Solana ETF Approval Faces Uncertainty Amid SEC Delays and Industry Concerns

Solana has emerged as a significant player in the crypto industry since its inception in 2020, demonstrating remarkable user engagement and practical utility, particularly in decentralized finance (DeFi). Many industry leaders view it as the next natural contender to receive an ETF approval in the United States. However, there are concerns about centralization, network reliability, and excessive regulation that could hinder its approval.

Bitcoin and Ethereum have already paved the way for ETF approvals, with Bitcoin being the first cryptocurrency to have spot ETFs approved by the US Securities and Exchange Commission (SEC) in January 2024. Ethereum followed suit in May 2024, marking a significant milestone for the industry. The success of these digital assets in achieving ETF approval has driven prices to record highs and sparked optimism among investors and market analysts.

Solana is now positioning itself to be the next cryptocurrency in line to seek ETF approval. The end of the 240-day review period for some of the first Solana ETF filings, notably from VanEck and 21Shares, marked a significant date. However, the SEC delayed ETF applications for Solana, XRP, Litecoin, and Dogecoin after facing recent criticism for its pro-crypto actions. The deadline for some filings, including Grayscale’s, was extended until October, with posts on social media suggesting an initial or consolidated SEC response to several applications.

The tentative approval of a Solana ETF has generated much debate across social media platforms. ETF President Nate Geraci formally predicted that 2025 would be the year of crypto ETFs and that Solana would receive its approval this year. Former Trump White House Secretary Anthony Scaramucci expressed that, with a Trump reelection, Solana ETFs could gain approval during Q1 of 2025. According to his predictions, Solana would receive the SEC’s green light during the next two weeks. A Polymarket poll suggested an 82% chance that a Solana ETF will get approved in 2025.

Several factors make an imminent Solana ETF approval seem plausible. Less than five years after the network launched, Solana quickly became a major player in the crypto industry, attracting users for its high transaction speeds and low gas fees. Lennix Lai, Global Chief Commercial Officer at OKX, highlighted Solana’s remarkable performance, now driving nearly 50% of all global DEX volume, which fundamentally reshapes the DeFi landscape. The blockchain is not just handling unprecedented transaction volumes but is transforming our understanding of blockchain scalability at scale.

Solana’s positive performance, coupled with Donald Trump’s reelection to the US presidency, further amplified the crypto industry’s optimism over an ETF approval. However, some industry experts have expressed more tempered expectations. Bloomberg Intelligence analyst James Seyffart said Solana ETFs may not be launched in the US until 2026, citing the SEC’s precedent of taking a lot of time to review filings as the cause for delay. Bloomberg Senior ETF analyst Eric Balchunas said that ETF approvals for other cryptocurrencies were more likely to occur before Solana.

Uncertainty over whether Solana classifies as a security is a major driver fueling doubts over its ETF approval. Martins Benkitis, co-founder and CEO of Gravity, explained that Solana’s regulatory classification complicates its path to approval. The SEC identified Solana as a security in lawsuits against Binance and Coinbase over the past two years, although these lawsuits have since been dropped. The SEC argued that these tokens could be considered investment contracts under the Howey Test. While some interpreted the SEC’s lawsuit withdrawal as a softening stance on Solana’s security classification, others quickly challenged this assumption.

In determining whether an ETF is fit for approval, the SEC requires the product to meet strict regulatory standards. These include compliance and adherence to existing financial regulations, sufficient market demand from institutional and retail investors, reliable custody solutions, high liquidity levels, and rigorous asset performance and governance transparency. Lennix Lai added other aspects to the list of considerations, including Solana’s technological architecture, the absence of CME futures, historical network downtime incidents, centralization questions, and the temporary nature of trending themes.

Solana faces more obstacles than Bitcoin and Ethereum, one of which is market manipulation. Since 2021, Solana has suffered over a dozen network outages varying in severity. These outages have jeopardized the network’s reputation as stable and reliable, two strongly considered characteristics during the ETF approval process. However, Solana has successfully curbed the number of outages it has experienced. Once notorious for the frequency of its shutdowns, the last time Solana experienced one was in February 2024. Developers designed Solana’s upcoming Firedancer validator client to improve network stability and transaction processing. Its distinct codebase offers greater resilience against widespread outages and will enhance Solana’s performance.

Solana’s validator node requirements, which demand significant hardware investments, can create barriers to entry. These obstacles can potentially concentrate power within the network among those capable of affording the necessary infrastructure. In turn, the protocol’s limited number of validators compared to other networks raises concerns over centralization. For context, while Solana currently has around 2,000 active validators, Ethereum passed the one million benchmark last year—the largest number recorded by any blockchain network. Though Solana’s hardware reliance speeds up the network, it also raises decentralization concerns. Benkitis factored this aspect into his evaluation of an ETF approval.

Its currently underdeveloped futures market infrastructure further complicates Solana’s viability as an ETF candidate. Its filings were unprecedented because the network did not have a previously established futures market. This factor was crucial in determining an ETF approval for Bitcoin and Ethereum. The lack of CME futures and institutional frameworks comparable to BTC/ETH could influence the SEC’s evaluation. Lai added that the proliferation of meme tokens minted on Solana could present themselves as a potential roadblock. The expanding meme coin market on Solana partially explains its popularity. Platforms like Pump.fun allow anyone to launch their tokens, and this design has even led to celebrities launching their tokens on the platform. More recently, political figures like Donald Trump and Argentine president Javier Milei have also launched meme tokens on Solana platforms. Yet, these activities have proven to be high-risk. In many cases, meme coin investments have caused smaller retailers millions of dollars in losses. Benkitis said that the SEC might frown upon the speculative nature of these trading activities.

With so many considerations, approving a Solana ETF in 2025 is far from guaranteed. The SEC’s eventual decision will be a defining moment for the network and the broader crypto industry.