Solana is becoming a strong competitor to Ethereum, and Solana's new project Solayer has just received $12 million in funding. This is big news and shows that more people believe in Solana's future. To understand what this means for blockchain technology, we need to look at three things:
1. What Solayer does
2. How is Solana performing overall?
3. Comparison between Solana and Ethereum
This will help us understand whether Solana is catching up to Ethereum in the blockchain race.
Understanding Solayer and its impact on the Solana ecosystem
Solayer is a reinvestment protocol on Solana that automatically reinvests staking rewards, allowing users to earn compound returns effortlessly. Staking is critical in the Solana ecosystem, with over 450,000 active stakers contributing to network security and decentralization as of 2024. Solayer’s innovations can further increase these numbers, enhancing Solana’s security and economics.
The $12 million investment in Sollayer does more than validate Solana’s staking mechanism, which already has over $8 billion in staking assets. This investment is likely to spur further growth in staking participation, which is critical as Solana continues to scale.
Ethereum vs. Solana, a battle of numbers
Ethereum still dominates smart contracts and decentralized finance (DeFi), with a market cap of about $220 billion as of mid-2024, and more than 60% of the DeFi market built on its platform. Its network supports thousands of decentralized applications (dApps) and processes billions of transactions every day.
Solana is small but is growing impressively, with a market cap of about $30 billion, driven primarily by DeFi and NFTs. Solana's network processes more than 65,000 transactions per second (TPS), with an average cost of $0.00025 per transaction. In comparison, Ethereum, even after its recent upgrade, averages 30 TPS, with transaction costs (gas) ranging from $0.5 to $20, depending on network congestion.
Despite its rapid growth, Solana still faces challenges. Ethereum’s transition to proof-of-stake (PoS) through Ethereum 2.0 cut its energy consumption by more than 99% and reduced gas costs. Ethereum’s participation has surged, with more than 26 million ETH participating, valued at more than $40 billion. In comparison, Solana has about 70% of the total supply, which shows that the network is very secure, but it is still smaller than Ethereum’s base.
VC investment prospects and comparative ecosystem development
Venture capital (VC) funding has been critical to developing the Ethereum and Solana ecosystems, and Ethereum projects have historically attracted a large amount of capital, with billions of dollars invested in DeFi, second-layer scaling solutions, and NFTs. In 2021 alone, Ethereum-based projects have raised more than $15 billion in venture capital.
Solana caught up in 2021, when it raised $314 million in a private token sale led by Andreessen Horowitz and Polychain Capital. Since then, the Solana project has attracted a lot of investment, with Solayer's $12 million being the latest successful round of investment. By 2023, the cumulative investment in the Solana project has exceeded $3 billion, proving its rapid growth and attractiveness to developers and investors.
Solana and Ethereum
One of Ethereum’s strengths is its decentralization, with over 500,000 validators, ensuring a high level of security and resistance to centralization. The network’s robustness is reflected in its long-term defense and ability to withstand attacks.
Although Solana has a high TPS, it has been criticized for being less decentralized, with approximately 2,000 validators as of 2024, far fewer than Ethereum, raising concerns about the concentration of power. In addition, Solana has experienced network outages, particularly in 2022 and 2023, highlighting vulnerabilities in its architecture.
However, Solana’s community and developers are actively addressing these issues, with the introduction of Solayer and other infrastructure projects aimed at enhancing network stability and decentralization, which is critical for Solana to effectively compete with Ethereum.
Solayer’s recent $12 million seed round demonstrates investors’ great confidence in the Solana ecosystem, however, Solana’s ability to surpass Ethereum remains a multifaceted question. Ethereum’s established market position, massive liquidity, extensive developer network, and strong security infrastructure present a huge challenge to competitors.
As these two platforms continue their technological development and market competition in the coming years, the blockchain landscape may see significant developments, of course, first and foremost in the secondary market.
