Solana
What the data actually shows
Few platforms have faced as much skepticism as Solana. Critics often describe it as a centralized network plagued by frequent outages. However, such a narrative does not match the actual data and progress seen within the Solana ecosystem. This article seeks to debunk these misconceptions by taking an in-depth look at Solana’s key metrics.
Contrary to the prevailing negative perception, Solana is demonstrating remarkable growth and innovation on several fronts. The growing volumes of stablecoins traded on its network and higher decentralized exchange (DEX) volumes compared to Ethereum highlight Solana’s growing utility. Additionally, the platform’s higher data throughput highlights its technical capabilities and resilience. Additionally, the increase in new addresses and daily active users further reflects the growing trust and adoption within the broader crypto community.
By examining these metrics, this article aims to provide a balanced, data-driven perspective on why Solana represents an undervalued asset in the cryptocurrency market in June 2024.
Centralization
The decentralization of a blockchain network is complex and cannot be evaluated simply on a single metric. An in-depth analysis of the truly decentralized network, based on every detail, could fill an entire article. We will therefore focus on the Nakamoto coefficient. The Nakamoto coefficient measures the minimum number of entities in a network needed to agree to disrupt the system. For proof-of-stake networks like Solana and Ethereum, 33% stake is important, while for proof-of-work networks like Bitcoin, 51% control is crucial.
As of June 20, 2024, Solana had 1,525 active validators, of which 20 held more than 33% of the shares. On the other hand, Ethereum has 1,024,619 active validators, with only two entities controlling more than 33% of the share. A validator must stake 32 ETH to become a node on the Ethereum network. The problem here is that one entity can control multiple validators, thus obscuring the true level of decentralization.
Active validators and Nakamoto coefficient, June 20, 2024
According to Dune, Lido and Coinbase hold more than 33% of Ethereum shares. If each node holds 32 ETH, then out of the 1,024,629 active nodes, these two entities potentially control 432,389 unique validators. This concentration of control under two entities compromises the philosophy of decentralization.
ETH Stakers Pie Chart, June 20, 2024
For Bitcoin, the network has 17,692 full nodes that have not been pruned, of which 7,516 are capable of disrupting the network. Unfortunately, no information exists on the individual hashrate of each node. The calculation of this number used the Peer Index (PIX). The PIX value, ranging from 0.0 to 10.0, is updated every 24 hours based on a node’s properties and network metrics, with 10.0 being the most desirable value. Nodes with a PIX value of 5 or more were considered.
Some may argue that Bitcoin’s decentralization should be assessed through hashrate distribution. Currently, two mining poolsFoundry USA and Antpool control over 51% of the network’s hashrate.
Bitcoin Mining Pools Pie Chart, June 20, 2024
However, it is incorrect to consider these pools as the controllers of the network because they are pools of individual miners. Mining pools allow miners to combine their computing resources to increase their chances of solving blocks and earning rewards. If a pool starts acting maliciously, individual miners can simply move to another pool, thus maintaining network decentralization.
Although the decentralization of blockchain networks is multifaceted and cannot be accurately assessed by a single metric, the Nakamoto coefficient provides a useful perspective for comparison. Solana’s position is not as worrying as it might seem at first glance. With a Nakamoto coefficient indicating that 20 validators hold more than 33% of the stake, Solana appears more decentralized than Ethereum, where only two entities hold more than 33% of the stake. Additionally, even though Solana is not as decentralized as Bitcoin, it still maintains a robust level of decentralization, contributing to its security and reliability.
Stability
Solana, known for its high-speed transactions and low fees, has faced scrutiny over the stability of its network due to several outages it has experienced in recent years. However, a closer look reveals that the situation might be exaggerated. The stability of the network becomes evident despite occasional hiccups when examining Solana data. availability history.
In 2021, Solana experienced no outages and demonstrated a full year of uninterrupted service. The year 2022, however, saw a significant increase, with 27 outages totaling 108 hours. 2023 saw considerable improvement, with only two outages totaling 19 hours. In 2024, until June 19, the network experienced only one five-hour outage. These numbers, while remarkable, only tell part of the story.
