Research Summary
The report examines the rise of Solana in the DeFi sector, challenging Ethereum’s long-standing dominance. It explores the factors contributing to Ethereum’s supremacy, Solana’s technological advancements, and the potential future of DeFi.
Key Takeaways
Solana’s Rising Influence in DeFi
- Increased Trading Activity: Despite accounting for less than 5% of the Total Value Locked, Solana has seen higher trading activity on certain days due to its rapid transaction speeds and low fees. Its volume surged from an average of $400m in 2023 to $1.4bn in 2024.
- Superior Technology: Solana’s technology, including isolated fee markets, priority fees, and new clients, has resulted in 11 months of uninterrupted uptime, demonstrating its performance at scale.
Ethereum’s Continued Dominance
- First-Mover Advantage: Ethereum’s dominance in DeFi is largely due to its first-mover advantage, battle-tested code, and higher decentralization. It has consistently commanded over half of the total capital locked in protocols since its inception.
- Resurgence in Trading Volumes: Ethereum has reclaimed its position as the leader in trading volumes, with Solana closely trailing behind. This resurgence can be attributed to a short-term shift back towards ETH following the approval of the spot Bitcoin ETFs by the SEC.
Challenges and Opportunities
- Challenges for Ethereum: Ethereum and its L2s face challenges with liquidity fragmentation and high fees, limiting extensive on-chain order book capabilities.
- Opportunities for Solana: Solana could witness a proliferation of on-chain orderbook decentralized exchanges, enhancing transparency for traders and improving user experience.
Actionable Insights
- Monitor Solana’s Technological Advancements: Solana’s superior technology and performance at scale make it a significant player in the DeFi sector. Stakeholders should keep an eye on its ongoing enhancements and their impact on its market position.
- Understand Ethereum’s Resilience: Despite challenges, Ethereum’s first-mover advantage and battle-tested code have helped it maintain dominance. Understanding its resilience can provide insights into its future trajectory.
- Consider Liquidity Fragmentation: The issue of liquidity fragmentation in Ethereum and its L2s is a significant challenge. Stakeholders should consider this when evaluating the potential of these platforms.
