Is Solana's (SOL) Losing Ground to Other L1s in Terms of Network Effects??

By Michael @ CryptoEQ | CryptoEQ | 15 Apr 2022


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  Core Report Strengths

  • Extremely cheap fees (<$0.05) and fast transaction finality when compared to other leading smart contract platforms
  • Incredibly well-funded project with backing from key entities like Alameda Research, FTX exchange, and Multicoin Capital
  • Top-5 developer community and dApp ecosystem with over 500 dApps being built
  • Easy-to-use wallet and beginner-friendly UI helping to onboard crypto novices

Core Report Weaknesses

  • High barrier to become a validator due to hardware requirements and ongoing costs to maintain (~$40,000-$95,000 per year) lead to network centralization
  • Extremely high wealth concentration—a large portion of SOL are owned by early insiders and venture capital companies
  • “Monolithic layer-one” design, while highly performant now, will struggle to scale into the millions of transactions per second 
  • Network uptime and reliability suffer, including once shutting down the network completely for 17 hours

 

Core Report Network Effects

Solana is primarily a smart contract platform or general-purpose crypto cloud platform for dApp development. The Solana community has built a large ecosystem of over ~1,000 dApps in the short time since the network launched. Solana dApp projects across DeFi, Web 3.0, and NFTs include: 

  • DeFi: Open order book exchanges, automated market makers, lending and borrowing platforms, asset management software, and payments.
  • Web 3.0: Solana domain name services, data privacy web browsers, and off-chain data oracles.
  • NFTs: Minting platforms, marketplaces, gaming, music-streaming, social media, and Distributed Autonomous Organizations (DAOs).

SOL ecosystem march 2022 An overview of the Solana ecosystem’s 1,000+ dApps, blockchains, and other programs. Source

The Solana cloud economy has seen rapid growth over the past year, pushing the total value of the ecosystem to over $110 billion. The ecosystem consists of the Solana Network (SOL) and the assets issued on top of the network, over which the SOL community has jurisdiction. These include assets like the Digital Businesses (smart contract dApps), Digital Dollars (dollar-backed stablecoins), or Digital Goods & Art (e.g. NFTs) issued on the Solana Network. 


Total Value Locked

2021 as a whole saw the total value locked (TVL) in DeFi skyrocket. TVL across DeFi has increased from just $400 million in 2019 to over $215 billion in early 2022. The majority of this growth has been seen in Ethereum which holds ~$125 billion of the TVL.

SOL TVL march 2022 Total value locked (TVL) per DeFi blockchain as of Q2 2022, per Coin98 Analytics

The total value locked on Solana has nearly doubled from Q3 2021 to Q4 2021. Solana is in the top-five blockchains by total value locked as of 2022. The other top blockchains:

  • Ethereum: $125 billion
  • Terra: $20 billion
  • Binance: $12 billion
  • Avalanche: $11 billion

Solana holds a TVL of over $7 billion made up of different chains ranging from decentralized exchanges (DEXs), NFT markets, staking solutions, and automated market makers (AMMs). 

The top-five chains by total value locked on the Solana network are as follows:

  • Raydium (RAY): DeFi platform supporting trading and swaps (either using a Serum powered order book or simple swap via RaydiumSwap), liquidity pools, farms, and its own launchpad for new tokens
  • Marinade Finance (MNDE): Liquid staking solution 
  • Serum (SRM): Low-cost, high-speed DEX 
  • Quarry: Open protocol for launching liquidity mining 
  • Orca (ORCA): Solana-based AMM 

Serum holds the largest market share of the Solana network in terms of TVL. The popular Solana-based DEX routinely sees real trading volume over $50 million with approximately $26 million of that volume being fully transparent. 
 

SOL TVL defillama Total value locked (TVL) on the Solana blockchain, per DeFi Llama


 

Community

Solana has generated a significant network effect since its mainnet launch in 2020. The network has various social media channels established with notable channels including Twitter, Reddit, Discord, and Telegram.

The Solana Telegram is relatively small, containing only 5,700 members. Much more engaging for Solana is Discord in which Solana has a developer’s tech chat containing 100,000+ active members.  This is also a fantastic resource to keep up to date with upgrades to the network. An honorable mention for social media is the Solana YouTube channel. Solana posts quite often to the platform with content such as podcasts, educational videos, and interviews.

Solana’s developer ecosystem saw explosive growth in 2021, increasing by ~300%. Post-2021, Solana now ranks among the top projects in developer count, albeit still far behind more mature projects like Bitcoin and Ethereum.

SOL developer growth 2021 Source

 

SOL developer growth vs ETH 2021 Source

 

Brave and Solana Labs announced a joint integration on Nov. 8, 2021, where the privacy-focused browser will add support for Solana wallets in early 2022. Brave CEO Brendan Eich said, “With more and more users and creators requiring tools for fast and affordable access to the decentralize

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


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