Solana's Growing Dominance
Solana has become the clear challenger to Ethereum. Surging growth in the Solana ecosystem, coupled with innovative infrastructure upgrades makes it a much faster smart contract platform with growing attention from both users and developers.
Solana held its annual Breakpoint conference in Singapore last month, where the enthusiasm for the ecosystem was palpable. It was clear that the community is engaged, aligned and excited to be building on the platform, investing in Solana products and proclaiming Solana to be the heir to the layer-1 throne. This month we are going to take stock of where Solana is today. We will look at the technical state of the blockchain, the growing ecosystem of applications, and evaluate how Solana stacks up against Ethereum and other L1 challengers.
Today, Solana is broadly accepted to be the number 2 smart contract platform behind Ethereum. Solana’s rise to the top can largely be attributed to its low latency and fast transaction execution. This has been made possible because of Solana’s innovative infrastructure, particularly its unique Proof of History consensus mechanism (PoH). PoH, when combined with Proof of Stake, allows Solana to achieve much higher throughput than Ethereum. PoH introduces a verifiable sequence of events, enabling validators to process transactions much faster and with greater efficiency.
In terms of scalability, Solana’s standout feature is its ability to handle up to 65,000 transactions per second (TPS) at peak performance, far surpassing Ethereum’s base layer, which averages around 15-30 TPS. Ethereum has addressed this limitation through layer-2 horizontal scaling solutions like Optimism and Arbitrum, although this has led to fragmentation of liquidity and user experience challenges with users having to understand L2s and how to bridge assets. Solana’s base layer performance is attractive for projects that require fast, low-cost transactions and want the compossibility that comes from having all apps operating on a single shard with a single shared state.
When it comes to fees, Solana’s transaction fees remain significantly lower than those on Ethereum. With fees typically under a fraction of a cent per transaction, Solana offers a more user-friendly experience, especially for high-volume applications like decentralized finance (DeFi) and non-fungible token (NFT) platforms, where transaction costs can quickly accumulate.
While speed and cost are important, network stability is vital. Recent upgrades have resulted in a substantial improvement here as Solana's network stability has been a point of concern in the past due to several high-profile network outages. These outages were caused by validator misconfigurations and high bot activity. The Solana team has worked to implement fixes that have improved reliability, particularly through network upgrades aimed at scaling capacity and better managing surges in traffic.
As a final observation on Solana’s technical architecture, despite strong network performance, Solana continues to face criticism over its level of decentralization. Ethereum is often seen as more decentralized, with over 10,000 active validators spread across the globe. In contrast, Solana operates with around 3,400 validators, raising concerns that the network might be more vulnerable to centralization risks. However, Solana continues to expand its validator network, and its emphasis on performance and scalability has attracted developers who need high-speed applications. The security trade-offs are acknowledged, and the ecosystem’s rapid development suggests that developers and users are comfortable with the current level and future direction of Solana’s decentralization.
Solana’s highly performant L1 has provided a firm technical basis for a flourishing ecosystem of applications to form. Solana’s DeFi ecosystem has seen significant growth over the last few years. Platforms like Jito, Jupiter, Raydium and Drift have been pivotal in driving liquidity and user adoption within the network. Solana’s low fees and fast transaction speeds make it an ideal platform for decentralized exchanges (DEXs) and other DeFi protocols, enabling users to trade, stake, and yield farm with minimal friction. While Ethereum still leads the DeFi space in terms of total value locked (TVL) with USD46bn, Solana has been gaining ground. Solana’s TVL is steadily increasing and is now at USD5.6bn value locked, reflecting its growing importance in the DeFi sector.
In the NFT space, Solana has emerged as a serious competitor to Ethereum. Its lower minting fees and faster transaction times have drawn creators and collectors to the platform. Magic Eden, Solana’s leading NFT marketplace, has seen over USD3bn in sales, hosting popular collections like Degenerate Ape Academy and Solana Monkey Business. Unlike Ethereum, where high gas fees can deter smaller creators and collectors, Solana’s affordable system has democratized access to NFTs. This has led to a flourishing community of artists and developers who see Solana as an easier platform on which to launch projects.
