SOL token in Light of SEC's Classification

The objective of this bounty challenge is to conduct an in-depth analysis of on-chain data from the Solana blockchain, specifically focusing on the SOL token, in relation to the recent classification of the token as a security by the United States Securities and Exchange Commission (SEC). The analysis should include some of the following topics: Explore SOL token metrics such as transaction volume, daily active addresses, token distribution. Examine the impact of the SEC's classification of the SOL token as a security on the on-chain data. Identify any significant changes or trends that can be attributed to this classification. Compare shifts in user behavior, trading patterns that may indicate a response to the regulatory action. Assess the influence of the SEC's classification on the SOL token's market dynamics, including price volatility, liquidity, and trading volumes. Analyze any correlations between the on-chain data and the token's market performance. Explore the Solana blockchain's smart contract ecosystem and analyze the usage of SOL tokens within decentralized applications (dApps) and DeFi protocols. Assess the impact of the SEC's classification on the adoption and development of these applications. Investigate any changes in the network's validator set or staking activity following the SEC's classification. Analyze on-chain data to identify if there have been any shifts in the distribution of staked SOL tokens among validators. Summarize the key findings from the on-chain analysis and provide insights into the implications of the SEC's classification on the Solana blockchain, its participants, and the broader cryptocurrency market.

Introduction to Solana:

Solana is a high-performance blockchain platform designed to support decentralized applications (DApps) and provide fast and scalable solutions for the growing demands of the cryptocurrency ecosystem. It was created by a team led by Anatoly Yakovenko and was launched in March 2020.

Here are some key features and concepts related to Solana: 1. Consensus Mechanism: Solana utilizes a unique consensus mechanism called Proof of History (PoH), which creates a verifiable sequence of events without the need for traditional consensus algorithms like Proof of Work (PoW) or Proof of Stake (PoS). PoH provides a historical record of transactions, allowing validators to agree on the order and time of events.  2. Scalability: Solana is designed to be highly scalable, capable of handling thousands of transactions per second (TPS). Its architecture includes a combination of multiple innovative technologies, such as a Proof of Stake (PoS) consensus algorithm called Tower BFT (Byzantine Fault Tolerance), mempool parallelization, and a decentralized clock called Verifiable Delay Function (VDF). These features help Solana achieve high throughput and low transaction fees.  3. Smart Contracts: Solana supports smart contracts using its own programming language called Solana's Transaction Language (SOL-T). Developers can build and deploy decentralized applications on Solana, leveraging the platform's speed and scalability. Solana also provides a familiar development environment by offering compatibility with the Ethereum Virtual Machine (EVM), allowing developers to port their existing Ethereum smart contracts to Solana.  4. Ecosystem and Projects: Solana has attracted significant attention from developers and projects seeking to leverage its capabilities. Many projects have chosen Solana as their blockchain platform, ranging from decentralized finance (DeFi) protocols, non-fungible token (NFT) marketplaces, and gaming applications to decentralized exchanges and more. Some notable projects built on Solana include Serum, Raydium, Mango Markets, and Audius.  5. Native Cryptocurrency: The native cryptocurrency of the Solana network is called SOL. SOL has utility within the Solana ecosystem and serves multiple purposes, such as paying for transaction fees, participating in token sales, and staking to secure the network. SOL can also be traded on various cryptocurrency exchanges.  6. Solana's Growing Adoption: Solana has gained increasing recognition and adoption within the cryptocurrency industry. Its high performance and scalability have made it an attractive platform for developers and users alike. Notably, Solana has gained attention for hosting high-profile decentralized token sales and experiencing rapid growth in terms of active projects and network activity.

SEC's Classification:

According to some sources, the U.S. Securities and Exchange Commission (SEC) has classified the SOL token as a security in separate lawsuits filed against Binance and Coinbase on June 5 and June 6 respectively. This classification is based on factors including the expectation of profits derived from the efforts of others, as well as how the tokens are being used and marketed.

The Solana Foundation, which oversees the development and growth of the Solana ecosystem, has responded to this classification in an official statement on June 10. The foundation expressed surprise over the mention of the token by the U.S. regulator, emphasizing its commitment to building exceptional blockchain products. The foundation also stated that it is willing to collaborate with the SEC to establish regulatory clarity for operating within the country.

