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Fundamentals and price projections for Solana

Fundamentals and price projections for Solana

Explainers Cryptocurrencies

11 Sep 2021

According to the Solana website, Solana is the fastest blockchain in the world and the fastest growing ecosystem in crypto.

What is Solana?

According to the Solana website, Solana is the fastest blockchain in the world and the fastest growing ecosystem in crypto. Solana consistently has a TPS of over 1000, showing that the project is scalable. When looking into Solana Explorer (the dashboard for evaluating the Solana blockchain), we can see that this claim of high network speed is true. Over the past 360 minutes, Solana has processed over 1500 transactions per second, as shown below.

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Figure one - TPS Solana 08/09/21

During the Solana internal scalability test of 2019, the team recorded a maximum TPS of 44,838. Having a TPS of 44,838 is sensational. However, many cryptocurrencies struggle with high fees during periods of substantial network usage. One cryptocurrency which has seen major issues with fees in 2021 is Ethereum. This issue is demonstrated in figure two where we can see that Ethereum gas fees have spiked in 2021. The result of high Ethereum network fees has rendered small transactions on Ethereum not financially viable.

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Figure two - Ethereum gas fees over time

Solana has not seen this issue. Rather, Solana has quite the opposite with extremely low fees. According to the Solana website, each transaction has an average fee of $0.00025 USD. The resultant low fees and high TPS seen from Solana is due to the PoH system deployed and other technical factors such as pipelining.

Solana creation and ICO

PoH was primarily created by Anatoly Yakovenko, the founder and CEO of Solana. In 2017 Yakovenko published his PoH draft. Having previously worked in the San Francisco Bay area as an engineer for Dropbox, Qualcomm and D2iQ, Yakovenko teamed up with old colleagues at Qualcomm, furthering the PoH draft eventually founding Solana Labs in 2018. Solana labs proceeded to raise funds through private token sales, eventually launching the Solana ICO in March 2020.

The Solana ICO successfully raised $25,660,000 / $29,280,000 (88%) despite the market being in free fall. Just days before the Solana ICO the cryptocurrency market and traditional markets saw a mass selloff due to COVID19 fears. Traditional markets closed, cryptocurrency markets on the other hand could not be closed. In the space of only one month the cryptocurrency market lost 65% of its value, falling from $306 billion USD to only $108 billion USD as shown in the figure below.

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Figure three - cryptocurrency market crash, same period as Solana ICO

The Solana ICO raised funds through selling the native token of Solana - SOL. SOL is a crucial part of the Solana blockchain, SOL is a utility token for the Solana blockchain. During the 2020 ICO, SOL was offered at a public price of 1 SOL for $0.22 USD. During the SOL ICO a total of 8,000,000 tokens were available for the public.

Solana roadmap

Since 2018 Solana has almost completed the entirety of its initial roadmap, completing the following:

  • 2018
  • Release of whitepaper
  • Single node private test
  • Multi node private test
  • Release of payments SDK
  • Release of smart contracts SDK
  • 2019
    • On-chain programs
    • Implementation of Libra virtual machine
    • Release of multi-region, multi-cloud test net
    • Release of incentivised test net - LATE
  • 2020
    • Release of mainnet beta

The final part of the Solana roadmap which remains to be completed is the launch of the Solana mainnet. As Solana approaches the launch of its mainnet, let's evaluate the price action history of Solana.

Solana price action history

After the ICO, SOL hit the markets at around $1 USD. From the $1 USD level SOL saw an instant sell off falling 50% towards the $0.5 USD level, as shown below in figure four.

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Figure four - SOL saw an instant sell-off, falling from $1 USD to $0.5 losing 50% of its value.

However, $0.5 USD is the lowest level SOL has ever reached on the open market. Over the remainder of 2020 SOL would go on to increase almost +1000% from its all-time low towards the $4.79 USD level. This level was the yearly high for SOL and was seen at the start of September, as shown in the figure below.

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Figure five - SOL increased almost +1000% from the $0.5 USD level.

During 2020 SOL saw superb price action; this was just the start for SOL… At the time of writing, SOL has increased in price exponentially surging to an ATH of $197 USD!

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Figure six - SOL historical price action.

The surge in price seen by SOL has led many to believe that Solana could soon rival Ethereum as the Solana ecosystem continues to expand. The recent surge in price has led to a social explosion - everyone wants to know about Solana…

Solana Social Analysis - the Solana community

Since the start of 2021, social media references surrounding Solana have increased substantially. At the beginning of 2021 Solana had a social volume of 237. This increased exponentially until Solana reached its current social ATH of 89,393 in May, just before the mid-year 2021 crash.

