Addressing Memecoin Wash Trading on the Solana Blockchain The continued success of Solana in attracting usership and financial activity has rankled some in the crypto community. Some contend that most of Solana’s documented 111M monthly active wallets, compared to Ethereum’s 5.4M, are mostly Sybil (fake) users. Detractors of Solana’s success also claim that Solana’s on-chain revenue is driven by memecoin trading. It is further supposed that Solana’s memecoin activity mainly comprises wash trading rather than organic volume. The naysayers of Solana extrapolate these assumptions to infer that the token performance of SOL is due to revenues derived from suspicious trading. Concerning wallets, it is very difficult to untangle activity stemming from one user controlling many wallets versus more organic activity derived from one user controlling one wallet. We do agree that a very large portion of these wallets are not organic. To assess the “FUD” on memecoins, we analyzed recent memecoin activity on Solana and compared it to Ethereum’s activity over the same period. Additionally, we compared current Solana and Ethereum activity to peak memecoin activity on Ethereum in the fall of 2021. To contextualize things further, we added NFT trading to the mix, which many crypto detractors formerly cited as an inorganic driver of blockchain fees. We find that memecoin activity on Solana is significant, as around 34.3% of Solana’s revenues derive from memecoin and NFT activity. This compares to around 6.6% of Ethereum revenues today and 20.3% of Ethereum Revenues between July and October 2021. We estimate that the wash trading share of memecoin and NFT volume is 41.4% on Solana, compared to 28.9% and 44.4%, respectively, for Ethereum in 2024 and 2021. Wash trading is the practice of buying and selling the same asset to create false market activity, inflating trade volumes without real risk or profit. 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. One important caveat to this analysis is that it assumes that Solana memecoin wash trading generates MEV in line with normal trading. Without MEV on these trades, our estimates would fall by 50%. We employed Dune queries of Solana and Ethereum’s blockchain to accumulate memecoin and NFT activity over the specified time ranges to accomplish this analysis and. We then used MEV and transaction fee data from Artemis, Jito, and Flashbots to assess each chain's gas fee revenue and MEV. We triangulated these figures to estimate the portion of total blockchain revenues (fees + MEV) sourced from memecoin and NFT activity. For memecoins, we then pulled the total DEX trading activity for Solana and Ethereum. We filtered that activity for wash trading using a threshold value for the ratio of daily trading volume to a coin’s market capitalization for a day’s trading. If trading volume exceeds that threshold, it is considered to wash trading. We chose 0.05 as the threshold by calculating SOL’s average V/MC over the last three months, ~0.0125, and multiplying it by 4, which is our estimation of memecoin volatility relative to that of SOL’s. See the tables in the replies for sensitivity analysis on memecoin trading labeling. To gauge NFT wash trading on Solana, we used Dune Analyst @ tianjinfan’s methodology. For wash trading of NFTs on Ethereum, we used the mighty @ hildobby’s methodology. We believe Solana’s greater amount of memecoin trading and wash trading is due to several factors: Solana is a high throughput chain that prices transactions 1/10,000th that of Ethereum’s transactions. The opportunity cost of wash trading is much cheaper on Solana than on Ethereum. Next, memecoin activity on Solana is more active due to Solana’s vibrant ecosystem of applications like that simplify memecoin trading. Furthermore, due to Solana’s low latency architecture, memecoin trading is a better user experience on Solana than on Ethereum. Finally, we assert that Solana’s MEV architecture may drive higher token volumes. This is because 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, where block building is done through discrete bidding rather than sending a high volume of orders. If one contextualizes a potential SOL ETP among comparable investments, looking at companies like Alibaba, DraftKings, and the CME might be instructive. In Alibaba’s case, there was initial skepticism about package volume that may have included ‘empty packages’ to boost metrics, an issue that underwriter research addressed before BABA’s 2014 NYSE IPO. Similarly, DraftKings and the CME derive much of their revenue from speculative trading, with both platforms providing incentives, like reduced fees or rebates, to encourage activity. By contrast, while Solana’s transaction volumes include some wash trading and speculative activity, it doesn’t incentivize users similarly, as its high activity levels are driven by the blockchain’s 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. However, unlike DraftKings, whose business is limited to gambling, 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 contribute significantly to Solana’s current revenue, its high valuation—approximately 250x forward revenue—reflects investor expectations for future growth in non-speculative applications. The analysis of Solana’s revenue sources is important because it brings to light concerns about our proposed SOL ETP. Since there is reason to believe a significant portion of SOL’s revenues are derived from suspicious trading, our ETP prospectus includes significant risk disclosures. That said, we believe this high amount of activity derives from Solana’s high-quality user experience and will become a less important part of Solana’s revenue base as new activity comes to Solana. Ethereum’s transformation should be a guiding light for how Solana’s DEX volumes can mature over time to trading fewer meme-related assets. Lastly, to the anonymous X account that keeps clogging our bosses’ inboxes and mentions with complaints and threats on this topic, we would remind him or her that the United States operates under a disclosure-based regulatory regime. The issues above have been addressed throughout the risk factors in our current SOL ETP prospectus. VanEck is indeed taking on issuer liability by proposing to offer the Fund. VanEck and its Legal Department devote significant time and expense to ensure that all material risks are identified in an offering document and no material facts are omitted. Here is the relevant section: "SOL Trading Platforms May Be Exposed to Fraud And Manipulation" “The SEC has identified possible sources of fraud and manipulation in the SOL market generally, including, among others (1) "wash trading"; (2) persons with a dominant position in SOL manipulating SOL pricing; (3) hacking of the SOL network and trading platforms; (4) malicious control of the Solana network; (5) trading based on material, non-public information (for example, plans of market participants to significantly increase or decrease their holdings in SOL, new sources of demand for SOL) or based on the dissemination of false and misleading information; (6) manipulative activity involving purported "stablecoins," including Tether (for more information, see "Risk Factors—Risk Factors Related to Digital Assets—Prices of SOL may be affected due to stablecoins (including Tether and US Dollar Coin ("USDC")), the activities of stablecoin issuers and their regulatory treatment"); and (7) fraud and manipulation at SOL trading platforms. Potential market manipulation, front-running, wash-trading, and other fraudulent or manipulative trading practices may inflate the volumes in the crypto market and/or cause distortions in price, which could adversely affect the Trust or cause losses to Shareholders.” @Patrick_Bush_VE