Compilation of the original text: Bai Ze Research Institute

Compilation of the original text: Bai Ze Research Institute

There's no doubt that investor sentiment is down on Solana...

Check out the price list below. Over the past 14 months, the price of SOL (Solana's native token) has dropped from around $260 to under $10, and at the time of writing, just over $16.

That said, SOL is down nearly 97% from its all-time high.

To make matters worse, DeGods, one of the top NFT projects on Solana, recently announced that it will be migrating to Ethereum, and the team's second project, Y 00 ts, will also be migrating to Polygon.

Of course, all of this happened while one of the largest holders of SOL (more than 10% of the total supply) and Solana ecosystem investor FTX went bankrupt.

There's no question that things are looking dire for Solana right now.

However, as cryptocurrency investors in 2018 know, Ethereum has experienced something similar.

In 2018, the price of ETH dropped nearly 94% from its then all-time high of $1,428 to around $85.

The cryptocurrency and Web3 space back then was very different than it is now, and after the bear market hit, many projects ran out of money and investors fled the space, which made many people, even loyal members of the Ethereum community, suspicious of Ethereum Will the blockchain succeed.

Thankfully, the Ethereum community eventually survived the long crypto winter to become the vibrant and thriving Ethereum ecosystem we know today.

If there was one thing I learned from the 2018 ETH crash, it would be that there is a big difference between the Ethereum blockchain and the native currency, ETH.

The same goes for the Solana blockchain and native currency SOL. So while the price of SOL looks pretty bad, it may not reflect what is happening on the Solana blockchain and its community.

In fact, take a look at the price chart of Amazon stock below.

In 2000, the price of AMZN fell by 94.79% to $4. AMZN's recent all-time high of $165, in its 26 years of stock market trading, has seen:

• Seven price drops of more than 30%

• Four price drops of more than 50%

• and three price drops of more than 60%

However, this does not prevent Amazon from being one of the largest companies in the world right now.

The point is, price has nothing to do with the underlying technology. The price of a technology will always fluctuate and can sometimes be significantly "decoupled" from its fundamental value.

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Why Network Effects Matter

A network effect is a phenomenon whereby more and more participants using a particular technology (or interacting with it) increases the "value" of that technology.

A more valuable technology increases the number of actors using (or interacting with) the technology, which again increases its "value", which increases the number of actors.

For example, the Internet is getting better and better as more and more people start using it. Facebook, Amazon, etc. have the same network effect advantage.

Once a technology reaches a certain level of network effect, it's hard to die—especially if that network continues to grow over time. Both Bitcoin and Ethereum may have reached this point.

So, when we ask the question "is Solana going to die?", what we need to do is look at its network effects. We had to investigate what the participants of the Solana blockchain (i.e. users and developers) were doing.

The beauty of blockchain technology is that we can do just that!

• We can look at the trend of new users on the Solana blockchain.

• We can review trends in user transactions and value on the Solana blockchain

• Most importantly (especially in the early days of the technology), we can study trends in developer activity and new projects being deployed on the blockchain.

Before analyzing the on-chain data, keep in mind that we are now 14 months into a bear market, so naturally, the numbers may look bad.

active wallet

active wallet

If we look at the daily active users (DAU) on the Solana blockchain, we see a 78.8% drop in DAU from its all-time high of 454,229 to a low of 95,958 directly after the FTX event.

In contrast, Ethereum saw a much smaller DAU drop. Ethereum’s DAU fell from 528,671 to a low of 295,500, a 44% drop over the same time period on Solana.

We also need to remember that the current focus of the Ethereum community is on moving users from layer 1 to the newly thriving layer 2 such as Arbitrum and Optimism.

We can see in the graph below that these L2s actually gained users over the 14 months of the bear market.

However, a fairer comparison might be to look at Ethereum's drop in DAU during the 2018 ETH crash. Interestingly, during the 2018 bear market, Ethereum DAU dropped from 459,969 to 128,265, a 72% drop in DAU.

To recap...

daily active users

• Solana 2022 = -78.8% 

• Ethereum 2022 = -44%

• price

price

• Solana 2022 = -97% 

• Ethereum 2022 = -79%

• Ethereum 2018 = -94%

So far in this bear market, Solana appears to be performing similarly to Ethereum in 2018 in terms of price and DAU.

The main difference is that Solana faces direct competition from other public chains in this bear market, while in 2018, Ethereum is basically the only one and the only viable smart contract platform.

It is worth noting that the Ethereum L1 and Solana blockchains should not be considered competitors as their goals are quite different. However, Ethereum L2 and Polygon are Solana's direct competitors.

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Transactions and TVL

Solana executes significantly more transactions (txns) per week than Ethereum.

However, the legitimacy of these txns is questionable, as many txns on Solana are believed to be bots performing batch transactions.

Solana saw a 74% drop in weekly transactions from 496,847,478 to 127,963,178, and Ethereum dropped 40% from 11,074,661 to 6,705,093 over the same period . (This graph is for reference only and does not include all voting transactions on Solana).

