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There’s a renewed excitement among crypto enthusiasts surrounding Solana, and it’s not without merit. The value of SOL has soared by more than 350% in the past year. Positioned as a prominent Layer 1 project, Solana boasts a substantial user base of approximately 100,000 daily users, contributing to tangible revenue of around $50,000 per day in fees. While these factors mark it as an appealing investment, the crucial question remains: does Solana hold the potential for a sound long-term investment?
There Can Be Only One (or Two)
Navigating the tech landscape, the principle of “There Can Be Only One (or Two)” prevails. In the traditional realm, major players expand through network effects, making it easier for new customers to join them. Smaller companies often face acquisition or exit due to the dominance of industry giants, exemplified by Google in search, OpenAI in AI, and Salesforce in CRMs.
In the evolving realm of blockchain technology, categories are still taking shape, with smart contract platforms (a.k.a. Layer 1s) emerging as a pivotal category—the operating system for the crypto world. Ethereum (ETH) stands as the formidable 800-pound gorilla in this space, boasting the most users, revenue, and developers. For challengers like Solana, Ethereum becomes the benchmark. However, it’s not a mandate for Solana to surpass Ethereum for survival. Niche players like DuckDuckGo and WolframAlpha have endured against Google, yet their market share remains notably smaller.
It’s More About the Users and Less of the Technology
Blockchain enthusiasts find Solana’s faster throughput, driven by its Proof of History consensus algorithm (as opposed to Ethereum’s Proof of Stake), and its developer-friendly environment (supporting languages like Rust and C) truly exhilarating. However, the excitement within the tech community often fails to resonate beyond their circles. The market, it seems, remains indifferent to the intricacies of technology, prioritizing user adoption.
When a company sets out to build a new blockchain application, the key consideration becomes evident. Should it be developed on a platform with a superior consensus algorithm, or one that promises a broader user base? Should the choice be dictated by an easier programming language or the potential for higher revenue and fees? The dilemma between the underdog and the established leader comes into play.
In the tech realm, companies typically lean toward larger platforms, driven by the safety inherent in numbers. But what about investors? Experience suggests that investors, too, are primarily concerned with the bottom line—making money. Technology relevance only emerges when it translates into a higher price multiple in the end.
Reflecting on historical tech battles—VHS vs. Betamax, MP3 vs. FLAC, QWERTY vs. alternative keyboard layouts—the trend emerges: often, the inferior technology emerges victorious. In the blockchain landscape, technology’s significance hinges on its ability to attract more users. More users equate to more network effects, ultimately contributing to increased value.
Where Are the Killer Apps?
Just like operating systems rely on killer apps to attract crucial users, Layer 1s operate in a similar fashion. Think VisiCalc putting Apple II on the map, AOL introducing the masses to the Internet, and Siri making the iPhone indispensable.
On Solana, the array of dapps is standard: a DEX (Serum), an AMM (Raydium), wallets (Phantom), borrowing/lending (Solend), NFT marketplaces (Magic Eden)—often seen as counterparts to more popular Ethereum dapps.
Yet, amidst the familiar, there are standout Solana-native dapps leveraging its unique tech. Take Audius, a decentralized music platform empowering artists to publish directly to listeners, cutting out the middleman. Leveraging Solana’s higher throughput and lower transaction fees, Audius manages a high volume of microtransactions, carving a distinctive niche in the decentralized landscape.
Solana might find its unique space catering to dapps demanding high-speed microtransactions. If this scenario unfolds, anticipate a surge in the launch of such distinctive dapps over the coming year—ones that would be impractical to develop on the Ethereum platform.
Finally
The recent surge in prices is attributed to the buzz around Solana’s Breakpoint community conference and bullish endorsements from influential figures like Cathie Wood. Despite the excitement, the prospect of Solana surpassing Ethereum in the near future seems unlikely. With prices already tripling in just a month, caution is advised before jumping on this bandwagon. However, the tech realm is known for its surprises, and early leaders may not necessarily hold their ground in the long run. While Ethereum currently holds the top position, the ever-evolving landscape leaves room for surprises—Solana might carve out a lucrative niche. Yet, as of now, ETH remains the benchmark to beat.
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