Does Solana (SOL) Have a Wash Trading Problem? Here's What VanEck's Analysis Says

Matthew Sigel, Head of Digital Assets Research at VanEck, published an in-depth analysis on Tuesday, comparing SOL's metrics with those of Ethereum to provide context and clarity.

VanEck’s proposal for a spot Solana (SOL) exchange-traded fund (ETF) in the United States has faced scrutiny, particularly over concerns regarding wash trading and the nature of on-chain activity.

In an effort to provide context and clarity, Matthew Sigel, Head of Digital Assets Research at VanEck, published an in-depth analysis on Tuesday that compares SOL’s metrics with those of Ethereum.

Solana has gained attention for its high throughput and low transaction costs, which have attracted a vast number of users and developers. With approximately 111 million monthly active wallets, Solana far surpasses Ethereum’s 5.4 million. However, skeptics have argued that a large portion of these wallets may be Sybil accounts—fake identities created to manipulate metrics.

In his analysis, Sigel acknowledges the difficulty in distinguishing between organic user activity and that stemming from single users controlling multiple wallets. “We do agree that a very large portion of these wallets are not organic,” he states.

The analysis reveals that memecoin and non-fungible token (NFT) activities constitute a significant portion of Solana’s revenue. In the current year, approximately 34.3% of Solana’s revenues are derived from these sources, compared to 6.6% for Ethereum and 20.3% for Ethereum during its peak memecoin activity between July and October 2021.

When assessing wash trading—a practice where traders buy and sell the same asset to artificially inflate volumes—Solana’s figures are notably higher. An estimated 41.4% of memecoin and NFT volume on Solana is attributed to wash trading. In contrast, Ethereum’s wash trading for these assets stands at 28.9% in 2024 and was 44.4% during its 2021 peak.

“Putting it together, we assess that 14.2% of Solana revenues come directly from wash trading compared to 2% for Ethereum in 2024 and 9% in mid-2021,” Sigel notes. He adds a crucial caveat: the analysis assumes that memecoin wash trading generates miner extractable value (MEV) in line with normal trading. Without MEV on these trades, the estimates would fall by 50%.

To conduct this analysis, the study utilized Dune Analytics queries of both Solana and Ethereum blockchains to accumulate memecoin and NFT activity over specified periods. BothArtemis, Jito, and Flashbots were used to evaluate each chain’s gas fee revenue and MEV. For wash trading identification, the analysis employed a threshold ratio of daily trading volume to a coin’s market capitalization.

Several reasons are cited by Sigel for the elevated levels of memecoin trading and wash trading on Solana. First, SOL’s transaction fees are approximately 1/10,000th of Ethereum’s, reducing the opportunity cost of wash trading. Second, the architecture offers a superior user experience for memecoin trading due to its high throughput and low latency.

Third, platforms like Pump.fun simplify memecoin trading, encouraging higher activity levels. Fourth, the approach to MEV may inadvertently inflate trading volumes. “Solana’s MEV trading is driven by statistics-driven assessments of landing a transaction through submitting many orders for the same trade. Some of these likely land without capturing MEV, and this may juice trading figures higher than on Ethereum,” Sigel explained.

What Does That Mean For A Spot SOL ETF?

Sigel draws crucial comparisons between SOL and established companies like Alibaba, DraftKings, and CME Group to provide perspective on speculative trading activities. In Alibaba’s case, there was initial skepticism about package volumes that may have included ’empty packages’ to boost metrics prior to its 2014 IPO. DraftKings and CME Group both derive substantial revenue from speculative trading, often providing incentives like reduced fees or rebates to stimulate activity.

By contrast, Solana does not incentivize users in the same manner. Its high activity levels are attributed to its low-cost, high-throughput design. “Solana’s on-chain activity is concentrated mainly in memecoins, making it a hub for speculative assets in the crypto world,” Sigel notes. However, he emphasizes that Solana has the potential to expand beyond speculation into impactful use cases such as decentralized physical infrastructure networks (DePIN) and social media applications.

While memecoins significantly contribute to the current revenue, its valuation—approximately 250 times forward revenue—reflects investor expectations for future growth in non-speculative applications.

Notably, the analysis has direct implications for VanEck’s proposed spot SOL ETF in the United States. The US Securities and Exchange Commission (SEC) has “identified possible sources of fraud and manipulation in the SOL market generally, including, among others, wash trading.”

Given that a substantial portion of revenues may be derived from suspicious trading activities, VanEck has included