point on, assuming the increased priority fees result in a doubling, the total has now increased by 30 times.

• Honestly, Solana could double the base fee without affecting users, so now we’re at 60 times.

• In total, in this scenario, Solana’s profitability is about 2 times what it was before.

Please note that this is a completely hypothetical exercise. Solana can make even more money:

• 1 million Firedancer TPS with half-filled blocks = 150 times fee increase.

• 4 times increase in priority fees = 600 times fee increase.

• Let’s keep the base fee the same (after all, Solana transactions are cheap).

• Long-term reduction in release supply by 1.5% = 2000 times increase in profitability.

• Solana’s profitability is 70 times its release supply, generating approximately $22 billion in revenue annually. Use this as the P/E ratio.

It sounds simple, but before subsidizing fees to validators, Solana can earn over $2 billion in profit per year (you can decide the appropriate burn rate).

The key is not the exact mathematics, but if Solana successfully serves end-user applications at a large scale, it will make a lot of money. All you have to do is bet on blockchain, and you will achieve this goal.

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