SOL hits new highs this year. Has the “Ethereum Killer” successfully overcome the crisis?

On November 2, the SOL price reached $46.8, setting a new high for the year. Solana’s market capitalization ranking also successfully rebounded to seventh place, with an increase of about 62% in October.

When Solana was first launched, it was called the "Ethereum killer" for its lower transaction fees and faster speed. Its token price increased from $1 at launch to a high of $260 in November 2021. The 260-fold growth rate made countless people in the industry optimistic about the unlimited development potential of this public chain in the future.

However, with the advent of the crypto bear market and the collapse of FTX, this "killer" public chain that was originally highly anticipated fell to the bottom, with the price of the coin falling to as low as $7.77, a drop of 97%. But what is unexpected is that since the beginning of this year, the price of SOL has repeatedly hit new highs, and the increase has reached 213% since the second half of the year.

The recent holding of the annual Solana community summit Breakpoint and the announcement of the official launch of Firedancer testnet have brought a wave of good news to SOL. At the same time, VanEck, Nansen, Messari and other institutions have frequently published research reports on Solana. All signs seem to reveal that Solana is about to stage a "return of the king", so is this "Ethereum killer" really back?

1. 2023 Report Card

Previously, asset management company VanEck released a report saying that SOL may reach $3,211 in 2030, a target price that is 100 times higher than the current SOL price. Nansen, Messari and a number of analysts have also re-examined Solana and given positive value signals.

Founded by former Qualcomm, Intel, and Dropbox engineers in late 2017, Solana is a single-chain delegated proof-of-stake protocol that focuses on providing scalability without sacrificing decentralization or security. Through the "Proof of History (PoH)" mechanism, each node can generate timestamps locally using SHA256 calculations, thereby improving overall network efficiency.

In the economic model of SOL, Solana uses the delegated proof-of-stake consensus algorithm to incentivize Token holders to verify transactions. All fees will be paid with SOL and destroyed, thereby reducing the total supply.

It is based on this groundbreaking underlying mechanism design that Solana has earned the title of "Ethereum Killer" and is favored by many investors.

Although the price of SOL coin hit the bottom at only $7.77 at the end of last year, Solana has made a strong comeback this year and achieved impressive results.

According to DefiLlama data, the total value locked in Solana DeFi has increased by more than 200% since the beginning of the year, from $210 million to $434 million. The steady growth of DeFi activities indicates that investors have regained confidence in Solana, which has been criticized for multiple downtime incidents and lack of financial security due to its lack of comprehensive audits.

As for the price trend of SOL, it can be seen from the trading pair trend chart on Binance that SOL was only $7.77 at the end of December last year. But it has been rising in stages since the beginning of this year, and finally reached the highest point of the year at $46.80 on November 2, an increase of 500%.

2. Multiple drivers behind growth

Admittedly, the rise in SOL price is inseparable from the recovery of the crypto bear market and the potential positive support of the rumored approval of BlackRock's BTC spot ETF. But compared with the price trends of many other L1 and L2 public chains, Solana is top-level.

All of this is first of all due to the many measures taken by the Solana project team this year and the support of authoritative opinions from outside parties, which helped the project avoid falling behind and sinking in the bear market.

As early as the end of last year, Vitalik said that someone told him that Solana is a serious and intelligent development community. Now those terrible opportunists have been washed away, and the Solana chain will have a bright future. He also hopes that this community will have a fair chance to thrive.

Since January this year, Solana's official website has been updating the developer resource page to provide more aggregated learning resources for more new developers. At the same time, multiple NFT platforms on the Solana chain have been active, causing NFT sales to grow rapidly, exceeding $100 million that month.

At the end of February, Coinbase Research pointed out that given the relative advantages of the Solana ecosystem in terms of network activity in terms of transactions, users, and development, it has the ability to re-prove itself as a true Layer1 competitor. Compared to ETH, SOL is seriously underestimated.

In early March, Solana co-founder Anatoly Yakovenko released the Solana "Network Improvement Upgrade Plan". The plan aims to improve the Solana upgrade process, improve the network user experience, introduce external developers and auditors to test and check vulnerabilities, etc.

In April, Solana launched a blockbuster feature - state compression . State compression can reduce the cost of storing data. The first compression of NFT can reduce the cost of NFT by 2400-24000 times. This is undoubtedly a change in the way NFTs are produced in the past.

In May, Solana officially launched the Web3 phone Saga, which was priced at $1,000 per unit, and then dropped to $599. This not only expanded the scope of business profitability, but also attracted the attention of many crypto users and investors.

The biggest positive move in the second half of the year was the official launch of Solana’s second node validator, Firedancer, developed by Jump Crypto, on the testnet at the end of October. Firedancer not only improves the diversity of node clients and the stability of the Solana blockchain, but also makes Solana more resilient and resistant to attacks.