The market response to this news has been mixed. The SOL token experienced a surge of 6.16% within 24 hours after the foundation's response, suggesting that investors may be undeterred by the regulatory concerns surrounding SOL. However, prior to this recovery, SOL's price had declined by 22% due to the imposed restrictions.

Method:

This analysis provides a in-depth analysis of SOL token in Light of SEC's Classification. The observation time is from 20-May-2023 to now with 02 clear period: before SEC classification (block_timestamp <= ’08-Jun-2023) and after SEC classification (block_timestamp>’08-Jun-2023’). In this dashboard, we will focus on these aspects: - Price of SOL, ETH and BTC before and after SEC classification - Performance in swap activity in terms of number of SOL token swappers, swap transactions and volume - Success rate of transactions on Solana and compare it with Flow and Ethereum in both period: before and after SEC classification. - The trend in depositing SOL to CEX in terms of number of depositors, transactions and volume in SOL - The trend in withdrawing SOL from CEX in terms of number of withdrawers, transactions and volume in SOL. - Number of users and SOL amount used per Dapp before and after SEC classification.

For more details about the tables mentioned above, please check at: https://docs.flipsidecrypto.com/our-data/data-table-documentation

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Price of SOL,BTC and ETH before and after SEC's Classification:

The provided chart illustrates the changes in prices for three different crypto tokens, namely Solana (SOL), Ethereum (ETH), and Bitcoin (BTC), over a period of time ranging from May 20, 2023, to June 8, 2023, right before the SEC classification. The prices are denoted in US dollars (USD). Upon analysis, it is evident that all three tokens experienced fluctuations in their respective prices during the given timeframe. Solana's price, for instance, exhibited a relatively stable pattern, with minor variations observed. On May 20, the SOL token was valued at $20.241, reaching its lowest point on June 8 at $18.749. Similarly, ETH and BTC also had stability in their price. The highest point of BTC was 27881.4 on 2023-05-29 and lowest point was 26140.7 on 2023-06-06. Regarding ETH, its price ranged from 1794.2 to 1903.2 during the same period.

Upon examination, it is evident that all three tokens experienced fluctuations in their respective prices during the given timeframe. Solana's price had a downward trend. On June 9, the SOL token was valued at $18.511, reaching its lowest point on June 15 at $14.66, and then slightly increasing to $16 on June 20. Ethereum's price displayed a similar pattern, albeit with less volatility compared to Solana. On June 9, the ETH token was valued at $1841.43. It experienced a minor decline to $1727.78 on June 14, and then gradually decreased to $1731.46 on June 20. Bitcoin, on the other hand, demonstrated relatively stable prices. From June 9 to June 20, its price ranged between $26,535.21 and $26,839.98, exhibiting a limited price range compared to the other two tokens. It can be concluded that the SEC classification over Solana had a negative impact on Solana price.

Swap activity:

The provided data focuses on the activities of the swapper before and after its classification by the Securities and Exchange Commission (SEC). Before SEC classification, swapper had varying levels of engagement. On May 20, there were 10,379 unique swappers involved in swap activities. This number increased and reached a peak of 19088 and then decreased to below 10K unique swappers since 04-Jun. After SEC classification, the number of unique swappers decreased and remained lower than it was in the previous period . During the later period, its highest number of swappers was 9268 users on 14-Jun. Throughout the given time frame, there were fluctuations in the number of unique swappers. These fluctuations suggest changes in user engagement and behavior, which might have been influenced by the SEC classification.

In the "Before SEC classification" time period, the total number of swaps varied significantly. On May 27, 2023, there were 239,341 swaps, the highest number observed in this time period. Conversely, on June 2, 2023, the total number of swaps was the lowest, with only 28,703 swaps. On average, during this period, there were approximately 107,073 swaps per day. After SEC classification, the total number of swaps also experienced mild fluctuations but stood at lower number. June 10, 2023, had the highest number of swaps, with 170,448 observed. On the other hand, June 20, 2023, recorded the lowest number of swaps, with only 22,352 observed. The average number of swaps during this time period was approximately 63,406 swaps per day. Comparing the two time periods, it is evident that the total number of swaps decreased after SEC classification. In the "Before SEC classification" period, the average number of swaps was higher compared to the "After SEC classification" period.