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Figure seven - Solana reached an ATH LunarCrush social score of 89,393 in May 2021

During the May social ATH, Solana had a social dominance of 4.3% (increasing from 0.1% Jan 1st 2021) despite news volume on Solana remaining relatively constant. During 2021 the majority of Solana social volume has been bullish. This is partially due to the market-wide bullish macro outlook. Despite the macro outlook being bullish, this positive sentiment should not be underestimated. For example, if we evaluate the bearish sentiment of BTC social media activity during the 2021 drop from $64,000 USD to $29,000 USD, bearish posting is strife.

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Figure eight - BTC reached a bearish social sentiment ATH during the 2021 crash.

During the same period, Solana did see bearish posting occur. However, the bullish:bearish posting ratio was favourable in comparison to Bitcoin. When comparing the ratio of bullish:bearish posting we can see that Solana is consistently more bullish than Bitcoin.

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Figure nine - Bitcoin vs Solana Bullish: Bearish Ratio Social Sentiment

This overall bullish sentiment for Solana can be seen with the average social sentiment over a 348 day period. During this period Solana has been bullish 99.5% of the time (had a social sentiment of 50% or over).

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Figure ten - Bullish:Bearish Ratio Social Sentiment

This suggests that the cryptocurrency and Solana communities are inherently bullish on Solana. Although, this leads us to the question:

Why is the cryptocurrency community so bullish on Solana?

Ethereum has been the top cryptocurrency when it comes to smart contracts for quite some time. Numerous cryptocurrencies utilize the Ethereum blockchain, with Ehereum being the hub for decentralised applications. However, throughout its history, Ethereum has struggled with scalability. This scalability struggle for Ethereum is a real problem. In order to ease network congestion, Ethereum has introduced its London hard fork upgrade in 2021 in an attempt to resolve current issues, particularly the gas issue. Issues seen on Ethereum have led to many alternative layer one cryptocurrencies being created, otherwise known as `Ethereum killers`.

Ethereum killers have been created in an attempt to produce a blockchain superior to that of Ethereum, projects attempting to increase speed, security, and scalability. Numerous Ethereum killer projects have been created such as:

Many of these projects have significant market capitalization. However, Ethereum remains dominant. The main issue with most Ethereum killers currently is the lack of useability and low numbers of projects built on their respective blockchains. Solana appears to have broken this trend...

At the time of writing Solana appears to be the first project which has truly solved the blockchain trilemma. This has allowed for many outstanding projects to be built and is one of the primary reasons why the Solana community is so bullish. Solana has unleashed the potential of blockchain technology.

Solana Ecosystem

Currently, there are over 300 projects built on Solana. There is a wide range of projects within the cryptocurrency ecosystem. So far, mainly DeFi products have been built on Solana, making up for approximately ⅓ of the ecosystem.

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Figure eleven - types of projects built on Solana

The Solana ecosystem is currently one of the largest within the cryptocurrency space. Solanas ecosystem at the time of writing is only behind Binance Smart Chain and Ethereum by market capitalization.

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Figure twelve - Size of cryptocurrency ecosystems

Within the Solana ecosystem, there are many high market capitalization cryptocurrencies. In the figure below are some select cryptocurrencies built on Solana with high market capitalizations.

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Figure thirteen - high market cap cryptocurrencies built on Solana

One of the first cryptocurrencies built utilizing Solana is the decentralized exchange Serum. Since the release of Serum in 2020, numerous new cryptocurrency projects have been added to the Solana ecosystem, funded by Solana Labs. In June 2021 Solana had a private token sale of $314 million USD. This private funding will be used to further the ecosystem, allowing Solana to onboard a target of one billion users.

Since the beginning of August 2021 the Solana ecosystem has seen substantial growth. The value of various cryptocurrencies built on Solana, (some funded partially through Solana Labs) have seen significant valuation increases.

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Figure fourteen - many cryptocurrencies built on Solana have seen major valuation increases in recent months

Solana ecosystem - DeFi dominance

The most common projects found on Solana at the time of writing are DeFi-related. There are currently 107 DeFi Solana-based projects.

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Figure fifteen - DeFi currently dominating Solana

Solana DeFi projects are typically very user-friendly and easy to use. Some reasons for this are due to the following factors:

  • Solana Explorer allows for users to easily view transactions taking place
    • Many Solana products contain a clickable link, allowing users to view their transactions in real time.
  • Step Finance removes the need for cryptocurrency users to create spreadsheets when managing their investments in DeFi. Rather, users now have one platform which allows for yield farming, wallet, spot positions etc.
    • The Solana ecosystem is highly integrated, increasing useability and functionality for users.
  • Solana speed allows for users to conduct transactions with ease.
    • The high Solana TPS allows for users to conduct activities such as yield farming quickly and easily.
  • Virtually zero fees

The result of this user-friendliness and ease of use is that the total value locked (TVL) within Solana DeFi products has exploded in 2021.

