3 months ago • 5:32 mins
Solana investors have been on an emotional rollercoaster: the blockchain’s price rose from $1.51 in January to a peak of $260 in November, only to collapse by 70% over the next three months. Now, though, a string of good news has put it back on the map. So if you’re okay with some short-term volatility, here’s why you might want to buy in.
Solana is way out in front when it comes to speedy blockchains. The network can process around 65,000 crypto transactions per second – about 2,000 times faster than Ethereum, and on a par with Visa. In fact, Bank of America reckons Solana could become the “Visa of the digital asset ecosystem.”
And Solana isn’t just fast: its transaction fees are also among the cheapest you’ll find for any blockchain – around 1/40th of a cent. Compare that to Ethereum’s fees, which usually sit between $10 and $20 a pop.
Like Ethereum and Avalanche, Solana is a smart contract-based blockchain. That means it can process complex transactions without the need for a central intermediary – a bank, say, or an exchange.
But unlike Ethereum and Avalanche, developers can build programs on the Solana blockchain using Rust, a programming language that can work more complex smart contracts than the language its competitors use. That gives Solana all kinds of directions to expand in.
Solana’s attracted over 400 projects to its ecosystem, all of which could drive demand for the blockchain. Here are just a few that really underscore its value.
On the DeFi front, Solana hosts the Serum Project (SRM) – a decentralized exchange (DEX) protocol that’s quick enough for high-frequency trading. That’s a big step: most DeFi protocols currently run on Ethereum, whose transaction times are too slow for purpose. Slicker DEXs like Serum, then, are likely to lure more traders to Solana and its native coin, SOL.
In gaming, Solana is expected to partner with Krafton (259960 KS) – the video game developer behind Playerunknown’s Battlegrounds (PUBG). And that’s huge: PUBG is one of the most popular battle royale games in the world, with over 70 million downloads. The deal could see Solana NFTs traded within PUBG and other high-profile games, which could bring a flood of new users to Solana. It could also stoke demand for SOL from gamers who want to use its blockchain to buy and sell in-game items.
On the NFT front: Opensea, the world’s largest NFT marketplace, is adding Solana to its lineup of integrated chains, alongside Ethereum, Polygon, and Klaytn. Since Solana’s got the lowest transaction fees of the four, expect a big uptick in Solana NFT minting and trading there. And in crypto storage, Coinbase (COIN) says it’s adding support for Solana to its wallet extension – another nod of approval from a major industry player.
Already the sixth-largest digital asset by market size, Solana has recently been at the center of two major investment product launches.
Grayscale – the digital asset manager behind the Grayscale Bitcoin Trust (GBTC) – just launched its Smart Contract Platform Ex-Ethereum Fund for accredited investors. And Solana is currently the fund’s largest holding (26%) – ahead of Cardano (25%), Avalanche (15%), and Polkadot (14%). As more institutional investors buy into the fund, Grayscale will need to buy more SOL to keep that balance.
And the Coinshares FTX Physical Staked Solana ETP (SLNC GY) just listed on the German Xetra exchange. It’s 100% backed by SOL, meaning demand for SOL goes up one for one when institutional investors buy into SLNC. And there’s a good chance they will: the ETP generates a 3% Solana staking income and charges a 0% management fee. It’s also a regulated investment product that saves institutions the operational hassle of having to safeguard SOL for investors.
Solana recently began trading above its 50-day moving average (blue line) for the first time since December. And in recent days, the rally has pulled back some, creating a nice entry point if you’re looking to scale in.
The next levels of potential price support lie somewhere between $115 and $100. But keep in mind that it could be a bad sign for Solana if that psychological $100 level doesn’t hold, so manage your risk accordingly.
Solana has outperformed most of the crypto market recently, and all the reasons I’ve looked into make a good case for its price to rise over time. But if you are going to buy in, you need to go into the project with your eyes open to the risks.
For one thing, it’s been hacked three times in the past year. And while no funds were stolen, the attacks revealed a glaring vulnerability in Solana’s security. Of course, this could soon resolve itself: according to Sanbase, Solana currently has the highest level of developer activity of any smart contract blockchain, and they’re no doubt burning the midnight oil to bolster the network’s security.
For another, Solana’s Rust programming language doesn’t play nice with Ethereum. So from a development standpoint, it’s a nightmare to integrate one blockchain’s applications with the other’s (which isn’t the case with Avalanche or Fantom). So unless Solana finds a solution here, it’ll have to directly compete with the world’s largest smart contract platform to build its project roster. And sure, you could argue that Solana has the upper hand, since Ethereum is so slow and expensive by comparison. But Ethereum is due to move to a proof-of-stake model (more on that here) that could see the performance gap narrow…
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