And the records keep on falling for Solana DEX volumes.
Last week, partners from Multicoin Capital, Tushar Jain (Managing Partner) and Vishal Kankani (Principal – Investments), released a proposal to revamp Solana’s inflation model.
Titled ‘SIMD-0228: Introducing a Programmatic, Market-Based Emission Mechanism’, the authors suggested lowering the SOL issuance rate by 15% annually until nominal inflation hits 1.5% p.a.
This is part of the authors’ “Smart Emissions” strategy for Solana, compared to its present “dumb emissions” formula, which dates back to February 2021. At the time, Solana’s circulating market cap was around $2 billion, and the coin was still in the single digits.
Four years is a long time in this rapidly evolving, highly competitive space. There was barely any activity on Solana at the time, and considering rates for ETH, Cardano (ADA), BNB (and other proof-of-stake crypto assets) have adjusted over time in response to more coins being locked up in their respective, it’s sensible for Solana to follow suit.
“The current Solana emissions schedule is suboptimal given the current level of activity and fees on the network because it emits more SOL than is necessary to secure the network.”
Tushar Jain and Vishal Kankani, SIMD-0228: Introducing a Programmatic, Market-Based Emission Mechanism
There won’t be a noticeable difference in the short term. However, assuming Solana continues growing its network, this decreasing inflation rate should contribute to higher unit prices down the track.
While this doesn’t reference a deflationary mechanism (e.g., a coin burn), it’s a major step in the right direction. I wouldn’t be surprised if Solana devs offered an improvement proposal to emulate Ethereum when it implemented a coin burn in 2022 as part of EIP-1559, the London Hard Fork.
ETH’s burn rate and relevant stats can be tracked using these sources. This coin burn has helped stabilise ETH’s supply of around 120M over the past two years, which is impressive when accounting for inflation due to staking rewards.
Why does this matter? This combination incentivises people to delegate their coins for long periods, with the expectation that their unit price will gradually increase in value.
For example, early adopters of BNB who still hold these coins have benefitted immensely from increasing network activity and several years of coin burning. While it’s mostly due to the former, the quarterly coin burns—29 to date, with the 30th instalment in a couple of weeks—have helped gain publicity over the years for BNB Chain.
Over the past 30 days, Solana’s decentralised exchanges (DEXes) have processed over $140 billion of trading volume ($21B just over the past 24 hours, chiefly due to an assortment of meme coins) versus ~$71 billion on Ethereum.
In addition to the abovementioned proposal, this surge led to SOL hitting a new all-time high of $293 last weekend, an amazing turnaround from tanking to $10 in December 2022.
Solana or Ethereum, which is better?
It depends on the use cases and who is trading.
The way things have emerged, Solana is best for retail investors or anyone looking to transfer small amounts (say <$300 per transaction, to use an objective figure) or for anyone looking to launch and engage with meme coins.
On the other hand, those wanting to transfer larger amounts of crypto or would prefer the reputation and decentralisation offered by Ethereum will stick to what is still the leading smart contracts platform, at least based on total valued locked (TVL) on-chain.
Yes, you can still use ETH for microtransactions, but it would be nonsensical to do so when the rates are high (which they often are) unless you bridge to an L2 or a side chain such as Polygon PoS.
With the obsession around meme coins and, to a lesser (albeit large) extent, NFT collections, Solana’s 24-hour trading volumes have gone through the roof in recent months, even outpacing Ethereum.
Solana’s leading DEX, Raydium, has also significantly benefited from this network activity. Yesterday, it processed a whopping $13 billion (around $9 billion the day before), coinciding with a local peak of $7.52 for its native token, RAY.
Despite far less liquidity flowing through the protocol, it’s still down from the $16.93 it reached during the last bull market. Nonetheless, RAY’s current price of $6.16 represents a 4,600% increase from its all-time low of $0.13 in December 2022.
