Since we wrote about how Sanctum will change the landscape of LSTs on Solana back in April 2024, the sector has seen notable long tail entrants that captured significant market share such as jupSOL and centralized exchanges LSTs like bnSOL and bbSOL. Along with the parabolic growth of economic activity on Solana, we remain confident that LSTs will be a key focus sector and Sanctum will continue to play a crucial role in facilitating that growth.
As such, we have built a significant position in CLOUD, the native token of Sanctum. This piece will outline our thesis on why CLOUD is currently undervalued and how they are primed for significant value capture.
We remain highly bullish on the growth of the liquid staking sector on Solana, with Sanctum positioned as the primary beneficiary of this expansion. Solana's liquid staking ratio surged from 2.2% in January 2023 to 9% in January 2025, reflecting an impressive CAGR of 102%. This rapid growth coincides with Sanctum’s launch in August 2023, which marked a pivotal inflection point by introducing core liquidity infrastructure that enabled the proliferation of longer tail liquid staking tokens. The growth was also propelled by the launch of centralized exchange LSTs like bnSOL and bbSOL, enabled by Sanctum. Sanctum has has also quickly surged to 20% of the Solana liquid staking market share just second to Jito.
However, the journey is far from over. While the growth is impressive, we expect the liquid staking ratio for Solana to eventually exceed 30% - Ethereum’s current liquid staking ratio. While the immediate area of growth will come from efforts to onboard retail, the introduction of CEX LSTs will open doors to increased institutional adoption of LSTs as a better alternative to native staking. We believe Solana’s liquid staking market is unlike any other ecosystem simply because it is empowered by Sanctum’s core products. Sanctum’s innovative products—Router, Reserve Pool, and Infinity Pool—empower anyone to create LSTs while maintaining liquidity, a functionality not feasible elsewhere.
Additionally, Solana’s growing economic activity enhances the potential yield for liquid stakers. Unlike native stakers, who are excluded from lucrative block rewards - priority and base fees, LST holders benefit directly from these rewards, making LSTs a superior staking mechanism. Validators issuing LSTs have started sharing their revenue directly with token holders, ensuring that users earn a higher yield than they would with native staking alone. Major players in the space, such as DriftProtocol with dSOL, Jupiter with jupSOL, and Helius with hSOL, are actively participating in this movement, further cementing LSTs as a better choice for maximizing staking returns. The recent activation of SIMD-96 will also be a key tailwind for increased adoption of LSTs. SIMD-96 allows validators to earn 100% of the priority fees instead of burning 50%. For native stakers, validators have been unable to natively share priority fees with stakers in the protocol. We believe that this is a huge inflection point as the redistribution of priority fees back to liquid stakers will be a huge source of yield unmatched by native staking. In order to capitalize on SIMD-96, Sanctum also recently announced that they created a LST for every Solana validator which increases the number of Sanctum issued LSTs to over 1000.
The advantages of LSTs go beyond simply accessing block rewards. LSTs offer liquidity, enabling users to stake their assets while retaining the flexibility to trade or use their LSTs within DeFi protocols. They also provide composability, allowing stakers to further amplify their yields through lending, yield farming, or collateralization in DeFi ecosystems. There is a growing ecosystem of products that are built on top of LSTs including Kamino’s Multiply vaults and also stablecoins with amplified LST yield like Hylo.
The majority of Sanctum’s current revenue is from stake pool deposits - basically a 0.1% fee whenever SOL is deposited into any of Sanctum managed stakepools (jupSOL, bbSOL, hSOL etc.). We expect these revenue figures to accelerate further along with increased adoption of LSTs. It is also plausible that Sanctum might revamp its fee structure by transitioning from a pure deposit-based model to one centered on assets under management (Update: They have since announced an 5% epoch fee split between equally LST partners and Sanctum). Under the current system, Sanctum fees are generated solely from deposits, inadvertently encouraging churn for pool operators as it incentivizes stake to rapidly move in and out of the LSTs. By shifting to an AUM model, both the pool operators and stakeholders will have a shared interest in growing the overall value of the LST, promoting a more stable and aligned ecosystem.
We believe that Infinity is slated to see significant revenue growth as they continue to optimize the design and composition of the pool. Sanctum’s INF is a basket of LSTs, used to provide liquidity between various LSTs and also earn trading fees without giving up on staking yields. With the continued growth of the LST market, we believe that INF will be the optimal choice for most stakers for a few reasons. Firstly, INF has consistently shown that it has one of the highest staking yields because it actively rebalances for the best performing LSTs along with additional trading fees from swaps using the pool. Secondly, we believe that INF will be responsible for the majority of LST swaps in the future simply because of how it is designed to be more capital efficient than most vanilla AMMs.
We are thoroughly impressed by the team’s efforts in shipping out new products and features over the past year. In order to increase top funnel adoption of LSTs, the team has rolled out Creator Coins which is an unique way for people to support their favourite creators by directing their staking yield to them. The team has also closely supported the adoption of centralized exchange LSTs which has been unprecedented in terms of onboarding users into DeFi. Rolling out LSTs for every validator on Solana was a very sharp move in our opinion as it reduces the onboarding friction for validators who were only previously involved in native staking.
In the middle stack, we are confident that the team will continue to refine the infrastructure needed to facilitate their vision of “every SOL should be liquid staked”. On the foundational layer, Sanctum is also the first Solana project to fully adopt futarchy and MetaDAO for its governance, a unique way of allowing free market dynamics to decide on major protocol decisions. Given the team’s track record, we are convinced that Sanctum will continue to innovate on all stacks to deliver the best experience for liquid stakers.
During their TGE in July 2024, users were able to purchase CLOUD at $0.15 with a six months vesting period. Airdrops recipients may also choose to have a six months vesting period in order to receive their full unlock. The Alpha Vault and airdrop supply for CLOUD have since fully vested on January 6 2025. As of writing, CLOUD is even trading beneath the initial $0.15 alpha vault price despite their steady fundamental growth over the past six months. As such, we strongly believe that CLOUD is currently mispriced by the market and will be corrected over the long term that accurately reflects Sanctum’s value to the Solana ecosystem.
Despite increasing annualized revenues over the past 6 months, CLOUD is currently trading within the lower bound of their earnings multiple at around 5x.
This brings their earnings multiple to a more reasonable comparison with their peers in the liquid staking market. Along with the shift to the AUM fee model coupled with their accelerating issuance of LSTs, we expect their revenue figures to increase further ahead.
When compared against some of their publicly traded peers on Solana, Sanctum has the lowest TVL multiple.
In terms of token supply, 13% has been sold to investors. They invested at 50M FDV and some at 60M FDV. Their first unlock will be coming up in July 2025. where 33% of their tokens will be emitted, while the other 66% will vest linearly over 24 months after the cliff.
Ultimately, our conviction in Sanctum is underpinned by our belief that Solana will continue to thrive and their inevitable growth of liquid staking simply wouldn’t exist without Sanctum. Looking at some of the fundamental numbers above, we concluded that this is the right time to double down on CLOUD.
Pivot Global