A Recent $314 Million Capital Raise Will Spike SOL-USD Higher

Recently Solana Labs, the private company behind cryptocurrency Solana (CCC:SOL-USD) crypto, has confirmed to Wall Street Journal that it raised $314 million in a recent funding round.

Concept art of the Solana (SOL) blockchain.
Source: Shutterstock

Those funds will go towards improving Solana’s blockchain technology to compete against the much-larger Ethereum (CCC:ETH-USD). Solana is focused on the decentralized app (or “Dapp”) market; basically, SOL-USD promises incredibly fast transactions at high throughput with low fees. This is a direct challenge to Ethereum, which has been burdened by high GAS fees and slow transaction speeds.

The fact that the funding round was led by Andreessen Horowitz, an extremely successful and well-known VC company, lends huge credence to Solana. Moreover, according to WSJ, the capital raise was actually a sale of SOL tokens, rather than a cash-for-equity infusion into Solana Labs.

So the funding raise was most likely not dilutive to the total number of SOL tokens outstanding. That’s a major plus for the price of SOL tokens.

What SOL Is About

San Francisco-based Solana Labs is a private company (most blockchains are supported and run by foundations) and already generating revenue.

Solana is often spoken of in crypto circles as a potential “Ethereum-killer.” But Decrypt says that SOL is not designed to be an Ethereum killer. This is partly because there are already so many DeFi apps and other Dapps, but also because Solana Labs is downplaying this idea. The company is focused on improving their own blockchain and taking market share, not whatever nickname investors want to stick on its namesake coin.

For example, SOL-USD claims a maximum throughput of more than 50,000 transactions per second (TPS). Bitcoin does about 4.6 TPS, and VISA (NYSE:V) does 1,700 TPS (both as of 2019). This is key to blockchain scalability, which has been a hurdle to wider adoption.

This makes Solana highly suited for price-related apps in the blockchain. For example, Solana can provide price feed updates every 400 milliseconds (i.e., 0.4 of one second). In addition, it can handle 30,000 price updates per second (i.e., high throughput). This makes Solana uniquely suited for Dapps on the blockchain.

What The Solana Capital Raise Means

WSJ reports that the exact amount raised by the sale of SOL tokens was $314.159265 million plus 35.9 cents. I only bring up the specific number because it is equal to the digits for the scientific number Pi, multiplied by 100 million. Beyond the fun facts, there are three major benefits of raising the capital that Solana Labs needs through the sale of SOL tokens.

First, as I pointed out above, there is no dilution effect. For example, as of June 21, Coinmarketcap.com indicated that SOL is the 15th largest cryptocurrency in terms of its market capitalization. At $26.84 per SOL token, SOL-USD is worth $7.476 billion at time of writing. Yahoo! Finance indicates that Solana has a slightly lower market cap of $7.279 billion as of June 21. So by not issuing new SOL shares, the company prevented a 4.3% dilution effect (i.e., $314.159 million / $7.28 billion).

Second, by transferring its own SOL-USD to strong hands, Solana Labs essentially keeps the total float stable. This is because if  there was a general public sale, the float would be higher if the buyers later sold the Solana tokens.

Third, Andreessen Horowitz’s purchase of SOL-USD tokens rather than the equity is a clear bullish signal. They clearly expect SOL-USD will rise much more quickly than the value of Solana Labs. As a result, SOL-USD will likely move higher, as I pointed out in my earlier article on Solana.

On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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