Solana Availability History, 2021-2024
When considering availability, these outages represent a tiny fraction of total operating hours. For example, in 2022, despite 27 outages, the network maintained functionality for 99.47% of the year. Likewise, the 19 hours of downtime in 2023 and the 5 hours in 2024 through mid-June represent negligible interruptions in an otherwise stable performance.
The main culprit for these outages is Solana’s design. The network prioritizes speed and low costs, which attract heavy usage. This high traffic can lead to traffic jams and instability. For example, Solana produces a block every 400 ms, much faster than other blockchains. Due to the fast pace of production, when block creation stops for an hour or two, it looks more serious. However, other blockchains, even Bitcoin, also face downtime. For example, it took more than two hours to extract the block 689301 next block 689300.
Solana’s strategy of pushing its performance limits allows it to encounter and solve real-world challenges that theoretical models and simulations cannot predict. This approach resembles SpaceX’s iterative process of learning from failures to achieve rapid innovation. Although some critics view Solana’s historic downtime as a liability, this rigorous testing and problem-solving phase ultimately provides a significant competitive advantage.
Solana in numbers
Daily Active Portfolios
Solana currently has 1,600,000 daily active wallets, which is significantly higher than Ethereum’s 367,000 daily active wallets.
Daily active addresses, January 2024 – June 2024
Entrances and exits
In addition, between April 2023 and June 2024, Solana recorded $801.73 million in inflows and $654.21 million in outflows. In contrast, Ethereum saw $694.17 million in inflows and $694.1 million in outflows. This translates to a net inflow of around $150 million for Solana, compared to Ethereum’s net inflow of around $70,000.
DEX Volumes
In terms of DEX volumes, Solana also performed excellently. It began to match or exceed Ethereum’s transaction volumes on several occasions. This is important because Solana’s market cap is around $63 billion, much lower than Ethereum’s $430 billion. Additionally, Solana’s token was launched only four years ago, compared to Ethereum’s nine years on the market. Although it is newer and smaller, Solana’s ability to compete with Ethereum in DEX volumes shows its potential.
DEX trading volumes, January 2024 – June 2024
Stablecoin transfer volumes
Solana’s high stablecoin transfer volumes come from its fast transaction speeds and low fees, making it attractive to users. The network’s ability to efficiently process many transactions supports a high volume of activity. Additionally, Solana’s focus on scalability and user-friendly experience further solidifies its dominance in stablecoin transfers.
Stablecoin transfer volumes, January 2024 – June 2024
Income
Solana’s revenues soared to 50% of Ethereum’s by mid-2024, an all-time high. Historically, during the peak activity periods of 2021 and 2022, Solana’s revenue was less than 1% of Ethereum’s. At the start of 2024, this figure was around 10%. This dramatic increase in revenue ratio indicates the growing usage and economic activity of Solana on the network.
Solana revenue, April 2020 – June 2024
Conclusion
The narrative of Solana as a centralized and unreliable network does not hold up in real-world data. With its strong technical capabilities and growing adoption, Solana is demonstrating significant progress and resilience. The Nakamoto coefficient shows that Solana’s decentralization is more favorable than that of Ethereum, with fewer entities needed to collude to disrupt the network. Although not as decentralized as Bitcoin, Solana nevertheless maintains a substantial level of decentralization, which contributes to its security and reliability.
Network stability, often criticized due to past outages, is showing marked improvement, with substantial availability and continued improvements. Solana’s strategic focus on high performance and scalability results in occasional instability, but also rapid innovation and resilience, similar to the iterative development seen in other cutting-edge technology areas.
Metrics such as daily active wallets, inflows and outflows, decentralized exchange volumes, and revenue indicate Solana’s growing importance in the cryptocurrency ecosystem. Despite its smaller market capitalization and young age, the network’s ability to handle high transaction volumes at low costs positions it as a formidable competitor to Ethereum.
Overall, Solana’s performance and growth reflect a platform that is not only maturing, but also setting new standards in the industry, challenging prevailing negative perceptions and establishing itself as a valuable asset in the market .
Disclosure: This article does not represent investment advice. The content and materials presented on this page are intended for educational purposes only.