Let’s take a look back in history and see how Ethereum traded during the 2018 bear market. We can see that Ethereum’s weekly transaction volume dropped by 64% from 8,203,034 transactions to 2,959,182 transactions.

To recap...

weekly deal

• Solana 2022 = -74% 

• Ethereum 2022 = -40%

• Ethereum 2018 = -64%

Likewise, Solana and Ethereum have similar statistics in 2018.

In addition to transactions, we can also look at the total value of funds locked in any blockchain and how it has changed over time. Solana's TVL dropped 98% from $10.17 billion to $230 million.

Ethereum’s TVL fell by 78% from $109.49 billion to $23.82 billion.

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Developer Activity and Deployment

Similar to transactions, we should take developer activity numbers with a grain of salt.

This is a difficult metric to track, especially in the Ethereum ecosystem since there are many different Ethereum clients. Also, many teams are now only building in L2, not Ethereum itself.

In the charts below, we used Token Terminal's tracking of Github commits for each blockchain, and it's clear that they are not numerically accurate. So let's focus less on actual numbers and more on percentage changes.

Solana's daily active developers ranged from a high of 156 to a low of 61, a drop of 61%. Ethereum recently had a high of 296 and a low of 153, a drop of 48%.

But again, we should consider the developer growth of the entire Ethereum ecosystem, as many Ethereum developers and teams are moving to the faster and cheaper various Ethereum L2s.

This is why the recent growth in the number of Arbitrum, Optimism, Starknet and Polygon developers should not be ignored.

But again, let’s take a look at the historical data of Ethereum in 2018. At the time, Ethereum’s daily active developers dropped 49% from 195 to 100.

To recap...

Daily Active Developers:

• Solana 2022 = -61% 

• Ethereum 2022 = -48%

• Ethereum 2018 = -49%

This is the first indicator in this article so far that Solana is not mimicking Ethereum in 2018. I think the reason goes back to competition.

In 2018, if developers want to develop on smart contract platforms other than Ethereum, they have nowhere to go. Today, there are more than 20 L1s and 20+ L2s that developers can choose from.

As mentioned at the beginning, we have seen some well-known projects from Solana migrate to Ethereum and Polygon in the past few weeks. So it will be interesting to see if this trend continues throughout 2023.

For the last few comparisons, we will examine the trends of newly minted fungible tokens (FT) and non-fungible tokens (NFT) in both ecosystems.

In fact, I would rather compare the total amount of smart contract deployments in the two ecosystems, because developers are building more than just tokens on the blockchain. However, I can't find Solana's smart contract deployment data.

In the graph below we can see that Solana peaked in Q3 2022 with 1,000 to 1,500 new FTs being deployed per day, dropping to around 300-800 thereafter.

Aside from a few spikes in October, Ethereum's FTs deployments have remained strong between 500 and 1,000 over the past few months.

Judging by the NFT, Solana has taken a fairly visible hit since October. Previously an average of around 100,000 NFTs were minted per day, but now averages only 25,000 per day, well below the pre-October peak.

The data for Ethereum is a bit different, as this chart reflects the number of NFT smart contracts, not the number of NFT minted. That said, Ethereum is once again back to its pre-October peak levels.

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Solana is dead/dying soon?

If we only look at on-chain metrics, there is nothing to suggest that Solana is dead.

Some might argue that these statistics show that Solana is "dying". However, these figures for Solana happen to be very similar to Ethereum in 2018, which managed to survive and thrive in the 2-year bear market.

I don't understand why Solana can't do this. In addition to having an incredibly talented leadership team, they also seem to have a strong community.

However, the biggest difference between Solana today and Ethereum in 2018 is that Solana faces stiff competition.

Solana is trying to become the king of “consumer” blockchains — a fast, cheap, mobile-friendly blockchain for the masses.

Ethereum is not joining the fray because that is not its goal. Instead, Ethereum aims to be the ultimate decentralized and secure consensus layer for the internet.

That said, the Ethereum ecosystem has already launched some competitors to Solana, such as Polygon, multiple Optimistic L2s (Arbitrum and Optimism), and ZK L2s such as Immutable, with more L2s on the way to join the fray.

Being based on Ethereum, each of these L2s has the ability to provide fast and cheap transactions, while also remaining decentralized and secure.

While Solana's technology has the potential to be superior in terms of scalability, we haven't seen it in action yet.

Debates about the future of multi-chains and what properties blockchains need are beyond the scope of this article.

But what I will say is that there is a lot of demand for blockchain in the mainstream world and it will only grow over time. While the competition among blockchains is heating up, we still don’t have enough usable blockchains to handle mass adoption in the mainstream world in the short to medium term.

There is plenty of room for Solana, the Ethereum ecosystem, and other blockchains to grow the pie together rather than compete for market share.

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.

risk warning:

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.