What's Behind Solana's Momentum?

September 10, 2021 01:00 PM
Crypto Story of the Day

Crypto Story of the Day




Results in the Top 10 were mixed this morning. Polkadot (DOT) is outperforming and is up 8%.

Crypto Story of the Day

Yesterday FTX US hosted the “Solana Ecosystem: Outlook & Goals” conference. We review the asset’s momentum.

Solana (SOL), with a current market cap of roughly USD 54 billion, began the year with a capitalization of about USD 85 million. Over the past 30 days, SOL has added USD 44 billion to its market cap, outperforming the Top 10 crypto assets in relative terms. 

Unlike select crypto-related Google search topics like “ethereum,” “bitcoin,” or “blockchain,” which are significantly off highs seen earlier in the year, searches for “solana” are at an all-time high. That said, in comparison to U.S. Google searches for “ethereum,” “solana” remains less-searched over the past 7 days. Searches for “solana” over the past 7 days are roughly in line with those for “cardano.”

SOL’s growth comes at a moment when the crypto community has shown outsized interest towards novel blockchain applications and scaling solutions in comparison to BTC. For example, mentions of ETH, ADA, and recently SOL have regularly outpaced mentions of BTC. 

SOL’s rally also coincides with increased focus on Ethereum scaling challenges as the network undergoes a range of upgrades aimed at facilitating a transition to a proof-of-stake system. For example, the average Ethereum transaction, priced in USD, stood at USD 18.14 in August. On September 7, the average Ethereum transaction cost USD 59.56. 

These prohibitively high transaction costs follow Ethereum’s EIP 1559. The upgrade aimed to address user experience and predictability issues related to fees on the network. While the success of the upgrade towards those goals is unclear, some had positioned the upgrade as potentially having the ability to lower fees on the network, which has not materialized. By comparison, Solana transaction fees are estimated to average around USD 0.0015 per transaction.

In February, Binance Coin (BNB), the native token of Binance Smart Chain (BSC), added as much as USD 27 billion to its market cap in a span of about 2 weeks. BNB’s rally coincided with elevated Ethereum transaction fees and a concerted effort by Binance CEO Changpeng Zhao to highlight congestion on the network via Twitter. At the time, Binance also suspended ETH withdrawals “in order to address a congestion issue” on the network. 

BSC was designed in order to allow applications to easily redeploy from Ethereum and touted lower fees and higher throughput capacities. For example, BSC’s leading DeFi venue, PancakeSwap, is a fork of Ethereum’s Uniswap. However, unlike BSC, Solana is not designed in a way that would allow Ethereum-based applications to be easily replicated on its network. 

SOL has benefited from demand for cheaper blockchains with increased throughput capacities. While Ethereum proponents have highlighted potential scaling and fee benefits associated with the network’s planned transition to proof-of-stake, as it stands the network’s prohibitively high fees have likely contributed to Solana’s adoption. To date, blockchain users and applications have proven relatively agnostic to networks, instead migrating towards lower fees and higher throughput.

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About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote