Can Solana dethrone Ethereum as the top smart contract platform?
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(Kitco News) - The launch of Ethereum (ETH) transformed the cryptocurrency ecosystem with smart contracts, which enabled the creation of decentralized applications on top of blockchain networks and made decentralized finance (DeFi) and non-fungible tokens (NFTs) possible.
Not long after the launch of Ethereum, other smart contract platforms were launched in a bid to offer the best layer-one solution in the ecosystem by scaling to the level necessary while also maintaining security and decentralization.
Thus, the phrase ‘Ethereum killer’ was coined to describe the race to unseat Ethereum as the top smart contract platform as the project enjoyed the benefits of first-mover advantage that established it as the go-to smart contract platform for the ecosystem.
While there have been numerous prospective “Ethereum killers” over the years, one project that has emerged as a viable contender is Solana, a protocol that utilizes a hybrid consensus model that combines the security of proof-of-stake with proof-of-history to offer a scalable blockchain platform designed to optimize DeFi.
Due to a close association with FTX that was formed as Solana was attempting to establish itself, the project and its SOL token were hard hit by the FTX bankruptcy in 2022, which resulted in the price of SOL collapsing from a high of $258 in November 2021 to a low of $9.75 in December 2022.
SOL/USD Chart by TradingView
Today, Solana is also facing a potential sell-off as the SOL stack held by FTX, valued at $720 million, is set to be sold as part of the defunct exchange’s bankruptcy proceedings. However, the tokens held by FTX will be unlocked at a rate of $9.2 million per month, “which significantly reduces the liquidation impact,” according to data analytics provider Messari.
The latest data from The Block also shows that the number of daily active addresses on the Solana network is now at the lowest point since the analytics firm began tracking them in late 2020, indicating that there is currently not a lot to attract users to engage with the ecosystem.
“The strong connection between [Solana] and [FTX], along with Alameda Research (the trading firm linked to FTX), has significantly affected [Solana’s] reputation,” said Rebecca Stevens, a data analyst at The Block Research. “Additionally, the SEC’s identification of SOL as a security negatively impacted the token’s value, leading to its removal from several trading platforms in the United States, including eToro and Robinhood.”
Despite the struggles that Solana has faced, positive chatter about the platform is once again on the rise as crypto investors evaluate which tokens offer the most upside heading into the next crypto bull market.
According to X (formerly Twitter) user Emperor Osmo, Solana’s social dominance is now at a yearly high despite its recent price dip, and the last time this happened, its price surged from $9 to $25.
The Ether v. Solana discussion kicked into high gear on September 1 after MakerDao co-founder Rune Christensen tweeted that the platform plans to “launch a native blockchain for Maker with the codename NewChain” as it prepares for the last phase of its multi-year protocol overhaul, dubbed “Endgame,” and in his view, “the Solana codebase should be considered as the basis for New Chain.”
This tweet reinvigorated the rivalry between Ethereum and Solana, and even prompted Ethereum co-founder Vitalik to sell roughly $580,000 worth of MakerDAO’s MKR tokens and comment that “MakerDAO is torpedoing itself in weird directions” in a chat in the Discord channel for rival stablecoin issuance platform Reflexer Finance.
Kitco Crypto reached out to members of the crypto community to get their take on Solana’s potential to challenge Ethereum as a top smart contract platform.
“There have been several major announcements on Solana recently, including Visa's stablecoin pilot expansion, Solana Pay's Shopify integration, and MakerDAO's consideration of the Solana codebase for Newchain,” said Julian Deschler, co-founder at Elusiv. “These developments highlight the platform's dynamism and growth.”
“Other markers also point to Solana’s success, such as its ability to maintain a 100% uptime rate since April 2023, whilst other L1/L2s, such as Avalanche and Arbitrum, have experienced outages and disruptions,” he added. “Solana consistently ranks high in volume and transaction activity and has the second-largest developer community – an impressive feat. The future of blockchain leadership is multidimensional, and with its recent advancements, it is clear that Solana has solidified its position as a formidable contender in the industry.”
While most were quick to highlight the positive developments that Solana has seen in recent months, respondents also cautioned that while Solana has its strengths, Ethereum is firmly established as the top protocol, and ongoing improvements to the network will make it hard for any other protocol to catch up, though Solana will likely experience success in certain niches.
According to Elijah Jackson, blockchain industry commentator for MyChargeBack, "In terms of scale, Solana cannot compete with something like Ethereum.”
“However, Solana may offer a more appealing DeFi payment solution for businesses and institutions as a boutique option,” Jackson said. “Solana has a far stronger corporate infrastructure and culture. Thus, they can provide a more business-friendly solution that mimics what TradFi payment processors offer. So there is a small niche place for them in that market."
“Solana's been making some serious waves lately, especially with giants like Shopify jumping on the bandwagon,” said Tim Zinin, founder of crypto educational platform Botanica School. “That move to integrate Solana Pay? Absolute game-changer for the crypto space.”
Along with Shopify moving to add support for Solana Pay, Visa also recently added support for USD Coin (USDC) on Solana, specifically citing the network's ability to achieve a greater degree of scalability.
“It's like everyone's suddenly realizing Solana's got the sauce for building those high-efficiency blockchains,” Zinin said.
“Projects like Hivemapper mapping out the world’s roads using Web3 on Solana” show that Solana isn’t just about the hype but has “real-world utility,” he said, adding that with “Visa diving deep into the Solana pool, it's clear that even the traditional big dogs see the potential.”
That said, Zinin noted that “Solana has had its moments, and the fact that the blockchain can just stop” has “raised some eyebrows in the crypto community.” This comment was in reference to Solana’s history of numerous network outages that saw block production halt and transactions on the platform cease.
“It’s got a lot of potential, but there are still some kinks to iron out,” Zinin said.