In addition, Solana cooperated with US payment giant Visa in September, and Visa expanded its stablecoin settlement function to Solana; the recent Solana Breakpoint conference held in Amsterdam, the Netherlands, and the "Hong Kong Hacker House" offline event to be held in Hong Kong on November 14 have also attracted considerable popularity for the project.

In terms of funding for project ecosystem development, the Solana Foundation increased its investment in the first quarter, including Solana Hacker Houses and the largest hackathon Grizzlython. Since then, Solana Ventures has continued to promote the development of the online gaming ecosystem with its $150 million fund. Grants for AI-focused projects based on Solana have also increased from $1 million in late April to $10 million.

Returning to the Solana public chain itself, founder Anatoly Yakovenko once said that the competition in the public chain track is becoming increasingly fierce, and there will be pressure from emerging blockchain networks such as Scroll, Base and Linea in the future. But "they are not as fast as Solana, they do not have as powerful transaction processing performance as Solana, and they do not have as many nodes running as Solana. I think we are still far ahead in technology."

Indeed, despite the already high TPS, Solana has been working hard to optimize every component of its blockchain in order to achieve higher transaction throughput. The Firedancer upgrade is also expected to increase Solana's current capacity by 10 times, which will undoubtedly provide a usage scenario for the wider application and user integration of the network in the future.

In addition, the "local fee market" function created by Solana may help application developers assess their costs more accurately, and will not increase the fees of the entire network due to the congestion of individual applications, but will charge different prices based on user needs. From this point of view, the so-called "killer application" is more likely to be born.

Potential concerns

There are many investors in the market who have foreseen the rise of SOL. As early as August, Raoul Pal, a former executive of Goldman Sachs and founder of macro research institution Real Vision, said that SOL is the second largest configuration in his cryptocurrency portfolio, and that the currency may follow the trend of Ethereum in 2018-2019.

VanEck even predicted that SOL will grow to $3,211 in the next seven years. However, despite the current strong upward momentum of SOL, the project itself still has major concerns. Even Raoul Pal himself believes that the next major resistance level of SOL may be $50, and the real Crypto Summer will have to wait until 2024.

1. Selling and unlocking pressure

The recent SBF lawsuit is coming to an end, and the amount of compensation paid by FTX to creditors is still very large. According to the FTX shareholder report released by FTX creditors in September, SOL accounts for the largest proportion of FTX (including FTX.com, FTX.US, and Alameda) holdings. Calculated at the market price on November 2, it is about US$2.3 billion.

According to on-chain data, FTX's multiple cold wallets hold nearly 7 million SOL in total. In this regard, the community speculates that FTX's new management may sell off its SOL reserves.

In addition, the Messari report mentioned that the market is concerned that the more than 57 million SOL tokens liquidated by FTX may be unlocked in the fourth quarter of 2025.

According to recent data from Solana Compass, a total of about 16.12 million SOL (about 370 million US dollars) were unlocked during epoch 512, of which the address starting with BZpEFk marked as a16z unlocked about 5 million SOL (about 115 million US dollars) during epoch 512, and the address starting with GCmFQ marked as a16z unlocked about 2.03 million SOL (about 47.13 million US dollars) during epoch 512.

This means that in addition to FTX, there are also whales including investment institutions that have obtained a huge amount of unlocked SOL and may sell it off at any time.

2. Frequent accidents

One point that Solana has been criticized by the community is that the network is not extremely stable. According to statistics from netizens, Solana has reached 9 records from 2021 to February 2023 due to major downtime accidents that affect transactions. The representative ones are as follows:

On February 25 this year, Solana experienced a downtime accident. The network could only process about 93 transactions per second, far lower than the rate of nearly 5,000 transactions per second before the fork.

Last May, Solana experienced a 4-hour outage due to an error in the persistent random number function.

In September 2021, a denial of service (DoS) attack on Grape Protocol’s initial DEX offering (IDO) caused the network to be down for more than a dozen hours.

3. Unclear market conditions

As mentioned above, this round of crypto market rally was largely influenced by rumors of BlackRock’s BTC spot ETF approval. However, no institution has been approved by the US SEC so far, and market analysts pointed out that BTC spot ETF may not be approved until the first quarter of next year.

In addition, the global economic recession is obvious to all. The interest rate of US Treasury bonds continues to rise, and it is still unknown whether the Federal Reserve will continue to raise interest rates. The crypto market has always been extremely volatile, and it is not impossible for the price of SOL to fall sharply again.

Therefore, we should look at the price prospects of SOL rationally and avoid entering the market with FOMO emotions.

Summarize

Compared with other public chains, Solana is clearly far ahead in terms of coin price gains so far this year, and its market value is also rising. At the same time, it also indirectly reduces the debt repayment pressure of FTX, which is something that the crypto market or US regulators are happy to see.

But investors should also see that Solana is different from Ethereum’s rebirth. The explosion of DeFi applications on Ethereum has led to a round of crypto bull market, but judging from the current situation of more NFT and blockchain game projects on Solana, unless the metaverse narrative resurfaces, it is still necessary to hold SOL with caution.