1 New Reason to Be Cautious About Buying Solana, and 1 New Reason to Sell It Immediately

Solana (CRYPTO: SOL) has a mixed reputation these days. It's undeniably a fast and cheap platform for lots of different decentralized apps (dApps). But, it's also the home of crypto casino apps, like the meme coin launchpad Pump.fun, which is now named in a class-action lawsuit along with critical Solana ecosystem entities like the Solana Foundation.

And, depending on how you look at it, that particular legal can of worms could be one big reason to be seriously cautious about buying the coin, or, for more risk-averse investors, it could even be a justifiable reason to sell it right now. Here's what you need to know, and how it could change the coin's growth trajectory for the worse.

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The lawsuit makes this coin a bit riskier

The lawsuit's allegations center on the issue of maximal extractable value (MEV), and on whether Solana insiders or the chain's market makers were systematically able to get better execution on their trades than ordinary retail investors, thereby conferring an unfair advantage. In a nutshell, MEV is the value a block producer or other actor can potentially extract from a given flow of trades by inserting, excluding, or reordering the transactions reported to the chain in real time.

Think of it like this: You go to the store with the intention of buying apples that you know are priced at $1 each. But, a little goblin sneakily watching the checkout line slips in at the last moment, buys the apples first, and then immediately resells them to you for $1.01, a higher price than what you wanted. That's a simplified version of a common MEV pattern: using transaction ordering to capture value from ordinary buyers.

It makes sense why investors are mad enough about that happening to them all the time that they would bring a class-action lawsuit against those they (quite plausibly) suspect to be responsible. And as of December, there was a court decision regarding the lawsuit that granted plaintiffs the right to file an extended and amended complaint. That likely increases the odds of a drawn-out discovery process, thereby creating the opportunity for more than one bad headline to harm the coin's price.

Now let's tie this back to Solana's economics. Pump.fun, the platform on Solana that's named in the lawsuit, drives on-chain transactions that generate network fees. If litigation or enforcement actions scare off casual participants, both app-level fees and chain-level activity can cool in tandem. That would be bad for holders.

This is especially important because Pump.fun has been a major fee generator for Solana. In other words, this app has been a nontrivial part of the coin's narrative, and also part of the investment thesis for buying the coin. Nor would losing a major fee engine to a lawsuit be good for investor sentiment, if that ends up happening.

So this lawsuit is a very big reason to be cautious about buying Solana until it resolves.

When selling might make more sense than holding

For some investors, this same reason to be cautious is a reason to sell Solana.

The lawsuit is going to make it impossible to avoid an unpleasant discussion about how the chain is often used as a venue for speculation or outright gambling for buyers who usually don't realize that they have no edge. A pair of the investment theses for buying Solana, namely that it will become a platform for mainstream financial or consumer applications, and that it will become a platform for tokenized asset management, are now both endangered by a long-running legal fog. App developers and holders of capital might start looking elsewhere, even if the chain is technically fine.

So, if you own Solana mainly for exposure to fast-growing on-chain activity, selling it is a rational move. But if you own Solana because you expect it to diversify into less controversial applications, you can continue to hold it, but treat this period as a stress test.

I won't be selling any of my coins, but I probably won't be buying too much more until this lawsuit is resolved.

Alex Carchidi has positions in Solana. The Motley Fool has positions in and recommends Solana. The Motley Fool has a disclosure policy.