VanEcks Solana ETF application indicates significant risks upon approval

VanEck has surprised the market with its application to launch a Solana exchange-traded fund (ETF) in several aspects. The asset management company submitted the application for the ETF on Thursday. Notably, VanEck’s Solana spot ETF plan is unprecedented as there is no corresponding US Solana futures market. However, the application also lists a specific risk that has not been seen in other ETF applications: the concentration of SOL token holdings. According to VanEck’s application, as of the end of November last year, the top 100 wallets holding SOL tokens accounted for approximately one-third of the circulating supply of SOL tokens. “Due to this concentration of holdings, large-scale sales or distributions may have an adverse impact on the market price,” the application stated. The decentralization of tokens, which refers to the distribution among holders of a particular cryptocurrency, is important to both investors and regulatory agencies. In comparison to Bitcoin and Ethereum, SOL tokens have less distribution, and concentrated holdings may become an obstacle to approving VanEck’s Solana ETF. US Securities and Exchange Commission (SEC) Commissioner Caroline Crenshaw cited concentrated holdings of Bitcoin as one of the reasons for opposing the approval of a Bitcoin spot ETF in January. The top 107 Bitcoin wallets hold approximately 16% of the circulating supply, about half of Solana’s proportion. The top 100 Ethereum wallets hold about 19% of the Ethereum supply. Matthew Sigel, Head of Digital Asset Research at VanEck, dismissed these concerns, stating that the network itself is decentralized. “There is no single intermediary or entity operating or controlling the Solana network,” Sigel posted on X platform shortly after the application was made public. Sigel stated that a diverse user base maintains the infrastructure supporting Solana network transactions. According to data from Solana data platform Solana Beach, the Solana network consists of 1,509 independent nodes. If the top 20 nodes were to join forces, they would have enough power to attack the network. Other risks ETF applications must list risk factors that may have an adverse impact on the prices of their underlying assets. Another Solana-specific risk listed by VanEck is the blockchain’s unique Proof of History (PoH) mechanism. PoH enables Solana to process transactions faster than other blockchains such as Ethereum. However, issues with PoH have caused multiple long network outages in recent years. “PoH is a relatively new blockchain technology that may not perform as expected,” the application stated. VanEck’s Solana ETF application also lists many of the same risks as its Ethereum ETF application. These risks include the “extreme volatility” of crypto assets, the immutability of crypto transactions, and the potential impact of forks on the value of ETF shares.