This episode dives into Solana's strategic pivot towards on-chain price discovery, analyzing its financial health, governance shifts, and the rise of DeFi 2.0, offering critical insights for Crypto AI investors navigating a rapidly evolving ecosystem.
Solana's Financial Health and Application Layer Value Shift
- Carlos Gonzalez Campo from Blockworks Research highlights a significant shift in Solana's financial landscape. Network revenue (RB) reached a low of $27 million in November, marking four consecutive months of decline since February 2023. This downturn is primarily driven by a sharp 85% decrease in Jito tips—payments to validators for transaction priority, often associated with Maximal Extractable Value (MEV) opportunities—compared to a 58% decrease in priority fees. This indicates a more competitive MEV market and improved network efficiency.
- Crucially, application revenue has shown greater resilience, leading to an all-time high ratio of application revenue to network revenue. Applications now earn approximately $3 for every $1 in network revenue, a threefold increase from early 2023. This trend suggests a potential compression of the Layer 1 (L1) premium, implying that the most significant investment opportunities might be shifting from the base layer to the application layer. Danny notes that this shift is partly due to a change in on-chain activity, moving from high-contention memecoin trading (which favored Jito tips) to more efficient, high-liquidity trading in SOL-stablecoin pairs, often facilitated by proactive market makers (Prop AMMs).
- Actionable Insight: Crypto AI investors should re-evaluate their portfolio allocation, considering the increasing value capture at the application layer on Solana. Researching protocols with robust revenue models and strong user engagement could yield higher returns than solely focusing on the L1 token.
Solana's Inflation Rate Proposal: CIMD 411
- The discussion moves to a new governance proposal, CIMD 411, aimed at accelerating Solana's disinflation rate. This proposal, put forth by Losting and Nicho from Helios, seeks to double the disinflation rate from 15% to 30%, bringing the terminal 1.5% inflation rate forward to early 2029 (from early 2032). This change would cut approximately 22 million SOL in additional emissions, valued at $2.9 billion at current prices, reducing "leaky bucket" pressure from excess inflation.
- Carlos explains that CIMD 411 is simpler than its failed predecessor, CID 228, which was criticized for its complexity and unpredictable market-based inflation mechanism. The new proposal's simplicity and predictable inflation curve address concerns from institutional providers and the Solana Foundation. Furthermore, new governance tooling is expected to empower individual stakers to override validator votes, potentially aligning incentives more closely with the broader community rather than institutional stakers who benefit from higher nominal yields.
- Actionable Insight: A successful vote on CIMD 411 could enhance SOL's appeal as a long-term investment by reducing supply inflation and increasing predictability. AI models tracking governance sentiment and voting patterns could identify early signals for such significant protocol changes, impacting staking yield forecasts and DeFi strategies.
Jupiter's Multi-Product Strategy and Execution Challenges
- Danny and Carlos discuss Jupiter, a dominant Solana DeFi aggregator, and its ambitious expansion into multiple product offerings, including perpetuals (perps), a Decentralized Token Formation (DTF) platform, prediction markets (with Koshi), and lending (JupLend with Fluid). The recent WET token sale via Jupiter's DTF platform faced initial challenges, with snipers capturing all public supply, necessitating a revised, less predictable launch strategy. JupLend also encountered "drama" regarding isolated positions and communication with other protocols like Camino.
- Carlos suggests Jupiter might be "spread too thin," losing focus by attempting to be a "DeFi super app." He notes that while Jupiter excels at owning the end-user—a critical strategy for long-term value capture, as seen with the decline of protocols like Raydium—its execution across numerous outsourced products has led to missteps. Jupiter's founder, Meow, has recently increased public communication, which Carlos views positively. Despite the challenges, Carlos acknowledges Jupiter's willingness to experiment, stating, "if one of these products does not work, it's not the end of the world for Jupiter."
- Actionable Insight: While Jupiter's ambition to own the end-user is strategic, investors should monitor its execution and focus. AI-driven sentiment analysis on community discussions and founder communications can provide early warnings or confirmations of product-market fit and operational efficiency. Diversifying exposure across specialized protocols versus "super apps" might be a prudent strategy.
