The relationship between Wall Street and Solana will become closer in the future.

Author: Prathik Desai

Translated by: Block unicorn

September 9, 2024

Sol Strategies, still operating under its original name Cypherpunk Holdings at the time, had not yet undergone a rebranding. It was still trading on the Canadian Securities Exchange, a market typically reserved for small and micro-cap companies. Just a few months prior, the company had hired former Valkyrie CEO Leah Wald as its new CEO. At that time, Cypherpunk was relatively unknown, with very low investor interest.

Meanwhile, Upexi focused on promoting consumer goods for direct sales brands, concentrating on areas like pet care and energy solutions on Amazon. In this crowded market, competition for clicks was exceptionally fierce. DeFi Development Corp (DFDV), still operating under its old name Janover at the time, was preparing to launch a marketplace connecting real estate syndicators and investors. On the other hand, Sharps Technology was engaged in producing specialized syringes for healthcare providers, a highly niche area of medical technology that attracted little investor attention.

The scale and ambitions of these companies were small at that time. Their total holdings of Solana (SOL) amounted to less than $50 million.

A year later, the situation has changed dramatically.

Today, they proudly stand on the Nasdaq—the second-largest stock exchange in the world—holding over 6 million SOL, with a total value of up to $1.5 billion. This is equivalent to 30 times the value of the Solana tokens they held a year ago.

Last week, the bell rung in New York for Nasdaq was not the only iconic event marking Sol Strategies' listing on the exchange. A virtual bell also rang, signifying the same milestone: STKE officially began trading.

The company invited community members to participate in this ceremony by visiting stke.community and "ringing the bell" through Solana trading. This action will permanently record their involvement in this historic moment. In many ways, this marks the "graduation" of Sol Strategies—previously listed on the Canadian Securities Exchange (under the ticker "HODL") and the OTCQB venture market (under the ticker "CYFRF"), which is aimed at mid-sized companies.

I call it "graduation" because entering the Nasdaq Global Select Market is no easy feat. This market is known for its stringent standards, typically reserved for blue-chip companies. By passing this test, Sol Strategies achieved what most crypto companies dream of but rarely attain—legitimacy.

This is also a significant reason for Sol Strategies' listing, even though institutional investors seeking to invest in Solana on Wall Street already have Upexi and DeFi Development Corp available for investment.

Unlike Upexi and DeFi Development Corp, which were already publicly traded companies before their pivot to Solana asset management, each holding over 2 million SOL, Sol Strategies chose the slow lane. It built a validator operation, earned institutional authorization for 3.6 million SOL from firms like ARK Invest, passed SOC 2 audits, and strategically positioned itself in the Nasdaq Global Select Market—the top market of the exchange.

Other companies merely hold SOL, while Sol Strategies actively operates the infrastructure supporting it, turning these holdings into viable business operations.

I delved into Sol Strategies' balance sheet to understand the story behind the numbers.

For the quarter ending June 30, Sol Strategies reported revenue of CAD 2.53 million (approximately USD 1.83 million). While this figure may seem ordinary on its own, the real story lies in the details. This revenue came entirely from staking approximately 400,000 SOL and operating validators that protect the Solana network, rather than through the sale of traditional products. The second-hand business of non-cryptocurrency for Upexi hampered its growth, while DFDV heavily relied on ongoing financing to drive growth, with 40% of its revenue still coming from its non-cryptocurrency real estate business.

By providing validator-as-a-service, Sol Strategies opened up new revenue streams from its Solana asset management business. This approach provides a steady income without the burden of growing debt or traditional overhead costs.

Sol Strategies represents its institutional clients' delegated SOL, including the authorization of 3.6 million SOL obtained from Cathie Wood's ARK Invest in July. The commissions from these delegations generate a stable revenue stream. Whether you call it revenue or fees, from an accounting perspective, it is income—something many cryptocurrency asset management firms struggle to reflect.

Solana validators typically charge about 5%-7% in staking reward commissions. With the underlying staking yield hovering around 7%, these delegated tokens generate approximately 0.35%-0.5% in nominal value for validators each year. For 3.6 million SOL (valued at over $850 million at current prices), this means annual fee income exceeding $3 million, not including any price appreciation or earnings from Sol Strategies' own capital. This effectively serves as an additional revenue source, surpassing half of the staking rewards from its own holdings of 400,000 SOL, which are entirely generated by other people's funds.

However, Sol Strategies reported a net loss of CAD 8.2 million (approximately USD 5.9 million) for the third quarter. But if you exclude one-time expenses such as the amortization of acquired validator intellectual property, stock-based compensation, and listing costs, the cash flow from its operations is positive.

What truly sets Sol Strategies apart from its competitors is its perspective on Solana. For the company, the product is not just the Solana token but the entire Solana ecosystem. This unique viewpoint is both innovative and strategic, making Sol Strategies stand out in the field.

The more delegators Sol Strategies attracts, the more secure the network becomes. As its validators are seen as reliable, this will attract more delegations. Each user directing their stake to Sol Strategies' nodes is both a customer and a co-creator of its revenue, transforming community participation into a measurable driver of shareholder value. This approach makes every participant feel invested in the company's success.

This is likely the most important factor giving Sol Strategies an edge in competing with peers holding more Solana tokens.

Currently, at least seven publicly traded companies control 6.5 million SOL, with a total value of approximately $1.56 billion, accounting for about 1.2% of the total supply.

In the competition for Solana asset management, each company is vying to become the preferred agent for investors choosing Solana exposure. Each company's strategy is slightly different: Upexi acquires SOL at a discount, DFDV bets on global expansion, while Sol Strategies focuses on a diversified asset reserve. The goal is the same: accumulate SOL, stake it, and sell packaged products to Wall Street.

The path for Bitcoin to Wall Street has been paved by companies like MicroStrategy, which transformed from a software business into a leveraged BTC asset management firm and achieved success through an extremely successful spot ETF. Ethereum has also followed a similar path, with companies like BitMine Immersion, Joe Lubin's SharpLink Technologies, and the recent spot ETF. For Solana, I expect adoption to primarily be realized through operating companies within the network. These companies not only hold assets but also operate validators, earn fees and staking rewards, and release quarterly earnings. This model is closer to active management rather than an ETF.

It is this combination of net asset value appreciation and actual cash flow that is likely to persuade investors to invest in this manner. If Sol Strategies can succeed, it may become the "BlackRock" of Solana.

The relationship between Wall Street and Solana will become closer in the future.

Sol Strategies is exploring the possibility of tokenizing its own shares on-chain. Imagine STKE stock not only existing on Nasdaq but also as a Solana-based token that can be exchanged in DeFi pools, settling instantly alongside USDC. A stock listed on Nasdaq trading simultaneously on-chain would be a bridge that ETFs cannot cross. Currently, this is still speculative, but it is moving towards eliminating the boundaries between public equity and crypto assets.

However, this is not an easy task. Graduating from Nasdaq also brings new challenges, and Sol Strategies has taken on greater responsibilities.

Poor validator performance or lack of governance steps could immediately elicit feedback from investors. Sol Strategies has chosen to bet on the Solana ecosystem, not just the Solana token itself, which may bring greater risks and corresponding rewards. Solana itself also faces network outages and competition from emerging blockchains. If stock investors find the stock trading at a price far below its net asset value, arbitrageurs may sell off, ignoring the fundamentals.

Nevertheless, I believe that Sol Strategies' listing on Nasdaq represents the best opportunity for Solana to secure a front-row seat on Wall Street. Can you package on-chain funds into investment products and then integrate them into Nasdaq? Sol Strategies now bears this daunting responsibility.

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