Solana blockchain — a rising alternative to Ethereum for DeFi and NFTs — hit an all-time high this week while other cryptocurrencies stagnated. How come?
Solana has rallied to a new all-time high of US$48.43 in the face of the second major correction to hit the crypto markets this month. SOL is ranked 13th with a market cap of $12.6 billion and is up by over 67% from its price of $28.93 last week.
The new all-time high of Solana has come following a volatile 14 days for the crypto market during which Bitcoin hit an all-time high but also crashed as much as 20% before briefly holding around the $55,000 level, only to plummet below the $50,000 resistance again last Thursday.
The second major market correction was reportedly a market response to regulatory movements worldwide, particularly the announcement that President Joe Biden will double the capital gains tax for the rich. If major Bitcoin and crypto investors stayed the course over the tremendous bull run last year, they would no doubt have some serious capital gains to report which could mean a payout of up to 40% on their profits.
The majority of the crypto market also followed Bitcoin posting losses and stagnating over the weekend, but has mostly recovered today with the BTC price back above $53,000.
Solana an Ethereum Alternative for DeFi
The Solana protocol and SOL token were released to the public in March 2020, and the project has quickly picked up speed with an ROI of 21,055.73% on the crypto’s price since inception.
Solana’s price has gained over 3,000% since the beginning of the year when one SOL coin was worth US$1.6. But unlike the similar 5,000% gains seen in meme-cryptocurrency Dogecoin, there appears to be a lot more happening in terms of Solano’s development and utility.
“Solana is a very good project. Over the past month we have seen buying on pullbacks. We would expect people to deploy capital to good projects when the market moves down,” Todd Morakis, co-founder and partner at JST Capital said in an email to Forkast.News.
Solana is fast making a name for itself in the cryptocurrency space because of the incredibly short processing times the blockchain offers. Solana is designed to facilitate decentralized app (DApp) creation and support decentralized finance (DeFi). It also aims to improve scalability by introducing a proof-of-history (PoH) consensus combined with the underlying proof-of-stake (PoS) consensus of the blockchain.
With DeFi booming over the last year, and the non-fungible token (NFT) craze taking off, Solana is being recognized as a potential Ethereum alternative, capable of faster transactions and higher scalability. Because the Ethereum blockchain hosts the majority of the DeFi space and NFT creation, the network has become increasingly congested, leading to an increase in transactional costs or “gas fees.”
Solana’s hybrid protocol allows for significantly decreased validation times for both transaction and smart contract execution, according to the company’s website.
“Ethereum is expensive to use — sometimes prohibitively so. Simple transfers may run upwards of $6-8 on a good day, while complicated DeFi transactions can cost upwards of four-figures,” said Adam James, senior content editor at OKEx’s research arm OKEx Insights, in an interview with Forkast.News. “In contrast, the Solana network charges extremely low fees — often less than $0.10 — per action, which are also extremely fast. Therefore, it’s really the speed and scalability of Solana as an alternative to Ethereum that is driving its growth, as many adopters and users are currently viewing the state of Solana’s DeFi today to that of Ethereum’s in the start of last year’s ‘DeFi Summer.’”
James sees plenty of upside left for SOL and related tokens should the crypto bull run continue to gain momentum, as the network is still “far from being a household name” even in the cryptocurrency industry. As a result he argues that many investors still “have the feeling that they are early to what could become the best DeFi protocol” for retail users unable to afford Ethereum’s high fees.
Despite Solana attracting market share for its potential to compete with Ethereum in the DeFi space, many believe the potential interoperability of the two blockchains could propel Solana into the top five cryptocurrencies by market cap. Experts like crypto investor and analyst Adam Cochran explained that he sees these chains working together in the long run.
“I’m bullish on how $SOL and $ETH actually work together to provide each other value that help grow their share,” Cochran tweeted. “No matter how great a chain is, being a maxi on any single technology is dumb.”
“Think of it like a computer, Ethereum is a CPU and Solana is a GPU. Both of them optimized towards different types of operations and states,” Cochran added.
Investor access and an expanding ecosystem
Solana’s rise in the face of the overall market crash can be mainly attributed to a fast-growing ecosystem as well as recent announcements of increased access to its native token.
Only two days ago Star Atlas, a next-gen gaming metaverse, was launched on Solana’s blockchain. The platform will allow users to create NFTs as well as play and learn with players across the globe. Star Atlas is reported to feature and facilitate a one-of-a-kind NFT collection marketplace.
The Solana ecosystem also recently added its first Initial DEX Offering (IDO) — the launching of a cryptocurrency on a decentralized exchange — Solstarter, which aims to empower launchpad projects to raise liquidity in the decentralized space.
Last Wednesday derivatives exchange dYdX listed a Solana-USD perpetual derivatives contract that features up to 10X leverage and is completely fee-free. Following dYdZX’s announcement, trading volume of Solana boomed and has increased in the last 24 hours by more than 40% to over US$1.6 billion, according to CoinMarketCap.