Memecoin activity on Solana has exploded in recent months, with over 466,000 memecoins launched since April 2024. On average, Solana has seen thousands of new memecoins launched daily, driven by platforms like Pump.fun, which make it extremely easy for anyone to create tokens with just a few clicks. This ease of use, combined with Solana's low transaction costs (approximately USD0.00025 per transaction), has fueled the proliferation of memecoins. In May 2024 alone, Solana saw 20,000 new tokens created per day, most of which were memecoins. This success is a double-edged sword. Memecoins have become a key driver of transaction volume and liquidity within the Solana ecosystem. On the plus side, it reflects the superiority of Solana’s infrastructure and userbase over competing smart contract platforms. However, it has also raised concerns about the quality and sustainability of many of these tokens, with many memecoins being labeled as "pump-and-dump" schemes or scams.
In the more established multi-billion USD business of gaming, Solana’s performance advantages have made it a prime candidate for web3 gaming projects, which require fast transaction speeds and low costs to support large user bases. Games like Star Atlas and Aurory are building on Solana, leveraging its capabilities to provide seamless in-game transactions and interactions. As the web3 gaming industry grows, Solana’s infrastructure positions it well to capture this emerging market. Ethereum’s slower base layer and higher fees make it unsuitable for the real-time demands of gaming, giving Solana a distinct advantage.
Mobile is another area where Solana has been gaining attention, with the launch of two smartphones: the Solana Saga and the newly announced Solana Seeker. The Solana Saga, which launched in 2023, was Solana's first push into the mobile space, positioning itself as a flagship web3 phone. It featured the Solana dApp Store, offering decentralized applications and a built-in Seed Vault for secure crypto transactions. Building on the success of Saga, Solana then unveiled the Solana Seeker, which will be released in 2025. Priced more affordably at around USD450, the Seeker introduces upgrades, including a better display, enhanced camera, and longer battery life, while maintaining deep integration with Solana's ecosystem. The device has already generated strong demand, with over 140,000 pre-orders, making it a key part of Solana’s vision to bring web3 experiences to the mass market.
Ethereum remains the leading smart contract platform today, with Solana accepted as its primary challenger. When comparing the two platforms, the biggest differences lie in speed and cost. Solana’s 65,000 TPS and minimal transaction fees make it a better fit for consumer-facing applications that require fast, high-volume transactions. Ethereum, while slower, is still the more robust and decentralized platform, making it ideal for projects that prioritize security and decentralization. Both platforms have a strong focus on the developer ecosystem. Ethereum’s ecosystem, while larger, tends to focus on infrastructure and long-term innovation, which can lead to slower product cycles. Conversely, the Solana Foundation has a strong focus on onboarding new projects and has created an environment conducive to rapid product development.
Beyond Ethereum, Solana faces competition from other established layer-1 blockchains like Avalanche, as well as newer upcoming platforms like TON (Telegram), Aptos and Sui. Solana’s unique selling point remains its high throughput, although many of its competitors also focus on scalability and low fees. Solana’s growing ecosystem of applications and first-mover advantage in areas like DeFi and NFTs, positions it as a leader even among the new wave of L1 blockchains.
Looking ahead, Solana still faces challenges. Network reliability remains a concern, and while improvements have been made, ensuring long-term stability will be crucial to retaining user trust. Additionally, Solana will need to balance its high performance with greater decentralization to compete with Ethereum on security. Finally, Ethereum’s layer-2 solutions pose a significant challenge. As these solutions mature and reduce transaction costs on Ethereum, Solana will need to continue innovating to maintain its competitive edge.
At CMCC Global, we were seed investors in Solana back in 2018 and remain impressed with the team’s focus and commitment to continue pushing the technical boundaries of how fast a layer-1 blockchain can be. Solana is clearly the leading challenger to Ethereum, and with the rapid adoption in DeFi, NFTs, and gaming, Solana could well challenge Ethereum’s dominance in the coming years. In terms of network value, Ethereum’s market cap is currently 4x larger than Solana. Given that we expect Ethereum to at least return to all-time highs in 2025, this implies that Solana could over 10x from today’s market price should it flip Ethereum and become the most valuable smart contract platform. Whether Solana can truly dethrone Ethereum remains to be seen, but its current trajectory is impressive, personified by the enthusiasm and excitement that we are witnessing in the growing Solana community.
