SOLANA. Buying The Dip And Why
In June 2021, it was announced Solana raised $314 million of new funding to develop technology used in the fast-growing area of the cryptocurrency markets known as decentralized finance, or DeFi. The funding round was led by Andreessen Horowitz, one of Silicon Valley’s most prominent venture-capital firms, and Polychain Capital, a crypto hedge fund that also does VC-style investments.
According to CoinShares’ Monday “Digital Asset Fund Flows Weekly” report, $7.1 million flowed into Solana investment products between Aug. 15 and Friday. Institutional investors are loading up on Solana (SOL), with one-third of inflows to crypto investment products being invested in instruments tracking Solana. For the first time ever, Solana funds led investment growth earlier this month, tacking on more than $7 million in the week ending August 20, compared to $3.2 million for Ethereum and a loss of $2.8 million for Bitcoin.
Anatoly Yakovenko is the most important person behind Solana. His professional career started at Qualcomm, where he quickly moved up the ranks and became senior staff engineer manager in 2015. Later, his professional path shifted, and Yakovenko entered a new position as a software engineer at Dropbox. In 2017, Yakovenko started working on Solana. In 2020, Solana protocol and SOL token were released to the public.
He was joined by two former Qualcomm colleagues, Greg Fitzgerald and Stephen Akridge.
Yakovenko’s goal is to completely disrupt Wall Street and the rest of the global markets. The way he sees it, what Solana is building is “an open, fair, censorship-resistant global marketplace” that’s better than anything inside of the New York Stock Exchange or any other means of settling trades.
How fast is Solana?
Solana can process 50,000 transactions per second (TPS) or more. In fact, it says that number could increase to as much as 700,000 TPS as the network grows. To put that in context, Ethereum currently processes 15 to 45 TPS. Ethereum 2.0 could eventually scale to 100,000 TPS.
Visa says its payments system processes about 24,000 TPS. This is important because if cryptocurrencies are ever going to compete as a form of payment, they should at least be able to match Visa’s speed.
Solana is one of the fastest to gain traction and network in the crypto space. It has more than 400 projects currently. One example is Serum, which is a complete, non-custodial spot and derivatives exchange running on an on-chain central limit order book (CLOB) on Solana’s mainnet. $4.3B has been transacted since inception and recording $80M in average daily volume.
Heard of Uniswap? Raydium on Solana is way faster and easier to use. $17B in trading volume has been recorded so far. Raydium is an automated market maker (AMM) built on the Solana blockchain which leverages the central order book of the Serum decentralized exchange (DEX) to enable lightning-fast trades, shared liquidity, and new features for earning yield. Other AMM DEXs and DeFi protocols are only able to access liquidity within their own pools and have no access to a central order book. Additionally, with the majority of platforms running on Ethereum, transactions are slow and gas fees are high.
Prices of Solana NFTs have been heating up, easily fetching a few thousand dollars on the marketplace. Currently, I do not see the allure of picture NFTs like others, so I will not be going into details.
Solana’s Competitive Edge
While Ethereum is busy upgrading, Solana’s development is already done. Typically, Solana has been compared to Ethereum and Cardano. Solana may have theoretically solved many of the issues with resource usage and high transaction fees that currently limit Ethereum. Cardano has rolled out smart contracts and other advanced features at a slow pace. Solana, by contrast, has had no issues converting its technological promise into tangible results. There’s now nearly $12 billion locked in DeFi applications on Solana.
The average transaction cost on Solana is only $0.00025. That’s orders of magnitude cheaper than Ethereum and other leading cryptocurrencies. For applications such as gaming and micropayments, Ethereum’s current fee structure won’t cut it.
Solana’s easy-to-use Rust programming language could help drive further community adoption. The combination of low fees and a quicker learning curve could be the winning combination.
There are of course some, that still prefer Ethereum. Solana offers a more centralized solution akin to a traditional server.
Solana had an impressive run, from around $30 to around $190 in two months, sitting at around $150 at this point of writing. I initiated a small position. I believe in DCA(Dollar-cost averaging), whether it is buying stocks or crypto.
Solana’s fast climb to popularity unveiled large and embarrassing technical problems with its network. If its engineers can’t improve network stability, the value proposition for the SOL coin could be impaired. Still, this can be view as a sort of growing pain that a rapidly expanding network would face.
Regulation. Securities and Exchange Commission Chair Gary Gensler hasn’t been too keen on the growing popularity of DeFi, saying at a conference last month that the sector isn’t immune to regulation. Last week, the agency signed a six-figure deal with blockchain analytics firm AnChain.AI to help it investigate DeFi transactions. “The SEC is very keen on understanding what is happening in the world of smart contract-based digital assets,” AnChain CEO and co-founder Victor Fang told Forbes.
All cryptocurrency investments are risky, so don’t invest more than you can afford to lose. There’s the potential for high rewards but also big losses. Many coins could fail completely in the long run.
Disclaimer: Always do your due diligence before investing in a stock. Investing of any kind involves risk. I am not a financial advisor. Your investments are solely your responsibility and I do not provide personalized investment advice. It is crucial that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments. Please consult your financial or tax professional prior to making an investment.