And as for volatility, the solana vs usdt trading pair is far from being a stablecoin level asset portfolio: The 2023 annualized volatility of SOL/USDT reached 98%, which was much higher than BTC/USDT at 45% and ETH/USDT at 68%. For instance, when FTX went down in November 2022, SOL fell from 35 USDT to 12.3 USDT within 48 hours (a decline by 64.9%), whereas the same time frame saw USDT change by only 0.3% against the US dollar. Even during the comparatively calm period in the first half of 2024, the 30-day rolling volatility standard deviation of SOL/USDT remained 25%-35%, whereas the volatility standard deviation of DAI/USDT was only 0.2%.
Liquidity indicators show that market depth restricts the stability of solana to usdt: While the average daily traded volume of the SOL/USDT spot trading pair on exchanges such as Binance and OKX was 580 million US dollars (Q2 2024 data), order density in the ±2% price range of the order book was 4.3 million USDT, a mere 12% of the size of BTC/USDT. This causes a slippage of 1.2% to 2.5% for an enormous order (such as a single trade of 500,000 USDT), while BTC/USDT trades of the same magnitude tend to have slippage lower than 0.5%. Jump Trading made a quick 8% price fall in September 2023 by selling 800,000 SOL as there wasn’t sufficient SOL/USDT liquidity, unveiling the vulnerability of the market further.
As for market structure, SOL/USDT stability is mainly dictated by derivatives: the open perpetual contract notional hit a peak of 1.4 billion US dollars in May 2024 and accounted for 7.3% of the overall online crypto derivatives market. High leverage (5 to 10 times on average) magnifies price volatility. For instance, on 13 April 2024, SOL’s value suddenly shot up to 1.8 due to the long-short ratio (overcrowding of long positions), and within four hours, it went from 156 USDT to 132 USDT (decrease of 15.4%), prompting a liquidation of a $120 million long position. In contrast, derivatives of stablecoin trading pairs such as USDC/USDT are less than 0.1%, with barely any price action.
Technical and on-chain metrics attest to its volatility: The Sharpe ratio of SOL/USDT (a risk-adjusted return measure) has been 0.7 for the last 12 months, below BTC/USDT’s 1.2, reflecting that the return derived from unit volatility is smaller. On-chain data reveal that the Solana network’s mean daily transaction failure rate reached 8.7% in Q1 2024 (due to RPC node overload), resulting in arbitrage delay and increased price deviations. For instance, on March 6, 2024, due to Solana network congestion, the CEX-D_EX gap of solana to usdt price grew from usual 0.1-0.3 USDT to 3.5 USDT, and the efficiency of cross-market arbitrage decreased by 60%.
Exogenous event shocks further undermined stability: On January 2024, the US SEC postponed the approval of Solana ETF, making one-week volatility range of SOL/USDT hit ±22%. In June of the year, the growth rate of Helium Mobile users of the DePIN project within the Solana ecosystem slowed to 5% per month on average (less than the planned 15%), and the SOL price dropped by 9% accordingly. Conversely, when it comes to stablecoin pairs, even during the Silicon Valley Bank crisis in March 2023, the USDT/USD spread had only hit 0.7% and re-pegged within 24 hours.
in short, solana to usdt is not a stable trading pair. Its volatility is more suitable for volatility arbitrage strategies than hedging. To be stable, you can trade USDⓈ-M futures contracts or switch to RWA class assets with volatility less than 10% (such as Ondo Finance ‘s OUSG), but at an annualized opportunity cost loss of 3%-5%.