Last June, I did a deep dive into these two L1s, concluding that I believe Solana will outperform Ethereum this cycle, especially due to the former’s ultra-low fees and high throughput (transactions per second) on its base chain, rather than having to rely on L2s – notably Base, Arbitrum and OP Mainnet – to process consistently high network activity.
I understand Ethereum’s reliance on L2s is to ensure its base chain remains highly secure despite being slow and expensive (similar to Bitcoin). However, many are losing patience with this network and looking for alternatives such as Solana, especially for microtransactions.
Mind you, Solana isn’t immune to network congestion. Phantom, a popular non-custodial wallet, reported difficulties in processing transactions.
We’re currently experiencing a massive surge of 8,000,000+ requests per minute. While we work to stabilize our platform, transactions may have trouble going through on the first try.
We appreciate your patience 🙏
— Phantom (@phantom) January 19, 2025
Additional thoughts
SOL’s coin burn represents one piece of a large puzzle, i.e., one of many factors at play here.
Whether it offers a superior, reliable, and secure alternative to Ethereum remains to be seen. The last factor is the most critical, especially when catering to enterprises.
While Solana’s network has had a near-perfect uptime over the past 12 months (the incident occurred in February 2024), it had outages in 2022, particularly during January, with nine days of outages, five of which lasted for over 10 hours per event.
Moreover, there has been growing hype surrounding the rise of Solana competitors, namely Sui ($SUI) and Aptos (APT), not to mention other L1s.
Are these players genuine threats that can offer something far superior to Solana and Ethereum? I doubt it, at least not anymore. But I’d need to thoroughly analyse these projects before jumping to a (definitive) conclusion.
I hope various blockchains thrive in the future, mostly because they foster increased competition and create a decentralised setup as an alternative to a duopoly/oligopoly.
Even if you don’t plan to hold SOL long-term, it’s been a more profitable asset than ETH in recent years, particularly over the past 15 months.
One tactic that could pay off is boosting your ETH bags by allowing SOL to run even further, taking a large chunk of profit shortly. How much further SOL can go versus ETH is anyone’s guess, but I believe it can continue climbing for a while.
ETH will eventually break out and at least return to its all-time high of around $4,800 set in November 2021, so keep an eye on the SOL/ETH, SOL/BTC and other pairs that interest you (besides SOL/USD) when aiming to maximise profits.
SOL/ETH and SOL/BTC since May 2020 (19 Jan 2025 snapshot at 11:45 UTC).
Source: CoinGecko
Many Ethereum maximalists ignore a silver lining to having Solana and various L1s: cheaper fees and faster settlement times this cycle versus 2021.
If Ethereum’s network is congested (which often leads to exorbitant fees), most assets will offer an alternate ecosystem to trade assets and more regulated centralised exchanges that have emerged in recent years.
Whereas in 2021, if your ERC-20 token or NFT was only available on Ethereum and the gas fees were astronomical, tough luck.
Was it fair? F*&k no. That’s why I’m glad we have these reliable alternatives nowadays.
Even though gas fees are more sensibly priced than before, over the past 24 hours, US- and Trump-themed meme coins launched on Ethereum have caused gas fees (gwei) to skyrocket, as shown below.
Source: Etherscan > Ethereum Gas Tracker. Snapshot taken on 20 January 2025 at 01:20 UTC.
In conclusion, look for significant upgrades for all L1s, particularly Solana, Cardano, Avalanche, and Sui.
Now that we’re hours away from the first pro-crypto administration being sworn in expect an unprecedented amount of activity in this sector in the coming years.
Disclaimers
• N.B. None of this is financial advice; I am not a financial advisor. You are ultimately responsible for crypto investments, let alone in any asset class.
- The opinions expressed within this piece are my own and might not reflect those behind any news outlet, person, organisation, or otherwise listed here.
- Please do your research before investing in any crypto assets, staking, NFTs or other products affiliated with this space.
- For transparency, ETH accounts for roughly 25% of my crypto portfolio, whereas SOL makes up about 7%.
Featured Image by ddRender at Shutterstock
This article was originally published at Medium on January 20, 2025.