Challenges to Solana ETF Approval

Last week, Brazil greenlit the first spot Solana exchange-traded fund (ETF), sparking debates about the possibility of US approval.

Brazil recently approved the first spot Solana exchange-traded fund (ETF), reigniting discussions on the possibility of a US approval for the derivative. However, several financial experts remain skeptical due to concerns over the native token, SOL.

A key issue is the substantial daily issuance of SOL tokens, which critics argue could increase selling pressure and impact the asset’s long-term value.

Solana ETF ChallengesExamining the Dune dashboard on August 11, we can observe an issuance of over 162,503 SOL, valued at approximately $25 million. These tokens are distributed as rewards to validators for maintaining network security.

One outspoken critic, known as smartestmoney.eth, questioned the market demand for SOL given its high emission rate. “Who will be the next marginal buyer of SOL when a supply overhang of 165,000 daily emissions—with more unlocks to come—overpowers the demand?” he asked rhetorically.

Smartestmoney.eth also pointed to the lack of an ETF as a factor that could limit institutional interest, especially with key players like Larry Fink turning towards Ethereum.

Moreover, there are concerns that the Brazilian approval of a Solana ETF might not actually benefit local investors. A user known as Caramel expressed skepticism on X (Twitter).

“Brazil approved a Solana ETF! Solana’s fully diluted valuation shows that 20% of SOL is still locked. VCs are going to rob this country blind out of their wealth. March 2025, save the date,” pseudonymous X user Caramel said.

He referenced the unlock schedule of Solana, owned by the now-defunct FTX, highlighting a significant unlock of 7.5 million SOL scheduled for March 2025.

When asked about a Solana ETF, BlackRock’s digital asset head, Robert Mitchnick, also expressed reservations. He pointed to the disparity in market cap and maturity between leading cryptocurrencies and smaller assets like Solana.

“I don’t think we’re going to see a long list of crypto ETFs. If you think of Bitcoin, today it represents about 55% of the market cap. Ethereum is at 18%. The next plausible investible asset is at, like, 3%. It’s just not close to being at that threshold or track record of maturity, liquidity, and etc.,” Mitchnick said.

In an interview with BeInCrypto, Griffin Ardern, Head at BloFin Research & Options, discussed other potential obstacles for Solana, particularly concerning network stability.

Historically, Solana has experienced several severe downtime incidents, and even the entire blockchain network has rolled back transactions or been unavailable for more than 24 hours. SOL issuers may need to prove that the Solana network is mature and stable enough and that the probability of similar incidents is “low enough for investors to accept” to protect investors’ rights and interests better,” Ardern told BeInCrypto.

Despite these hurdles, some optimism remains in the industry. Notably, asset managers such as VanEck and 21Shares have already filed for a Solana ETF in the US.

The US Securities and Exchange Commission (SEC) has a decision-making deadline of mid-March 2025 for these applications. This indicates that while there are significant challenges, the possibility of a Solana ETF is not completely ruled out.

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