Regarding swap from SOL to other tokens, we can see that before SEC classification, volume of swaps was always lower than 300K SOL with slight fluctuations. However, since SEC classification, this volume skyrocketed to 728K SOL on 10-Jun before decreasing sharply to lower than 300K SOL. Overall, except for the peak of 10-Jun, volume of swaps from SOL to other tokens did not have any noticeable changes. Similarly, volume of swap from other tokens to SOL significantly increased to 632K SOL on10-Jun, which was also the peak. There was no big change in its volume, which was mainly in the range of 100K-200K SOL per day. In addition, it can be seen that on this day, the volume swapped from SOL outnumbered volume swapped to SOL. The increase in swap volume on 10-Jun can be attributed to market participants capitalizing on arbitrage possibilities and big change in SOL price (from 18.5$ on 09-Jun to 15.3$ on 10-Jun).

Success Rate:

Before Sec classification

Overall, it is evident that Ethereum consistently achieves a 100% success ratio for all transactions throughout the observed period. On the other hand, Solana and FLOW experience slight variations in their success rates. Looking at the Solana blockchain, the success ratios range from 60% to 86% during the analyzed period. The highest success rate is observed on June 8, with 86%, while the lowest is seen on May 25, with a success rate of 60%. These fluctuations indicate some variability in the reliability of transactions on the Solana blockchain. In the case of the FLOW blockchain, the success ratios range from 85% to 99%. FLOW consistently maintains a relatively high success rate, with the lowest rate still above 85%. The highest success rate for FLOW occurs on May 24, with 99%.

After Sec classification

Looking at the data, it is evident that Ethereum consistently demonstrates a 100% success rate throughout the given time frame. This indicates a high level of reliability and efficiency in executing transactions on the Ethereum blockchain in both period (before and after SEC classification). Solana and FLOW also exhibit relatively high success rates, albeit with some fluctuations. Solana's success rate ranges from 54% to 75%, while FLOW's success rate ranges from 89.99% to 95.02%. These ratios show that there was a decrease in the success rate of transactions on Solana and Flow after SEC classification. It's worth noting that Solana experiences more variability in its success rates compared to FLOW and Ethereum. This suggests that the success rate on Solana is more prone to fluctuations over time.

Deposit to CEX:

Before SEC classification, on May 20, 2023, the number of CEX depositors was 3,334, reaching a peak of 5,953 on May 22, 2023. This period saw fluctuations in the number of depositors, with slight increases and decreases. After SEC classification, on June 12, 2023, the number of CEX depositors was nearly 10K, with the highest recorded number in both periods. However, for the rest of time in the later period, the number of SOL depositors to CEX was lower than it was in the previous period.

The number of CEX deposits decreased in the observed period. In the "Before SEC classification" period, the number of CEX deposits ranged from 5,972 to 20,966, while in the "After SEC classification" period, the range was between 3,474 and 30,196, which shows sharper fluctuations compared to the previous time.

Similar to the number of deposit, amount of depositing SOL to CEX got the peak of nearly 12M SOL on 10-Jun, which is also the highest point in both periods. Conversely, the lowest deposit value during this period occurred on June 03, with 715.6K SOL occurring in “Before SEC classification” period. Looking at the chart, we can see that the volume deposited in “After SEC classification” was a little higher than the previous time.

Withdraw from CEX:

Similarly, before SEC classification, on May 20, 2023, the number of CEX withdrawers was 5,943, reaching a peak of 8,421 on Jun 7, 2023 whereas the peak in the “after SEC classification” was much higher, which stood at 13.5K withdrawers on 10-Jun. In general, comparing 02 periods, we can see that the number of CEX withdrawers before SEC classification had an upward trend whereas it declined in the later period. The number of CEX withdrawal decreased in the observed period. In the "Before SEC classification" period, the number of CEX withdrawal ranged from 9130 to around 13K, while in the "After SEC classification" period, the range was between 5,340 and 21,293, which shows sharper fluctuations compared to the previous time. Similar to the number of withdrawal, amount of withdrawal SOL from CEX got the peak of over 11M SOL on 10-Jun, which is also the highest point in both periods. Conversely, the lowest withdrawal value during this period occurred on June 03, with around 738.8K SOL occurring in “Before SEC classification” period.

