Solana vs Ethereum: Can Solana Make a Comeback Based on Data, Sentiment, and Catalysts?

Written by: Michael Nadeau, Founding father of The DeFi Report

Compiled by: Glendon, Techub Information

Translator’s word: On this cycle, Solana has been unstoppable, with its native token SOL reaching a file excessive of 264 USDT. As compared, Ethereum appears to be stagnant. As well as, in contrast with July this yr, the ratio of Solana’s market worth to Ethereum’s market worth has elevated from 17% to just about 30%. For the reason that low level in December 2022, SOL has achieved an astonishing 25-fold development, whereas ETH has solely risen 1.7 occasions. Is Ethereum missing momentum, or has it not but exerted its energy? This has turn into a query value exploring. Based on the evaluation of a number of components resembling knowledge, market sentiment, cognition and narrative, this text will discover whether or not Solana has a likelihood to surpass Ethereum, and what catalysts Ethereum has to drive costs up?

Wanting again to January 2023, Solana’s market cap was solely 3% of Ethereum’s, and the hole between the 2 appeared insurmountable. Nonetheless, as of July this yr, the hole has narrowed considerably, and Solana’s market cap has climbed to 17% of Ethereum’s. On the time, we wrote: “Ought to SOL’s market cap be 83% decrease than ETH?” The elemental knowledge gave a adverse reply.

Since then, the market has re-evaluated SOL, and its market worth has soared to just about 30% of Ethereum’s market worth. Confronted with this variation, I am unable to assist however ask this query once more: Ought to SOL’s market worth be 70% decrease than ETH?

Are markets nonetheless in disarray? Let’s take a nearer look.

SOL vs. ETH (and prime L2s): Comparative Knowledge

When evaluating Solana’s knowledge with Ethereum’s, we significantly observed an vital variable – the second-layer networks (L2s): Arbitrum, Base, Optimism, Blast, Celo, Linea, Mantle, Scroll, Starknet, zkSync, Immutable, and Manta Pacific.

Our view is that these L2s not solely create new demand for Ethereum L1 blockspace, but in addition additional improve the community impact of ETH as a core asset. Subsequently, taking these L2s under consideration when evaluating Solana to Ethereum can present a extra complete and in-depth perspective.

price

In Q2 2024, Solana’s price income was $151 million, accounting for roughly 27% of the entire price income of Ethereum and prime L2s.

Over the previous 90 days, Solana has generated $192M in price income, which is roughly 49% of the entire price income for Ethereum ($374M) and prime L2s ($21M).

Please word that the above charges solely embody Fuel charges and don’t embody MEV (Most Extractable Worth) charges.

DEX Buying and selling Quantity

Solana’s DEX buying and selling quantity reached $108 billion within the second quarter, accounting for roughly 36% of Ethereum and prime L2s buying and selling quantity.

Over the previous 90 days, Solana’s DEX quantity has elevated to $153 billion, accounting for roughly 57% of Ethereum’s ($125.5 billion) and prime L2s’ ($145 billion) quantity.

Stablecoin provide

In July 2024, Solana’s stablecoin provide was roughly $3.1 billion, accounting for roughly 3.5% of Ethereum and L2s stablecoin provide.

At the moment, its stablecoin provide has reached 4.3 billion US {dollars}, accounting for about 4.1% of the Ethereum + L2s stablecoin provide.

Word that Arbitrum’s stablecoin provide exceeds Solana’s, whereas Base’s stablecoin provide is 80% of Solana’s.

Stablecoin transaction quantity

Solana’s stablecoin buying and selling quantity reached $4.7 trillion within the second quarter, 1.9 occasions the buying and selling quantity of Ethereum and prime L2s.

Over the previous 90 days, Solana’s stablecoin quantity has fallen to $963 billion — roughly 30% of Ethereum’s ($1.9 trillion) and prime L2s’ ($1.26 trillion) quantity.

Why has Solana’s transaction quantity dropped?

We consider Solana’s quantity development in Q2 was primarily pushed by wash buying and selling and robotic/algorithmic buying and selling.

And based on Artemis knowledge, solely about 6% of Solana’s stablecoin transaction quantity is peer-to-peer transfers. Nonetheless, on Ethereum L1, this determine is near 30%, indicating that Ethereum is used for non-speculative actions to a a lot better extent than Solana.

TVL

On the finish of Q2, Solana’s TVL was $4.2 billion, about 6.3% of the TVL of Ethereum ($60.3 billion) and prime L2s ($9.5 billion).

At the moment, Solana’s TVL has risen to US$8.2 billion, accounting for 12% of Ethereum and prime L2s TVL.

Fund Circulation

Prior to now 90 days, Solana has attracted over $1.2 billion in TVL from Ethereum, or about 2% of Ethereum’s L1 TVL. In the identical interval, it has attracted one other $14 million in TVL from Arbitrum.

