Solana Gains Most Among Layer 1s in Volatile Week

SOL rally

Solana, the Layer 1 blockchain which touts 50K transactions a second capabilities, weathered last week’s crypto sell off better than most. 

The chain’s SOL token is up 42% on the week beating out a rebounding Ether, up 10%, as well as sputtering Cardano, Tron, and Polkadot networks, down 5%, 20%, and 12% respectively at the time of writing. 

Looking at Layer 1 smart contract platforms among the top 25 market capitalization assets, only Terra has shown similar resilience, with the network’s LUNA token up 32% on the week. 

Solana ecosystem tokens are also rallying, with DEXs Serum and Raydium’s respective tokens up 50% and 43% on the week.

Staking Gaining Steam

Staking is a major catalyst behind Solana’s run, said Jeffrey Scott, an independent prop trader for the past five years. 

“The number of tokens being staked has increased through the run up decreasing the available supply,” Scott said in an interview.

After a mainnet launch in March 2020, Solana launched staking last February and now ranks third in terms of staked value at $14.5B, behind only Cardano and Polkadot, with $28B and $23B respectively, according to data provider, Staking Rewards. Solana also ranks ahead of Ethereum 2.0 staking which stands at $10B. 

SOL is up by a multiple of over five since the Feb. 10 vote to launch staking. 

Solana’s current staking return is 10% per year, more than Ethereum and Cardano’s 7% rates, but less than Polkadot, which, according to Staking Rewards, offers 13% on staking.

Early Adopters

Scott believes the second reason for Solana’s growth is that DeFi adopters have been “priced out of traditional ETH DeFi, or just feel like they aren’t early adopters anymore.” 

Ethereum’s expensive transaction costs combined with the perception that it’s harder to earn meteoric returns from being an early DeFi participant, may be pushing traders to alternative Layer 1s like Solana. 

Total value locked in Raydium, a Solana automated market maker, is up 48% in the last month in ETH terms and 337% in USD to $741M according to DeFi Llama

Advanced Hardware Requirements

Brian Flynn of incentivized crypto education platform, Rabbit Hole, believes that Solana has yet to show its true potential, saying “a lot of the applications built on Solana today are technically possible on Ethereum, but there hasn’t been an application on Solana that has taken off yet that is only technically possible on Solana due to its speed.”

Running a validator on Solana requires more advanced hardware than Ethereum. While Ethereum.org recommends a CPU with at least two cores and at least 8 GB of RAM, Solana requires minimums of 12 cores and 128 GB, respectively. Solana’s design allows it to achieve higher transactions per second but also limits its validator set, and by extension, its degree of decentralization.

While some will see Solana as competing with Ethereum, others like analysts like Adam Cochran of Cinneamhain Ventures say the two blockchain’s relationship will be symbiotic. 

Solana will leverage its lower degree of decentralization for performance, while Ethereum will act as the “onboarding backbone that is critical public goods infrastructure,” as Cochran said on Twitter.

Solana has a ways to go before reaching the top five crypto projects. Roughly $40B in market capitalization separates the blockchain from Tether, the current fifth ranked token. SOL topped out as the twelfth ranking token at its all time high before falling to number 14 at the time of writing. 

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