The high volume in both deposit and withdrawal comes from the fact that traders want to move their Sol token under US cex exchange to international centralized exchange in order to avoid further trading restriction from SEC. In addition, securities regulations often come with trading restrictions and limitations. If SOL is classified as a security, centralized exchanges might be required to impose restrictions on trading SOL, such as limiting trading hours, implementing trading limits, or requiring specific qualifications for investors. These restrictions could affect the liquidity and availability of SOL on centralized exchanges, making it more difficult to deposit or withdraw the token. In some cases, exchanges may choose to delist tokens classified as securities to avoid potential legal risks and regulatory burdens. If a centralized exchange decides to delist SOL due to its security classification, it would significantly impact the ability of users to deposit or withdraw SOL on that particular platform. Users would need to find alternative exchanges or decentralized platforms to trade or hold their SOL.

Impact on Dapp usage:

Upon careful examination of the chart, it becomes evident that the adoption of SOL in Dapp experienced substantial growth following the SEC classification. Prior to the classification, the majority of days saw less than 80 users utilizing SOL in Dapp. Amongst this period, the highest recorded user count was observed on Jun 5, 2023, with an impressive tally exceeding 89 users. However, post-SEC classification, there was a discernible upswing in the adoption of SOL in Dapp, with the majority of days surpassing 80 users per day. The peak in user count was reached on Jun 10, 2023, with an impressive figure surpassing 110 users.

This notable shift in user behavior can potentially be attributed to the uncertainty generated by the SEC classification, motivating investors to opt for Dapp usage over centralized exchanges for their activities.

Turning our attention to the quantity of SOL employed in Dapp, we can observe a significant and consistent growth trajectory over time, particularly following the occurrence of the SEC classification. On May 20, 2023, the amount of SOL utilized in Dapp stood at a modest 3222 SOL. However, this quantity experienced a remarkable surge, reaching its peak on Jun 10, 2023, with an astonishing utilization of over 83K SOL in Dapp.

In summary, it is evident that the SEC classification had a positive and influential impact on the growth and adoption of SOL in Dapp. The increased number of users and the substantial rise in SOL usage demonstrates the market's response to the regulatory uncertainty, favoring the utilization of Dapp as a preferred alternative to centralized exchanges.

Conclusion:

The examination of SOL's price and volatility reveals that the categorization of SOL as a security by the SEC had a noticeable effect on the token's worth. The value of SOL witnessed a decrease amid the circulation of SEC-related rumors and further declined following the formal announcement.

After SEC classification, the number of unique swappers decreased and remained lower than it was in the previous period. The total number of swaps decreased after SEC classification. In the "Before SEC classification" period, the average number of swaps was higher compared to the "After SEC classification" period. The increase in swap volume on 10-Jun can be attributed to market participants capitalizing on arbitrage possibilities and big change in SOL price (from 18.5$ on 09-Jun to 15.3$ on 10-Jun).

There was a decrease in the success rate of transactions on Solana and Flow after SEC classification. It's worth noting that Solana experiences more variability in its success rates compared to FLOW and Ethereum. This suggests that the success rate on Solana is more prone to fluctuations over time.

Amount of depositing SOL to CEX and withdrawing SOL from CEX got the peak after SEC classification. Conversely, the lowest deposit and withdrawal value occurred in “Before SEC classification” period. The high volume in both deposit and withdrawal comes from the fact that traders want to move their Sol token under US cex exchange to international centralized exchange in order to avoid further trading restriction from SEC.

The SEC classification had a positive and influential impact on the growth and adoption of SOL in Dapp. The increased number of users and the substantial rise in SOL usage demonstrates the market's response to the regulatory uncertainty, favoring the utilization of Dapp as a preferred alternative to centralized exchanges.