In the meantime, Solana additionally misplaced some TVL to OP ($540,000) and Base ($5 million) throughout the identical interval.

Based on the 90-day efficiency, Solana knowledge is summarized as follows:

1. 49% of Ethereum price income (up from 27% on the finish of Q2).

2. Accounts for 57% of Ethereum DEX buying and selling quantity (up from 36% on the finish of Q2).

3. 4.1% of Ethereum stablecoin provide (up from 3.5% in Q2)

4. 30% of Ethereum stablecoin transactions (down from 190% on the finish of Q2)

5. 12% of Ethereum TVL (up from 6% on the finish of Q2)

6.Solana attracted slightly below 2% of TVL from Ethereum.

As soon as once more, the present market worth of SOL has risen to 70% of Ethereum’s market worth. We’ll discover the rationality of this valuation in depth later. Earlier than that, let’s do some extra qualitative evaluation.

Market sentiment, notion and narrative

Within the cryptocurrency area, worth actions have a tendency to guide notion, narrative, and fundamentals, so given the value motion of SOL vs. ETH, the present narrative would possibly lead you to consider that Solana is about to surpass Ethereum.

However the actuality is that Solana at the moment exists primarily as a Memecoin on line casino. Certain, there are actual initiatives on Solana, resembling Helium and Hivemapper, however the present worth motion (and fundamentals) are largely pushed by this on line casino. From what I’ve heard, this phenomenon is quietly affecting Wall Road’s view of the blockchain.

Subsequently, whereas the present market narrative is favorable to Solana, we must always anticipate this development to vary shortly. If Ethereum rebounds in 2025, the market narrative could shortly change from “Ethereum is lifeless” to “Ethereum is the way forward for finance.”

On the identical time, Solana’s acceptance of Memecoin casinos might even have a adverse affect on its total notion and narrative.

catalyst

Ethereum

Change Traded Funds (ETFs)

Ethereum spot ETFs have lastly began to see some inflows lately, though the inflows are solely a small fraction of these of Bitcoin spot ETFs. As of November 20, the web inflows of Ethereum spot ETFs had been $469 million, only one.7% of the web inflows of Bitcoin spot ETFs, far decrease than the 10-20% fund seize ratio we initially anticipated.

Thus far, this actuality has deviated considerably from our forecast, however this hole won’t final lengthy. We nonetheless consider that funds will transfer to Ethereum because the market cycle develops.

DeFi and Actual World Belongings (RWA)

As the worldwide regulatory atmosphere turns into clearer, we’ll watch to see if the DeFi and RWA narratives decide up steam. If this occurs, we might even see firms like Blackrock push for extra funds to be tokenized on-chain.

There are three causes for this hypothesis: 1. They need to tokenize current funds to enhance the effectivity that blockchain brings to back-end accounting and administration work; 2. They need to seize the prices related to the transformation (of conventional monetary companies firms); 3. BlackRock has sufficient motivation to deliver extra sensible makes use of to Ethereum and use it as a new monetary infrastructure, thus paving the best way for the legalization of BlackRock’s ETF merchandise.

As soon as extra and extra funds are tokenized, we might even see new use circumstances emerge in “Permissioned DeFi” to serve asset buying and selling.

In actual fact, if Ethereum can now present constructive worth traits, its new narrative because the “Wall Road Chain” could also be about to emerge.

Coinbase and Base

Amongst Ethereum L2s, Base stands out because the quickest rising L2 with its fast development in charges, energetic customers, and stablecoin buying and selling quantity. Contemplating the revenue worth that Base has delivered to Coinbase (about $68 million up to now this yr), we expect they could have created a blueprint for different monetary companies firms to launch L2 on Ethereum.

Simply think about what would occur if giants like JPMorgan Chase (JPM), Blackrock (Blackrock), Constancy (Constancy) or Robinhood introduced the launch of Ethereum L2?

Clearly, this can additional strengthen Ethereum’s potential narrative because the “Wall Road Chain.”

Solana

Memecoin Mania

Phantom lately surpassed Google to turn into the primary free utility app on Apple’s App Retailer.

That is undoubtedly a clear signal that Solana is attracting a giant variety of new customers to the cryptocurrency area. On the identical time, it is usually a signal that the market is overheated.

The subsequent query is: How a lot room for development does the market have?

Retail traders have certainly entered the market, though on a smaller scale than within the earlier cycle. One method to measure this phenomenon is to take a look at the variety of views on in style cryptocurrency YouTube channels. As we will see from the determine under, market exercise remains to be about 50% decrease than the excessive level of the earlier cycle.

 Knowledge: From Benjamin Cowen

Whereas we are inclined to assume this quantity will rise to excessive ranges after Bitcoin reaches $100,000, we stay cautious within the brief time period.

SOL ETF?

