Solana’s SOL has made significant progress in narrowing the discount it trades at compared to Ethereum’s ether (ETH) over the past two years. Despite starting at a 97% discount in January 2023, the current discount stands at 70%. This reduction in the discount has sparked questions about whether the market is still dislocated between the two cryptocurrencies.
One key metric to consider is network fees. In the second quarter, Solana accounted for 27% of Ethereum’s fees plus its top layer 2 solutions. This ratio has since increased to 49% over the last 90 days, indicating a significant rise in network activity on Solana compared to Ethereum.
Another important metric is decentralized exchange (DEX) volumes. Solana saw $108 billion in DEX trading volume in the second quarter, representing 36% of Ethereum’s volume including its layer 2 solutions. This figure has now risen to $153 billion, accounting for 57% of Ethereum’s volume over the last 90 days.
Stablecoin volumes are also a crucial factor to consider. In the second quarter, Solana processed $4.7 trillion in stablecoin volume, nearly double that of Ethereum and its layer 2 solutions. However, this figure has dropped to $963 billion over the last 90 days, with algorithmic trading potentially inflating the earlier numbers. Additionally, only 6% of Solana’s stablecoin volumes are peer-to-peer transfers, suggesting that Ethereum is used more for non-speculative activities.
Total Value Locked (TVL) is another important metric to evaluate network usage. Solana ended the second quarter with $4.2 billion in TVL, representing 6.3% of Ethereum’s TVL including its layer 2 solutions. The current TVL for Solana is $8.2 billion, accounting for 12% of Ethereum’s TVL.
Based on these metrics, Solana has shown significant growth in network activity and usage compared to Ethereum. While the on-chain data suggests a fair re-pricing of SOL’s valuation relative to ETH, investors should also consider qualitative differences between the two networks and potential catalysts that could impact their performance as we approach the end of 2024 and head into 2025.
Michael Nadeau, the founder of The DeFi Report, provides valuable insights into the comparison between Solana and Ethereum. As a strategic advisor to digital asset startups, his expertise sheds light on the evolving dynamics within the Web3 tech stack. With a background in traditional finance and extensive experience in the digital asset space, Nadeau’s analysis offers a comprehensive view of the market trends shaping the future of cryptocurrencies like Solana and Ethereum.
