Despite Massive Gains, Solana (SOL) Could Just be Getting Started
Stock Analysis & Ideas

Despite Massive Gains, Solana (SOL) Could Just be Getting Started

Story Highlights

Solana is up over 387% year-to-date in 2023, but it could have plenty of upside ahead based on the impressive performance of the Solana network and growing usage. 

Top cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH-USD) have bounced back in a big way in 2023, with year-to-date gains of 123% and 69%, respectively. Beyond the two largest cryptos, other assets like Solana (SOL-USD) have done even better. Solana is up 387% so far in 2023, but the party could just be getting started. 

I’m bullish on Solana’s long-term potential based on its impressive performance metrics, the explosive growth of usage and activity on the Solana blockchain, and its relatively low market cap versus its peer, Ethereum.

Stellar Metrics

Solana is a proof-of-stake layer-1 blockchain, like Ethereum. To be fully transparent, I own both Solana and Ethereum, and I am bullish on both, so the following comparison between the two networks is simply meant to illustrate the potential value of Solana. 

Ethereum is the second-largest cryptocurrency by market cap, but Solana features several notable advantages from a user perspective. While Ethereum is averaging a throughput of under 30 transactions per second (TPS), Solana features an exponentially higher throughput of 65,000 transactions per second. 

This high throughput leads to faster transaction times. Transactions on Solana are often completed in a matter of seconds, whereas transactions on Ethereum can take five minutes or more to process at times (the average is between 15 seconds to five minutes). 

Meanwhile, high transaction costs, or “gas fees,” have been one of the main gripes Ethereum users have had about the network for a long time. At writing, Ethereum’s gas fees have hit their highest levels in six months and are averaging over $30 per transaction, making it cumbersome and expensive to use the network for routine transactions.

In contrast, transactions on Solana cost less than a penny. This makes Solana an appealing option for users who want to make low-cost transactions. If you want to buy a nonfungible token (NFT) for $40 or send a friend $20, paying $30 in gas on Ethereum isn’t practical, whereas a transaction fee of under a penny on Solana is hardly noticeable. These low costs could help Solana appeal to more users as cryptocurrency reaches wider adoption. 

This massive throughput, low cost, and fast transaction time led Bank of America (NYSE:BAC) analysts to declare that Solana could be “the Visa (NYSE:V) of the digital asset ecosystem” earlier this year.   

While the Solana blockchain’s performance is impressive, it could get even better. Solana users are awaiting the launch of Firedancer, a new validator in development that will reportedly increase Solana’s throughput to a mind-blowing one million transactions per second.

Usage Explodes  

This positive user experience has led to an explosion in usage for Solana. Crypto publication The Defiant recently reported that “Solana is having its best month ever” in terms of trading volume and total value locked. 

Volume on decentralized exchanges (DEXs) on Solana hit an all-time high of $5.1 billion in November, smashing the previous record of $2.8 billion last November.

Solana’s total value locked (TVL) — essentially a measure of how much value users have committed to or locked up in the network — has jumped from $427 million at the start of November to $610 million currently, indicating growing confidence in the Solana network by crypto users.   

On November 11th, the number of daily active users (DAUs) on Solana even surpassed those of the much larger Ethereum, with 356,300 users for the day versus 330,000 for Ethereum. 

Increasing Collaborations and Partnerships 

Additionally, Solana has made significant headway in terms of corporate partnerships and tie-ups with other crypto projects. 

In August, Shopify (NYSE:SHOP) announced an integration with Solana Pay, which would make using Solana a new payment option on the platform. Then, as if that wasn’t enough, in September, Visa announced that it would use Solana to facilitate USDC (USDC-USD) stablecoin transactions.

Furthermore, some interesting crypto projects, like Helium and Render (RNDR-USD), are migrating to Solana. Render, which seeks to provide decentralized GPU computing power for 3D content creation, migrated from Ethereum to Solana earlier in November. Render founder Jules Urbach said that Render made the move because of Solana’s “incredible transaction speeds, low costs, and commitment to web-scale architecture.”

Meanwhile, Helium, which is focused on providing decentralized WiFi, made the move from its own layer-1 blockchain to Solana to free up its developers from having to focus on maintaining their own blockchain and leverage Solana’s fast transaction times.

Looking Ahead 

Solana’s enormous throughput, fast transaction times, and minuscule transaction fees have attracted more users to the network. As a result, activity on the Solana blockchain is experiencing a Cambrian explosion, as seen in the significant increase in DEX volume, total value locked, and daily active users. 

None of this is to say that Solana will displace or disrupt Ethereum (and again, I am bullish on both). It should be noted that Ethereum is working on upgrades that could improve its throughput and lower gas fees. Still, these impressive stats are even more notable when considering that Solana has a market cap of just $23 billion versus Ethereum’s considerably higher market cap of $239 billion. 

With performance metrics that are ahead of Ethereum’s and user numbers that are rapidly growing, Solana looks like it offers considerable value with a market cap that is just one-tenth the size of Ethereum’s. 

Cryptocurrencies are a high-risk investment and can be extremely volatile. But for risk-tolerant investors who are interested in cryptocurrency and investing in the likes of Bitcoin and Ethereum, it could make sense to add exposure to Solana while it has just one-tenth of Ethereum’s market value. 


Get real-time notifications on news & analysis, curated for your stock watchlist. Download the TipRanks app today! Get the App