SOL vs. ETH: Can Solana Really Overtake Ethereum?

adeau, Founder of The DeFi Report

Solana (CRYPTO: SOL) has been on a tear this cycle, with its native token, SOL, hitting a record high of $264 USDT. In comparison, Ethereum (CRYPTO: ETH) seems to be lagging behind. Moreover, Solana's market cap has increased from 17% to nearly 30% of Ethereum's over the past few months. Since hitting a low in December 2022, SOL has seen an astonishing 25-fold increase, while ETH has only risen 1.7 times. Is Ethereum lacking momentum, or has it yet to show its strength? This has become a question worth exploring.

Based on data, market sentiment, cognition and narrative, this article will analyze whether Solana has a chance to surpass Ethereum, and what catalysts Ethereum has to drive prices up?

Looking back to January 2023, Solana's market cap was only 3% of Ethereum's, and the gap between the two seemed insurmountable. However, as of July this year, the gap has narrowed significantly, and Solana's market cap has climbed to 17% of Ethereum's. At the time, we wrote: “Should SOL’s market cap be 83% lower than ETH?” The fundamental data gave a negative answer.

Since then, the market has re-evaluated SOL, and its market value has soared to nearly 30% of Ethereum's market value. Faced with this change, I can't help but ask this question again: Should SOL's market value be 70% lower than ETH?

Are markets still in disarray? Let’s take a closer look.

When comparing Solana’s data with Ethereum’s, we particularly noticed an important variable - the second-layer networks (L2s): Arbitrum, Base, Optimism, Blast, Celo, Linea, Mantle, Scroll, Starknet, zkSync, Immutable, and Manta Pacific.

Our view is that these L2s not only create new demand for Ethereum L1 blockspace, but also further enhance the network effect of ETH as a core asset. Therefore, taking these L2s into account when comparing Solana to Ethereum can provide a more comprehensive and in-depth perspective.

Solana’s fee revenue reached $151 million in Q2 2024, accounting for approximately 27% of the total fee revenue of Ethereum and top L2s.

Over the past 90 days, Solana has generated $192M in fee revenue, which is approximately 49% of the total fee revenue for Ethereum ($374M) and top L2s ($21M).

Please note that the above fees only include Gas fees and do not include MEV (Maximum Extractable Value) fees.

Solana’s DEX trading volume reached $108 billion in the second quarter, accounting for approximately 36% of Ethereum and top L2s trading volume.

Over the past 90 days, Solana’s DEX volume has increased to $153 billion, accounting for approximately 57% of Ethereum’s ($125.5 billion) and top L2s’ ($145 billion) volume.

Solana’s stablecoin supply was approximately $3.1 billion in July 2024, accounting for approximately 3.5% of Ethereum and L2s stablecoin supply.

Currently, its stablecoin supply has reached 4.3 billion US dollars, accounting for about 4.1% of the Ethereum + L2s stablecoin supply.

Note that Arbitrum’s stablecoin supply exceeds Solana’s, while Base's stablecoin supply is 80% of Solana's.

Solana’s stablecoin trading volume reached $4.7 trillion in the second quarter, 1.9 times the trading volume of Ethereum and top L2s.

Over the past 90 days, Solana’s stablecoin volume has fallen to $963 billion — roughly 30% of Ethereum’s ($1.9 trillion) and top L2s’ ($1.26 trillion) volume.

Why has Solana’s transaction volume dropped?

We believe Solana’s volume growth in Q2 was primarily driven by wash trading and robotic/algorithmic trading.

And according to Artemis data, only about 6% of Solana’s stablecoin transaction volume is peer-to-peer transfers. However, on Ethereum L1, this figure is close to 30%, indicating that Ethereum is used for non-speculative activities to a much greater extent than Solana.

At the end of Q2, Solana’s TVL was $4.2 billion, about 6.3% of the TVL of Ethereum ($60.3 billion) and top L2s ($9.5 billion).

Currently