How to trade the Solana Rally | Joe Mccann

Notes from the empire podcast

Great podcast — would highly recommend listening to the whole thing. Here are some key takeaways:

• Solana Thesis

• Managing risk & trading at Asymmetric

• What outperforms: Bonk or SOL?

• Probabilistically – does SOL hit 20 or 100 first?

• How do other projects that are forking Solana + SVM affect Solana?

• Outlook on L2s?

Would recommend following Joe on Twitter, and joining his telegram group here if you aren’t already.

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Solana thesis

• Lots of PMs saw what happened to ETH, and feel late to it

  • ETH went from zero -> 1400 -> 80 -> 4800

  • SOL went from zero -> 260 -> 8 -> ???

  • Narrative is very strong for SOL now

• ETH did a great job pioneering smart contracts, but they designed it in a way that resulted in a lot of emphasis on fees + gas

  • As a result devs spend a lot of time on gas optimization in their code

  • D'apps on ETH are expensive to use

• Second order effect here is that users won't interact with ETH d'apps much (given that they are so expensive)

• SOL took a different approach -- make fees cheap, emphasize speed, and focus on parallelization and scaling with hardware

• As a result, lots that you can do on SOL that you can't do on EVM based chains

  • Compressed NFTs are a prime example here (minting millions of NFTs for extremely cheap)

• And it's evident this thesis is playing out -- we are seeing a lot of bids in the order books, primarily from less price sensitive, institutional buyers

Managing risk & trading at Asymmetric

• We run low net most of the time (low net means low net leverage -- ratio of invested vs. cash on hand)

• Right now we are higher net, we got really long in Oct since our view was we bottomed then

• We are very concentrated in SOL right now but still have exposure to BTC + ETH although much smaller % wise

• Our fund never uses leverage -- we never are above 1x notional

• We do like to use different options structures so that we can put on asymmetric (low downside, extreme upside trades)

  • A couple examples

    • Risk reversal on SOL at $8 -- sold $7-8 puts and bought 20/25 call spreads in size

    • Bought as much OTM XRP calls at 1c as they could, months prior to the XRP suit passing

• When our bags really run hot, we will go long/short options and derivs to hedge the downside (e.g. covered calls, buying cheap OTM puts)

• We have 3 ways to think about putting on trades

  • 1) Fundamentals

  • 2) Event or narrative driven (e.g. front running the LSD narrative in Jan/Feb '23)

  • 3) Macro thesis

What outperforms: Bonk or SOL?

• BONK

• If you want to get long Solana culture, BONK is it

• Story of bonk

  • Was airdropped to devs in Solana after the big FTX crash at the pico bottom

  • Motivation was to act as a stimmy for devs that were defeated after Solana was down 95%+

  • Now BONK is basically integrated in all parts of the SOlana ecosystem

• ETH / LINK / SHIB is to SOL / PYTH / BONK

• Also has unit bias

Probabilistically – does SOL hit 20 or 100 first over the next 90 days?

• 20 - 25 is probably a generational support for ETH -- very highly unlikely that we ever test that level again

• Solana has run up very hard since its broken out, we can potentially retrace but at the same time, if you look at this with a longer term view -- much higher chance we hit 100

How do other projects that are forking Solana + SVM affect Solana?

• It is Extremely positive

• Similar to how there are many versions of the JVM

• Once you have Eclipse, Monad, Maker forking the SVM, they have a vested interest in ensuring Solana exists and persists

• It validates the merits of Solana's architecture and design as well

• No, not every $ of value generated will flow back to Solana, but it is on net, very positive

Outlook on L2s?

• "They are called L2s because you now have 2 problems"

• Large dependency on the L1 chain

• There's a conflict of interest -- ETH L1 is deflationary, high fees. But with L2s, you now "scale" but ETH L1 doesn't accrue value

• Big issue with dev + user experience 

  • As a dev - what L2 do you build on? What happens if a big L1 change happens? How do you manage that dependency?

  • As a user -- what token do you need? What chain has the most liquidity + action? How do you bridge?

  • These problems can be solved but they aren't right now

• There's a lot of VC money in this space that will "muscle" this space forward. This space does decently -- we are long ARB, it's very liquid and has high beta towards ETH

• To tie this back to Solana, lots of the same fund managers/VCS that are very biased towards ETH + L2s have been asking Joe about Solana - "get me up to speed here"