While most new token launches have been plagued with the ever-present “low float, high FDV” black cloud, Sanctum, an LST protocol on Solana, is ostensibly against this narrative, with the curve on its launch pool starting at the valuation of Sanctum’s seed round.

Will the nobility of giving buyers the opportunity to get in at the same price as Sanctum’s seed investors be rewarded, and more importantly, what can we expect of Sanctum’s new governance token, CLOUD?

A liquidity layer for LSTs

Sanctum brands itself as a unified liquidity layer for all LSTs on Solana.

It allows anyone to launch an LST without needing the exorbitant capital that was once required of traditional staking pools, and it encompasses the following four main features:

• Infinity: Deposit liquidity (any LST or SOL) into the Infinity Pool in exchange for the Infinity (INF) token. INF can be returned to the Pool to withdraw LSTs or SOL.
• Trade: Buy and sell any and all LSTs, instantly.
• Stake Accounts: Instantly convert existing stake accounts to LSTs.
• LSTs: Browse, discover and learn more about each LST and what they can do.

Token distribution

Following Sanctum’s milestone of reaching $1 billion in deposits, the team announced their governance token, CLOUD, which recently launched on Jupiter’s LFG launchpad.

With a maximum supply of 1 billion tokens and initial circulating supply of 18%, Sanctum delineated the token distribution as follows:

• Launch Liquidity: 18% (10% to airdrop, 8% to seed liquidity in the LFG launchpool).
• Community Reserve: 30% (future airdrops, active staking rewards, grants, etc.).
• Strategic Reserve: 13% (future acquihires, strategic investors, LST partners, grant recipients, loans to market makers, on-chain liquidity).
• Team: 25% (unlock over three years with a one year cliff).
• Investors: 13% (unlock over three years with a one year cliff).
• Jupiter LFG: 1%.

Token utility

With the distribution out of the way, let’s see what the use cases of CLOUD are. Besides the typical governance use cases, organic demand for CLOUD arises in the need for prospective partners to stake CLOUD to qualify for the Sanctum Verified Partner Program, and CLOUD holders will get to vote on which partners make it in. It was also mentioned that CLOUD will play a role in Wonderland S2.

The bull and bear cases for CLOUD

Considering the aforementioned, it is intuitive to conceptualize a bull case for CLOUD: If LSTs want to be integrated into Infinity and gain visibility as part of future Wonderland seasons, they need to become a Sanctum Verified Partner, which necessitates the staking of CLOUD.

As LSTs not in the program witness the growth effectuated by the attention lavished on LSTs that are Verified Partners, more and more projects will want to be part of the Sanctum’s Verified Partner Program as well, leading to an intrinsic demand for CLOUD.

Furthermore, in Sanctum’s words, “Verified Partners is a rotating cast, not a one-way door”; this ensures an indefinite demand for CLOUD stemming from the perpetual competition to be endorsed by Sanctum as a Verified Partner, and this could perhaps sustain a rise in the price of CLOUD.

However, a potential rise in the price of CLOUD could be a double-edged sword, as CLOUD is required to vote on the projects that will make it into the Verified Partner Program.

If the price of CLOUD were to rise sharply, the voting process would be less democratized due to the lack of accessibility in procuring the tokens needed to vote. This could lead to a scenario where the voting power is concentrated in the hands of a few, large entities, resulting in potential centralization.

In particular, existing Verified Partners with a significant CLOUD bag will have their moat cemented as the price of CLOUD continues rising. But of course, this could be somewhat mitigated considering CLOUD’s relatively low valuation, which promotes accessibility in the first place.

On the bright side, this prevents Solana’s LST landscape from resembling Ethereum’s, where certain LSTs (stETH) dominate the LST market.

Furthermore, Sanctum carved an inherent use case for its token by creating a program that will only endorse a select few LSTs, effectively promoting healthy competition and incentivizing projects that want to be successful to buy and stake CLOUD to enter the program.

However, at the end of the day, crypto is still an attention game, and with Sanctum effectively focusing on only 1 vertical (LST) on Solana, Sanctum’s price action will likely only sustain insofar as other narratives or ecosystems fail to grab mindshare away from Solana LSTs.

All in all, this is not something I would be worried about as Jito (JTO), a prominent LST protocol on Solana, has been trading within a relatively tight range over the past 7+ months, thereby demonstrating the ‘stickiness’ of the Solana LST narrative.

Furthermore, buying CLOUD at its current FDV of $300+ million and market cap of $50+ million is remarkably seductive.

In comparison, Jito, whose TVL of $2 billion is 2x of Sanctum’s, has an FDV of just under $3 billion (9x) and a market cap of $300+ million (6x).

This translates to Jito’s valuation standing at 1.5x of its TVL, while Sanctum’s valuation is merely a third of its TVL, thus implying that there could still be room for CLOUD to run.

Moreover, given that Sanctum is not your typical LST protocol, but is in fact pioneering the very first unified LST liquidity layer, CLOUD will be seen as a shiny new token that can command high visibility during the upcoming bull run. In light of these, CLOUD is certainly a token that I will be looking to stack in the near future.