Ethereum vs. Solana: is this the flippening?

It was the first afternoon of the largest global crypto or web3 conference IRL (in real life). About two of the twenty-thousand who had flown into the Red Dot, especially for “Blockchain Week,” were about to witness the unveiling of a new phone. Wait, what? Yes, a brand new phone called the “Solana Seeker” was unveiled to a rapt audience, with stunning visuals and booming electronic music in the background. For this moment, one of the largest ballrooms at the Marina Bay Sands convention center was morphed into a similar space near Silicon Valley. Even the font selection was deliberate for this to have appeared more than a coincidence. Solana Foundation’s CTO spoke about how the Seeker phone, with its natively integrated web3 seed vault and wallet, was purpose-built for web3. This is just the kind of exciting innovation we need to take web3 beyond the paltry forty million or so participants in the on-chain economy among the eight billion people on the planet.

More exciting than this hardware bet is arguably the “dApp (decentralized app) store”, a new ecosystem for developers to build exciting new consumer applications in. Doing hardware is hard. And it is harder for someone in the digital-only software world of web3. A watershed, nevertheless. And here is why. The biggest critique of the world of crypto and web3 has been the lack of mainstream adoption. According to the latest a16z’s State of Crypto report, over 400 million people have interacted with crypto at some point. However, there are only 60 million unique wallets (not users), optimistically speaking, that are part of the “on-chain economy.” A phone purpose-built for this economy can change the status quo. However, even Elon Musk attests to the fact that making prototypes is easy. Producing hardware at scale and sustainably is hard. So, good luck to the Solana Foundation with that uphill task amidst other competing priorities that demand attention and resources as the Solana ecosystem grows. And boy, it is growing and growing as fast as its throughput!

Oh, why So Lana now?

Meanwhile, here is what reminded me of that moment from TOKEN2049 Singapore. For a relatively small industry, the web3 and crypto ecosystem has a disproportionately large share of digital media covering it. No surprise, then, that there is no dearth of long-form research reports on every aspect of the ecosystem. However, one that has clearly stood out for me as a credible canon on the health of web3, now in its 6th edition, just dropped. Electric Capital’s “web3 Developer Report”. The report dives deep into the choices some 23,600 people are making. This is the cohort of developers writing open-source code in the web3 and blockchain world. What is fascinating, though, is that the headlines of all the coverage and commentary around the report mostly focus on a single finding. “Solana surpasses Ethereum as the top ecosystem of choice for new developers in 2024”. While exciting, it might obfuscate the “Solana vs. Ethereum” debate in the public discourse. ParaFi, a leading crypto VC, predicts that Solana will reach parity with Ethereum by 2030, and there is good reason to believe that it is realistic. The reason may not be the Seeker phone, but this very developer traction if the Solana ecosystem can sustain it. I also suspect developers are tired of building ‘unsexy’ infrastructure (the hidden layers of cross-chain functionality, interoperability, and liquidity) and want to build more decentralized applications that end users can experience.

SOL Purpose: low fee performant blockchain

Breakpoint, Solana’s flagship conference during the TOKEN2049 week, was quite the spectacle it promised to be. The narrative went beyond the Seeker phone for the “OG Eth killer chain,” and in all fairness, Solana has come a long way. Perhaps “NASDAQ on-chain” doesn’t do justice to Solana’s narrative, as NASDAQ isn’t a settlement layer, unlike a layer one blockchain. Concerns around lack of decentralization notwithstanding, the Solana ecosystem has been thriving recently, especially with the surge in memecoin activity and trading. Retail users may not care about decentralization for low-fee use cases. There was much excitement around the new Firedancer client that would unleash the true promise of superfast execution and settlements. It was great to see genuine institutional interest in Solana arguably for the first time, especially large players like Société Générale committing to building its Euro-denominated MiCA-compliant stablecoin on the network given the low fees and efficiency. I am also excited about the new Solana "token extensions" that enable permissioned environments, which are important for institutional compliance with KYC, KYT, and travel rule. However, the real excitement comes from the number of developers focused on building consumer-grade or “web2-like” applications and experiences, whether in gaming or SocialFi, unlike the almost maniacal focus on infrastructure in the Eth ecosystem. Solana is slated to find parity with the Ethereum ecosystem with its continued focus on vertically scaling execution over Ethereum’s horizontal rollup-centric roadmap.

Ethereum’s network effects will continue to pile up

Ethereum continues to be the largest ecosystem for the developer community by far (more of my thoughts here). Arguably, even as Solana continues to gain traction as the second, Ethereum, coupled with its layer-twos, like Base, will continue to be the most robust in the long run. Each ecosystem has its utility. According to the report,

• Base & Solana lead in low-fee use cases for NFTs: Base owns 97% of NFT minting volume. Solana owns 64% of NFT mint transactions.
• Solana leads in DEX usage: Solana captures 81% of DEX transactions and has the highest number of unique trading wallets. Base is #2 by unique trading wallets.
• EigenLayer and the restaking space are seeing excellent traction, with more developers building Actively Validated Services (AVSes).

Ethereum L1 block space is akin to prime commercial real estate in downtown Manhattan for high-value DEX transactions or large-volume stablecoin settlements. However, we do need a Solana to build great CX and low-fee use cases to bring onboard the next billion users. The ballooning use of Solana for trading meme coins today is akin to users choking Ethereum layer one for swapping Cryptokitties in 2017 before the Defi summer in 2019 proved that decentralized finance or DeFi was to become the most important use case instead. I wouldn’t say that about most other self-proclaimed Eth-killer layer ones, with a few exceptions. While debates are healthy, what is important is the growing developer momentum in building new applications of smart contracts and blockchains. What is important is that we need both to drive the ubiquity of web3.

You can read the full report here.