Coinbase, the well-known company that recently announced they will build their own network on top of Ethereum layer-2 chain Optimism, released a report on Solana (SOL) on Feb. 22. Their key takeaways about this competitor of Ethereum are intriguing:
- They remind us that Solana is capable of processing over 65,000 transactions per second, making it one of the fastest blockchain platforms available.
- They also recall that SOL has a fixed max supply of 489 million tokens, with a circulating supply of 286 million tokens.
- The article notes that SOL inflation rate, initial set at 8%, is scheduled to decline by 15% every year until it reaches its long-term inflation target of 1.5%.
- Coinbase also analyses the impact of Solana transaction fées on validators:
At current, ~70.36% of all eligible SOL is staked, equating to an average annualized staking yield of ~6.92% (per Staking Rewards). As the rate of new issuance continues to decline according to the aforementioned schedule, validators will increasingly rely on transaction fees for compensation which suggests network activity will need to increase meaningfully over time in order to foster a more robust fee market.
Therefore, Solana's future mostly depends on the development of decentralized applications which can increase transaction fees.
As Solana Total Value Locked plummeted in 2022, especially after FTX crash, and some major NFT collections moved to other chains like Polygon, Solana mostly rely on developers to build new decentralized applications. That's where Coinbase report looks intriguing:
Because these technical capabilities are possible within a single global state (as opposed to multiple layers), Solana offers enhanced composability to developers building applications on the protocol. These sources of differentiation represent important catalyzing forces that can attract and retain developer talent, an area where the protocol has historically shown strength (a sentiment recently echoed by Vitalik Buterin, co-founder of Ethereum).
In summary, Coinbase thinks that "the fundamental characteristics which make Solana an architecturally differentiated layer-1 blockchain remain intact."
Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.
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