Pump.fun's Revenue Resilience and Communication Gaps
- The conversation shifts to Pump.fun, a memecoin launchpad, which has maintained surprisingly high daily revenues ($1-1.5 million) despite a general downturn in on-chain activity and memecoin trading. Carlos expresses curiosity about the source of this sustained revenue, questioning if it's primarily driven by bots trading "graduated coins" rather than genuine retail activity.
- Danny highlights the historical volatility of memecoin platform market share, citing the rapid shift from Pump.fun to Bonk earlier in the year. He suggests that Pump.fun's efforts to acquire end-users (e.g., mobile app, Padre acquisition) are a response to this. Both Danny and Carlos agree that a lack of communication from the Pump.fun team is a concern, leading to public suspicion. Carlos notes that "crypto Twitter generally finds that like suspicious," contrasting it with the expected transparency in traditional finance.
- Actionable Insight: The opaque nature of Pump.fun's revenue sources and communication gaps present risks. Crypto AI researchers could develop models to analyze on-chain transaction patterns to differentiate bot activity from genuine user engagement, providing a clearer picture of platform health and sustainability. Investors should exercise caution with projects lacking transparent communication.
Emerging DeFi 2.0 and Yield-Bearing Assets on Solana
- Carlos expresses excitement about "DeFi 2.0" on Solana, referring to a new cohort of applications gaining traction despite market downturns. He highlights MetaDAO, which embeds token holder rights into crypto assets, and Ranger, a perps aggregator. He is particularly bullish on protocols like Exponent, Loop, and Hyo, which show decreasing reliance on SOL's performance, maintaining high Total Value Locked (TVL).
- Exponent, described as "the Pendle of Solana," allows users to speculate on yields by separating principal tokens (PTs) and yield tokens (YTs). Its TVL has recovered to $120 million, primarily driven by USD-denominated yield-bearing instruments rather than Liquid Staking Derivatives (LSDs) or JLP (Jupiter's liquidity provider tokens). Examples of these new yield-bearing assets include Onchain (reinsurance-backed yield), Prime (US real estate yield via Camino), and Hyo (crypto-native yield via highUSD and Axel mechanics). Carlos also predicts the rise of perpetual exchanges (perps DEXs) on Solana utilizing Prop AMM designs, potentially unlocking significant volume.
- Actionable Insight: The emergence of diverse, USD-denominated yield-bearing assets and sophisticated DeFi primitives like Exponent creates new opportunities for AI-driven yield optimization and risk management strategies. Crypto AI investors should explore these platforms for uncorrelated yield sources and advanced trading strategies, leveraging AI to analyze complex yield curves and market dynamics.
Solana's On-Chain Price Discovery Thesis
- Carlos concludes by emphasizing Solana's ambition to become the primary venue for on-chain price discovery, a role currently dominated by centralized exchanges (CEXs). He envisions Solana as a "decentralized NASDAQ," where the majority of asset valuation and trading occurs directly on-chain. This shift, he argues, would drive significant volume and network revenue back to Solana.
- Danny notes that this is already beginning with SOL-USD pairs, where Prop AMMs on Solana are demonstrating competitive pricing and even surpassing CEX volumes in some instances (e.g., Humidify vs. Binance spot for SOL-USD). The challenge now is to extend this to other crypto assets and potentially non-crypto assets like tokenized stocks (X-stocks) and forex markets. Carlos highlights Solana's structural advantage in composability, allowing market makers to hedge perp positions with on-chain spot X-stocks, a capability often lacking on other perp-focused platforms like Hyperliquid.
- Actionable Insight: Solana's pursuit of on-chain price discovery represents a monumental shift. Crypto AI investors and researchers should closely monitor the development of Prop AMMs, perp DEXs, and the listing of diverse tokenized assets (including X-stocks) on Solana. This trend could unlock new data streams for AI-driven market analysis, arbitrage, and automated trading strategies, fundamentally altering how value is discovered and exchanged in crypto.
Conclusion:
Solana is strategically positioning itself for a future where on-chain price discovery dominates, driven by application layer value capture, innovative DeFi 2.0 primitives, and the power of Prop AMMs. Investors and researchers should track these developments closely, as they signal a potential paradigm shift in market structure, offering new avenues for AI-driven analysis and investment opportunities.
