Why Solana Is Worth the Hype
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In the realm of cryptocurrency investments, Solana has once again become a focal point for discussion among investors, and for valid reasons. The value of SOL has surged by over 350% in the past year, marking it as a noteworthy performer. Notably, Solana stands out as a substantial investment opportunity due to its status as a leading Layer 1 project, boasting a significant user base of approximately 100,000 daily users. Furthermore, the platform demonstrates tangible financial viability by generating around $50,000 per day in fees.
There Can Be Just a Few
In the foundational investment thesis, it was stated that amidst the early experimentation phases of a nascent technology, only a select few major platforms ultimately endure in the long term—a phenomenon observed in historical tech landscapes such as PCs vs. Macs or Androids vs. iPhones.
Traditionally, the trajectory of tech giants is propelled by network effects, where larger entities find it increasingly facile to attract new customers. Smaller enterprises, in turn, face acquisition or extinction. This dynamic has shaped industries, with examples like Google dominating search, OpenAI leading in AI, and Salesforce establishing supremacy among CRMs.
In the evolving realm of blockchain technology, the categorization of various platforms is still unfolding. Notably, smart contract platforms, also known as Layer 1s, are emerging as the bedrock operating systems for the crypto landscape. Ethereum (ETH) presently stands as the predominant force in this category, boasting the highest user count, revenue, and developer engagement. For contenders like Solana in the Layer-1 space, the formidable task at hand is surpassing Ethereum’s established dominance.
While it’s not imperative for Solana to outpace Ethereum for its own viability, it’s worth noting that niche search engines like DuckDuckGo or the eagerly anticipated WolframBeta have managed to coexist alongside Google, albeit with significantly smaller market shares.
In our role as long-term investors, our focus extends beyond mere survival; we seek projects poised not just to endure but to flourish. The aforementioned metrics indicate that Solana is gaining traction, yet there remains a journey ahead for it to achieve thriving success.
It’s Not Just the Tech; It’s the Thriving User Base
While blockchain enthusiasts may enthusiastically discuss Solana’s accelerated throughput (thanks to its Proof of History consensus algorithm versus Ethereum’s Proof of Stake) and its developer-friendly environment (supporting languages like Rust and C as opposed to requiring proficiency in Ethereum’s Solidity), the reality is that the broader market isn’t as captivated by technology as the tech crowd.
For companies venturing into the development of new blockchain applications, the pivotal question is: Where should they build them? The platform with the superior consensus algorithm or the one with a larger user base? Is it the one with a more accessible programming language or the one that promises greater revenue and fees? Opt for the underdog or align with the existing leader? Typically, companies lean towards larger tech platforms as a safer investment due to the perceived safety in numbers.
Investors, too, often prioritize potential returns over intricate technology details. The relevance of technology lies in its capacity to drive a higher price multiple in the long run.
Drawing parallels to historical tech battles such as VHS vs. Betamax, MP3 vs. FLAC, or QWERTY vs. alternative keyboard layouts, the inferior technology often emerges victorious. In the realm of blockchain, technology only holds significance if it translates into a growing user base.
For those seeking enduring and lucrative investments, the key lies in identifying blockchain projects with expansive and expanding user bases. It’s a crucial consideration, underscored by the fact that even before the recent price rally, the crypto community expressed concerns about Solana’s declining daily users.
Quest for Killer Dapps: Solana’s Unique Edge
Comparing Layer 1 blockchains to operating systems, the critical pursuit lies in acquiring pivotal users through the deployment of killer applications. In the tech realm, landmarks such as VisiCalc for the Apple II, AOL for mass Internet adoption, and Siri for the iPhone’s indispensability illustrate the transformative power of such applications.
In the blockchain sphere, these killer apps take the form of decentralized applications, or ‘dapps’ (let’s be honest, they’re just apps). While Solana hosts its share of conventional dapps—a DEX (Serum), an AMM (Raydium), wallets (Phantom), borrowing/lending (Solend), and NFT marketplaces (Magic Eden)—many appear as replicas of their more prominent counterparts on Ethereum.
Yet, a select few dapps on Solana leverage its technological strengths:
- Audius, a decentralized music platform, empowers artists to connect directly with listeners, bypassing intermediaries. Solana’s enhanced throughput and reduced transaction fees facilitate a substantial volume of microtransactions.
- Star Atlas, an MMO game, orchestrates a complex in-game economy with real-time transactions, benefiting from Solana’s efficiency in processing numerous tiny transactions compared to Ethereum.
- Mango Markets, while offering decentralized spot trading and perpetual futures like others, capitalizes on Solana’s speed and efficiency for higher-frequency trading with lower latency.
This prompts the intriguing prospect that Solana could establish a niche in hosting dapps that demand high-speed microtransactions. The litmus test for this hypothesis involves witnessing a surge in the launch of such specific dapps over the next year—dapps that would be impractical to develop on Ethereum.
Important Notice for Investors
The recent surge in Solana’s value can be attributed to the fervor surrounding the Breakpoint community conference and the positive sentiments echoed by influencers, notably Cathie Wood. However, the prospect of Solana swiftly surpassing Ethereum seems improbable in the near term. Caution is warranted, particularly as prices have tripled within a mere month, making it a less compelling bandwagon to join.
Yet, the tech landscape is renowned for its unpredictability, with early leaders not necessarily retaining their positions in the long run. Ethereum’s dominance as a Layer 1 solution may not be unassailable, and Solana might well carve out a lucrative niche. Presently, Ethereum stands as the benchmark to beat, but the dynamic nature of technology leaves the door open for surprises and shifts in the competitive hierarchy.
