Solana’s Rise: Why This DeFi Powerhouse Is Gaining Traction

Solana, also dubbed the ‘Ethereum killer,’ has grown to be one of the most active DeFi platforms over the past year.

According to a Q1 2024 report by Messari, DEX volume on this DeFi chain increased by 319% from the past quarter. The circulating market cap of Solana’s native token, SOL, has also grown more than tenfold since the beginning of 2023; as of the end of Q1, this figure was $86.4 billion, up from $7.9 billion in Q1 2023.

Source: Messari 

And now the big question: Why is Solana getting so much traction within the Web3 realm?

For those who have been around the digital asset ecosystem since the DeFi summer, it is no secret that Solana has had several downtimes. But despite the network hurdles and tailwinds such as FTX’s collapse, it is still emerging as a leading Layer 1 ecosystem.

Two primary factors are behind this success: Solana’s high throughput and cheap transaction fees compared to other Layer 1 chains, especially Ethereum.

Why DeFi Users Are Opting for Solana 

Ethereum may have introduced the concept of smart contract development as early as 2015, but close to a decade down the line, this pioneering DApp chain continues to face fundamental challenges due to its limited scalability. As a result, network congestion and high fees have forced more and more DeFi users to opt for Solana, among other Layer 1 chains and Layer 2 rollups.

High Throughput 

Designed to process transactions faster, Solana’s combination of a Proof-of-Stake (PoS) and Proof-of-History (PoH) consensus has enabled the chain to process up to 65,000 transactions per second (tps) – just as fast as Visa. 

Meanwhile, Ethereum is still struggling with 15-30 tps even after migrating from a Proof-of-Work (PoW) consensus to a PoS network following the merge of the PoS beacon chain and the mainnet in September 2022.

Cheap Transactions 

The cost of transactions was one of the main limiting factors to joining the DeFi market. At the height of the DeFi bull run, average transaction fees on Ethereum went as high as $50, which automatically edged out the smaller players.

In contrast, that was not the case in 2023’s Solana summer. A single transaction fee on Solana could cost as low as 0.0001 SOL; it is therefore no coincidence that Solana’s ecosystem witnessed significant activity in the recent past, especially with the surging interest in meme coins.

Top Solana Projects to Watch Out For

While the crypto market has somewhat cooled down following the ETF approval hype that propelled BTC to new highs of $73K, there is more to look forward to, including a possible Solana ETF approval as well. But more importantly, there are quite a number of niche projects building on Solana that could flourish once the market bounces back.

Dogwifhat (WIF) – Solana’s Meme Culture 

The crypto culture has become synonymous with animal-themed meme coins; first, it was the DOGE coin, which attracted popular figures such as Elon Musk. Later, Dogwifhat launched on Solana in November 2023 and has since risen to become one of the most coveted meme coins.

While it is arguable that this meme coin does not have a utility besides speculation, the $WIF token is now part of Solana’s dog-themed meme culture; the coin is up over 600% within the past year. More intriguing, a new cat-themed Solana meme coin dubbed Popcat seems to be following WIF’s trajectory, having recently hit a record of $1 billion in market capitalization.

Zeus Network – Interoperability 

One of the biggest challenges in the DeFi market has been interoperability; transferring assets from one ecosystem is not as seamless as it should be. On the brighter side, however, cross-chain communication layers such as Zeus Network are now leveraging Solana’s Virtual Machine (SVM) to introduce pluggable and programmable architecture that DApps can use to build interoperability solutions.

This network is host to one of the few DApps designed to introduce Bitcoin’s liquidity to Solana’s thriving DeFi ecosystem, APOLLO. While still a nascent project, APOLLO’s testnet launch attracted over 40,000 users across 162 countries. More importantly, this DApp has the potential to unlock BTC’s over $1 trillion in idle capital that could yield passive income within Solana’s DeFi ecosystem.

Jupiter – Decentralized Exchange (DEX) 

A DEX is integral for any DeFi ecosystem to function effectively. Jupiter is almost similar to what Uniswap is to the Ethereum network; this Solana-based DEX aggregator supports over 1,200 trading pairs and currently enjoys a total value locked (TVL) of $544 million, according to DeFi Llama. 

Although Jupiter is a relatively new DEX and its native token $JUP has been trading for less than a year, the price spiked to highs of $1.80 in April, up from $0.66 at the time of launch. More notably, it is now in the top 100 crypto tokens, while the daily trading volume currently stands at $191 million.

Wrap Up

Solana’s DeFi ecosystem has a lot of room for growth; as of writing, Ethereum’s TVL is at $60 billion, while Solana’s is at $5 billion. While this does not necessarily mean that the latter will ultimately catch up with the former, recent activity indicates that it might be a question of when and not if.

Should this happen, Solana’s TVL is bound to grow by 12 times from its current value. It is also worth highlighting that a single ETH is currently trading at around $3,500, while the $SOL token is going for $178. In other words, both the ecosystem and the native token are yet to hit their full potential.