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Figure sixteen - TVL locked within Solana DeFi products is increasing rapidly

This TVL explosion has occurred across the majority of Solana DeFi products. For example in the figure below we can see the increase in the TVL in SolFarm (SolFarm is a yield farming protocol built on Solana).

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Figure seventeen- Yield Farming on SolFarm TVL increase

APY of Solana DeFi products

Solana DeFi products have attracted users for ease of use and other factors as mentioned earlier. However, the Solana mass attraction of users to its DeFi protocols has also occurred due to the financial incentives seen for early users of Solana DeFi. For example in the figure below we can see that the DEX ORCA offers extremely competitive yearly APYs for numerous Solana products. Additionally, some of these pools can be `double dipped`. This allows for additional token rewards.

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Figure eighteen - ORCA APYs

These high APYs draw users in due to the power of compounding. In the figure below is an example of compounding $10,000 USD with the 179% APY currently being offered in the ORCA / USDC farm.

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Figure nineteen - power of compounding

Realistically, this 179% APY will not be maintained. As liquidity is added to the pool, APY offered will decrease. Additionally, the chart does not take into account changes in the price of ORCA and whether the pool will be available for six years… However, it does demonstrate why these pools are attractive for users. Due to the speed and low transaction costs on Solana, daily compounding is possible. This allows users to re-invest daily interest rewards, further increasing the power of compounding.

These high interest rates are available across the Solana DeFi scene. Additionally these interest rates can be further increased through the use of SolFarm yield farming leverage. For example in the figure below we can see that the POLIS - RAY LP has its APY increased from 632% to 32,641%

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Figure twenty- POLIS / RAY LP SolFarm X3 farming leverage example

Rug pulls

Other DeFi products do offer extremely high APYs as seen with Solana products. For example in the figure down below, we can see that PancakeSwap currently has a GNT-BNB farming pool offering 483% APY.

Figure twenty one- PancakeSwap high APY example

However, a common problem with these high APY products is rug pulls.

Rug pulls see malicious developers take investor funds and abandon the project in question.

This is currently a prominent issue within the cryptocurrency industry, particularly with BSC. Here is a list of some rug pulls that have occurred across the industry:

  • Antisocial Finance
  • Meerkat Finance
  • Honey Swap
  • WallStreetSwap
  • Tin Finance
  • Minter Pro
  • Potatoes Finance
  • Tetris Finance
  • GoldenFarm
  • ChessFarm.Tech
  • Beer Garden
  • Vice.Uno
  • UniCat
  • Thodex
  • PolyButterfly

As layer one cryptocurrencies increase in prominence, those with malicious intent tend to flock towards new investors rushing in, attempting to steal their funds as users FOMO into coins. So far Solana has seen only one rug pull with the cryptocurrency project Luna Yield. Luna Yield was marketed as a legitimate project and launched on Sol Pad. The `team` provided the documents needed to qualify for a SolPad IDO. However, shortly after it was conducted, they ran away with $6.7 million USD worth of users' cryptocurrencies.

Currently, rug pulls are not a major issue within the Solana ecosystem. However, with the popularity of Solana increasing dramatically, malicious actors could attempt to penetrate the ecosystem despite efforts being taken to prevent this.

It is important that users read cryptocurrency product documentation before investing. Always D.Y.O.R.

Solana Conclusion

In conclusion, Solana is one of the most exciting cryptocurrencies in the space. The rate of development and ecosystem expansion has been extremely impressive. Over the coming years Solana wants to take their technology mainstream. It will be interesting to watch the developments of Solana and whether they can hit the one billion user target. Only time will tell. With so many exciting new projects being built and expanding on Solana such as Step Finance, Raydium, Aleph, Audius and Samo, Solana have placed themselves in a prime position to make it to the mainstream.

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Ben Caselin

Vice President of AAX, Head of AAX Trends

Ben Caselin is the Vice President of AAX and Head of AAX Trends, a sub-division of AAX aimed at driving the mass adoption of bitcoin and digital assets. Widely published in top-tier media and an avid speaker at global conferences, Ben draws on his background in socio-cultural anthropology, the creative arts and years working in both the development and fintech space, to develop insights into bitcoin and digital assets.

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