Solana (SOL) currently accounts for 15% of the smart contract platform (SCP) market capitalization, with projections indicating a rise to 22% by the end of 2025, which could push SOL’s price to $520, according to a recent report by VanEck.

Solana’s market cap expansion is driven by its strong developer presence, increasing share of decentralized exchange (DEX) volumes, rising revenue, and growing active user base.

VanEck’s valuation model ties Solana’s expected SCP market share to the U.S. M2 money supply growth, which has historically correlated with crypto market capitalization. M2 includes cash, checking deposits, and short-term investments and serves as a broad measure of money supply in the US and eurozone.

The M2 money supply is projected to reach $22.3 trillion by the end of 2025, maintaining a 3.2% annualized growth rate since October 2023.

Regression analysis suggests total SCP market capitalization will grow 43% to $1.1 trillion by the end of 2025, surpassing its 2021 peak of $989 billion.

Using an autoregressive (AR) model, VanEck estimated that Solana’s market capitalization could reach approximately $250 billion. With 486 million floating tokens, this implies a SOL price target of $520.

Scaling revenue

Solana has gained prominence among layer-1 blockchains, leading in DEX volumes (45% market share), chain revenues (45%), and daily active wallets (33%) as of January 2024.

VanEck projected that Solana’s expected revenue could reach an annualized rate of $6 billion if the current trend continues. The network’s revenue comes from three primary sources: base fees, priority fees, and maximal extractable value (MEV).

The base fees represent the minimum network usage cost and amounted to 1% of Solana’s January revenue. Meanwhile, the priority fees are tips users pay for faster transaction inclusion, totaling 43% of the network’s revenue.

MEV represented most of Solana’s revenue last month, as 56% was secured through fees earned by block builders optimizing transaction execution.

Boosting MEV

Solana’s MEV revenue structure allows block builders to capture 60% of MEV value, with validators retaining 40%. If validators were to capture 80% of MEV, mirroring Ethereum’s structure, MEV-derived revenue could increase from $3.4 billion to $6.8 billion, a 56% rise in SOL’s validator revenue.

The report highlighted that improvements to Solana’s Jito system, protocol enhancements, and the implementation of Firedancer could further facilitate the growth.

However, in its current state, Solana’s MEV capture is inefficient due to private memory pools and insider advantages.

Approximately 92% of validators use Jito’s MEV auction software, yet many also engage in private mempools, giving some traders a competitive edge. Addressing this issue could enhance Solana’s MEV revenue capture.

The report proposed solutions, including validator whitelists to prevent collusion, application-level MEV protections to reduce front-running, RFQ (Request-for-Quote) systems to enhance pricing transparency on DEXs, and software patches to mitigate known attack vectors.

Additionally, a multi-leader model allowing multiple validators to propose blocks simultaneously would reduce dominant block builder influence.

Dapp growth

Solana’s application ecosystem has expanded, overtaking Ethereum in decentralized application revenue. In 2022, Ethereum dapps generated 84% of all revenue, while Solana accounted for 0.26%. By 2024, Ethereum’s share fell to 32%, while Solana’s rose to 42%.

Solana’s dapp revenue surged from $4 million in 2022 to $1.25 billion in 2024. The network has also become a primary destination for developers, adding 7,625 new developers in 2024, compared to Ethereum’s 6,456.

If MEV optimizations are successfully implemented, Solana’s validator revenue could increase significantly, supporting greater demand for SOL and positioning its price over $500 by the end of the year.

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