Markets Brace for 11M $SOL to Enter Circulation - Are Solana Unlocks Already Priced In?

Sentiment towards Solana is at its lowest point since the FTX collapse. 

With over 11M $SOL tokens slated to be released into circulation and the ecosystem still reeling from the $LIBRA scandal, detractors are confident this is the end of Solana’s run.

Over $1.5B worth of $SOL unlocks looms large over markets, but is the fear, uncertainty, and doubt plaguing the market justified? 

Bearish Unlocks Incoming?

Solana has been the industry’s punching bag throughout February, with markets and social media commentators showing the ecosystem no mercy. Between ongoing contagion from the $LIBRA scandal and incoming FTX Estate unlocks, the timeline is ready to dance on Solana’s grave.

While the prospect of billions of dollars worth of $SOL unlocks might look threatening at first glance, their impact could be blown out of proportion.

Token unlocks are commonplace in crypto markets, and Solana is far from the only token to suffer sizable unlocks. According to Messari data, Solana’s March 1st unlock is expected to release 2.27% of $SOL’s market cap into circulation.

Meanwhile, alternative crypto assets like Sui ($SUI), Ethena ($ENA), and Aptos ($APT) regularly unlock huge amounts of their supply every month. Based on Cryptorank data, tokens valued at around 2.57% of $SUI’s market cap are unlocked every month, with little impact on the token’s valuation.

Additionally, $SOL bulls could argue the $1.5B unlock is negligible when compared to Solana’s trading volume across various markets. According to Messari data collected over the past seven days, $SOL is witnessing an average of $3.18B in daily trading volume. While the $1.5B unlock looks menacing on paper, $SOL markets are accustomed to high volumes and are well-equipped to absorb upcoming unlocks.

Despite the uncertainty, the looming threat of upcoming unlocks and poor conditions in the wider crypto market have hit Solana hard. At press time, $SOL is exchanging hands at $139.51, down 45% on a monthly time frame.

Efficient Markets Hedge SOL to Soften Blow

Crypto markets have become significantly more efficient in recent years, greatly diminishing the impact of unlocks. Venture capital firms and other holders of locked or vested assets routinely hedge their positions by shorting tokens into unlocks, allowing them to lock in profits regardless of market movements.

According to Ranger Finance, OI-weighted funding rates in onchain Solana futures and perpetual markets have flipped negative, suggesting that shorts are piling up in anticipation of further downside.

After locked tokens are released into circulation, players with hedged positions need to make a choice: Either buy back tokens and close the short, or keep the position open and risk losing whatever profits they may have locked in by hedging in the first place. 

While markets cast a doubtful shadow on Solana’s future short-term, there are still plenty of bullish catalysts ahead for $SOL. Institutional interest in $SOL is at all-time highs, with trillion-dollar asset manager Franklin Templeton filing for a spot Solana ETF.

Meanwhile, Jump Crypto’s Firedancer client draws closer every day, promising to improve the network’s security and scalability to unprecedented levels. Despite the recent drama, Solana remains the home of onchain activity, with significantly more transactions and daily active accounts than any other blockchain in the industry.

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