Concerning the SOL ETF, the Chicago Board Choices Change (Cboe) has submitted purposes for 4 Solana spot ETFs to the U.S. Securities and Change Fee (SEC), with the issuers being VanEck, 21 Shares, Canary Capital, and Bitwise. Given the upcoming personnel modifications on the SEC, we will anticipate to see the SOL spot ETF as early as subsequent yr. Nonetheless, in contrast to Bitcoin and Ethereum, SOL has not but established a regulated futures market in the USA – a key criterion emphasised by the SEC when approving Bitcoin and Ethereum ETFs.

The query for this narrative, subsequently, is whether or not constructive headlines will turn into a “Purchase the rumor, Promote the information” occasion, as we’ve seen up to now with the Ethereum ETF. (Techub Information Word: “Purchase the rumor, promote the information” refers to a technique through which traders commerce on unconfirmed data or rumors in monetary markets (together with international alternate and cryptocurrency markets) and promote for a revenue after the data is confirmed.)

Firedancer

Firedancer is essential to the long run growth of Solana.

Firedancer is a new Solana validator consumer developed by cryptocurrency firm Leap Crypto. It guarantees to considerably enhance Solana’s efficiency, reliability, and scalability by supporting extra concurrent transactions. It’s going to additionally enhance total community effectivity and cut back working prices for node operators.

Most significantly, the introduction of Firedancer will remove Solana’s present single level of failure (SPOF) and cut back the potential of the chain being stopped sooner or later. (Techub Information Word: A single level of failure refers to a drawback the place a failure at a sure level within the system causes your entire system to fail to operate. Solana makes use of a distinctive consensus mechanism that mixes Proof of Historical past (PoH) and Proof of Stake (PoS). This mechanism is designed to enhance the efficiency and reliability of the system, however it could additionally introduce the danger of a single level of failure.)

Firedancer is predicted to be prepared for mainnet deployment in 2025. Whereas we consider it will likely be useful to Solana’s future, it will not be a important worth catalyst on this cycle.

Decentralized Bodily Infrastructure Community (DePIN)

As for the Decentralized Bodily Infrastructure Community (DePIN) narrative, it has but to essentially take off. Helium, a decentralized wi-fi community, is up 147% yr so far, however remains to be 43% under its cycle excessive; Hivemapper, a decentralized mapping community, is up 164% and 80% under its cycle excessive. We’re much less assured within the DePIN area in the present day than we had been in July. On the identical time, we word that Memecoin (and to some extent Bitcoin) is siphoning consideration and liquidity from different areas of the market.

Social Media

Again in July, I wrote that I anticipated a social media app that built-in cryptocurrency indirectly to enter the mainstream by celebrities and influencers. Whereas this might nonetheless occur, proper now this “consideration economic system” is being expressed by Memecoin. It’s exhausting to see this altering within the brief time period.

in conclusion

Ought to SOL’s market cap be 70% decrease than ETH’s?

Given the next circumstances:

• SOL/ETH hits all-time excessive

• Over the previous few years, the market has elevated the pricing of SOL relative to ETH by 10 occasions

• Since its December 2022 low, SOL has risen 25 occasions, whereas ETH has solely risen 1.7 occasions

• Solana’s on-chain fundamentals owe a lot to Memecoin transactions

We are inclined to assume that SOL’s relative valuation is cheap. However the important thing query is whether or not SOL can proceed to carry out effectively and even surpass Ethereum?

In our July report, we anticipated the Ethereum ETF to outperform SOL after its launch, and believed that SOL’s market worth would peak after reaching about 25% of Ethereum’s market worth on this cycle. Nonetheless, it seems that our predictions had been improper in each facets: as a result of the Ethereum ETF’s efficiency was nearer to the “information promote” occasion (however up to now, we nonetheless consider that demand will come), whereas SOL continued to rise with Bitcoin.

At the moment, Bitcoin has seen a important rally over the previous few weeks. We anticipate some volatility and pullbacks earlier than the tip of the yr, however total the market nonetheless has upside potential in 2025.

Historic knowledge exhibits that within the final cycle, Bitcoin hit an all-time excessive within the fourth quarter of 2020, whereas Ethereum reached its peak in early February 2021, and achieved a 5.4-fold improve within the first 4 months of that yr.

As soon as once more, within the cryptocurrency area, worth leads and market narrative follows worth.

The market might even see a comparable transfer this cycle. In that case, we might even see a constructive shift in sentiment and narrative round Ethereum by 2025.

As a “retail on line casino/Memecoin chain”, Solana could face some challenges.

After all, there may be additionally the other view that “issues that carry out effectively early within the cryptocurrency cycle are inclined to proceed to indicate robust momentum later” – this additionally gives robust help for SOL’s continued rise.

In abstract, we consider that the market has largely re-evaluated the valuation of SOL relative to ETH, and the basics at this stage are roughly in keeping with the relative valuation. Nonetheless, the long run development remains to be stuffed with uncertainty, so allow us to wait and see what occurs subsequent.