This episode dissects the tension between Solana's fundamental technological upgrades and the volatile market narratives shaping its value, offering a clear guide for investors navigating the noise.
Solana's Price Action and the ETH Revival
- Host Jack Kubinec and guest Carlos Gonzalez Campo of Blockworks Research begin by analyzing Solana's recent price movement. While SOL reached a high of around $187, its performance against Ethereum has lagged, with the SOL/ETH ratio hitting a yearly low.
- The Ethereum Narrative: Carlos attributes Ethereum's recent momentum to the "treasury company" and stablecoin narrative, heavily promoted by figures like Tom Lee on mainstream financial news. This has overshadowed Solana's growth, even surprising seasoned analysts.
- The Pump.fun Paradox: The launch of Pump.fun, a platform for creating memecoins, was expected by many on Crypto Twitter to drain liquidity from SOL. Instead, the opposite occurred. Carlos notes, "you kind of saw this like pivotal moment in soul's history where like it outperformed like centralized exchanges during that moment and it kind of like signal like how good it has become like from a fundamental perspective."
- Valuation Discrepancy: Despite its impact, Carlos points out that Pump.fun appears undervalued on a price-to-sales basis. This is due to its declining revenue and market share relative to competitors like Bonk, as well as uncertainty over whether its token will accrue value compared to its equity.
The Great Stablecoin Debate: Does On-Chain Liquidity Matter?
- The conversation shifts to the strategic importance of stablecoins, a key pillar of the bullish Ethereum narrative. Jack questions whether the sheer volume of stablecoin liquidity on Ethereum is a meaningful indicator of productive economic activity.
- Defining "Productive" Use: Jack argues that much of the activity in DeFi, on both Ethereum and Solana, is speculative looping rather than financing real-world assets (RWAs). He contrasts this with projects that tokenize assets like mineral rights, which offer tangible utility.
- Aave vs. Camino: Carlos highlights the massive scale difference, noting Aave's $50 billion in deposits on Ethereum dwarfs Camino's $4 billion on Solana. He concedes that while most activity is looping native assets, the infrastructure exists for real-world use cases. For instance, Camino recently onboarded tokenized U.S. equities (xStocks).
- Strategic Insight: The debate reveals a critical point for investors: high stablecoin market caps are often used as a simple heuristic for network health. However, the actual use of these stablecoins—whether for speculation, sitting idle on exchanges, or productive enterprise—is a more nuanced and important metric to track. Solana's recent USDC supply growth, for example, was driven almost entirely by a single memecoin launch.
Analyzing Solana's Network Revenue (REV)
- The discussion turns to Solana's on-chain revenue, a key metric for network demand. REV (Realized Economic Value) measures the total tips and fees paid by users to transact on the blockchain.
- A Concerning Dip: Solana's REV for June was $62 million, a significant drop from previous months and lower than mid-2024 levels. Carlos identifies this as a mix of concerning and expected behavior.
- The Memecoin Factor: The decline is primarily linked to a cooldown in memecoin trading, which generates the high-priority transactions that drive up fees. The narrative that REV directly drives SOL's price is now being tested as the price remains high while REV has fallen.
- Future Revenue Drivers: Carlos suggests investors should watch for new revenue sources. He anticipates that Jito's BAM upgrade will allow applications to internalize a portion of MEV, potentially leading to "applications earning multiples more than validators and stakers." This signals a shift in value accrual from the base layer to the application layer.
Jito's BAM: A Foundational Upgrade for Solana
- The conversation dives into one of Solana's most significant recent technical upgrades: Jito's Block Auction Mechanism (BAM).
- What is BAM?: Carlos explains that BAM is a new transaction processing engine that uses an encrypted mempool within a TEE (Trusted Execution Environment)—a secure, off-chain computing space. This enables private and verifiable block building on Solana.
- Unlocking New Possibilities: BAM introduces "plugins," which allow applications to customize how their transactions are sequenced. This could enable features like prioritized order cancellations for market makers on perpetual exchanges like Drift, or the creation of private dark pools on the L1.
- Competitive Implications: This upgrade directly addresses a key competitive threat. On-chain exchanges on Solana have struggled to match the volume of competitors like Hyperliquid. By improving market microstructure, BAM could help Solana-native apps become more competitive.
- The SVM Chain Question: Carlos raises a fascinating point: BAM may reduce the need for application-specific SVM (Solana Virtual Machine) chains like Atlas or Fogo, which were created to achieve custom functionality not previously possible on the mainnet. If BAM allows this on the L1, these chains may lose their primary competitive edge.
Fighting Sandwich Attacks and Improving Efficiency
- Jack and Carlos explore how BAM provides a more robust, architectural solution to sandwich attacks, a persistent issue on Solana. A sandwich attack involves a malicious actor front-running and back-running a user's trade to profit from the price impact, at the user's expense.
- A Structural Fix: BAM's encrypted environment prevents validators from seeing transactions before they are finalized, removing the opportunity for front-running. Furthermore, BAM nodes issue a public attestation for the transaction order. If a validator deviates from this order, the entire network knows, creating strong social pressure to act honestly.
- Beyond Whack-a-Mole: This is a significant improvement over previous methods, which involved the Solana Foundation and Jito attempting to identify and blacklist malicious validators—a strategy that proved ineffective as attackers could simply spin up new identities.
The Push for More Block Space
- The discussion covers Anza's ongoing efforts to increase Solana's block compute limit, which dictates how many transactions can fit into a single block.
- Scaling the Network: The limit has already increased from 48 million to 60 million compute units, with a proposal to push it to 100 million. This directly increases network bandwidth and TPS, making Solana more resilient during periods of high demand, like major memecoin launches.
- The Latency Frontier: While doubling block space is important, Carlos is more excited about future upgrades like Alpenglow, which aims to reduce block times and dramatically decrease time-to-finality. Alpenglow is expected to remove voting costs, a major barrier to lowering block times, as halving block times currently doubles the cost for validators.
- The Centralization Trade-Off: Jack raises the question of whether removing block limits entirely, as suggested by some, would centralize the network by making it too expensive for anyone but large corporations to run a validator. Carlos argues this may be a worthwhile trade-off if it leads to a massive performance increase, suggesting that geographic distribution of validators is a more critical measure of decentralization than the ability for an individual to run a node from their basement.
The Treasury Company Meta
- The episode concludes with a look at the "treasury company" trend, where public companies are created or acquired primarily to hold crypto assets on their balance sheets.
- A Boring but Profitable Trend: Both Jack and Carlos express their skepticism, viewing it as a "boring" and logically flawed NAV play that is nonetheless profitable in the current market.
- Solana's Position: Carlos believes Solana-based treasury companies are unlikely to be as successful as their Bitcoin or Ethereum counterparts due to SOL's smaller market cap. He sees staking ETFs as a much more compelling and sustainable vehicle for attracting institutional capital.
- A Bearish Signal?: Carlos offers a stark warning for investors: "I think that would be incredibly bearish if like the bullcase for your asset is just treasury companies buying the underlying asset. That that just seems incredibly bearish to me." The fact that the official Solana ecosystem has largely avoided this trend is framed as an encouraging sign of its focus on fundamentals.
Conclusion
- This episode highlights a critical divergence: while market narratives fixate on treasury companies and stablecoin wars, Solana is executing deep technical upgrades like BAM and block space increases. Investors and researchers should monitor how these fundamental improvements translate into superior on-chain performance and application-level value capture, which will ultimately determine long-term success.
