Ethereum and Solana Battle for Dominance in Layer 1 Sector

Ethereum and Solana Battle for Dominance in Layer 1 Sector

NAIROBI (—Thanks to some recent developments, the rivalry between Ethereum and Solana has intensified. Ethereum remains a powerhouse in the Layer 1 blockchain sector and DeFi, but Solana is gaining traction with significant economic activity and growing market share.

CoinMarketCap data shows Ethereum commanding 62% of the $695 billion market cap in the smart contract space. The network also dominates revenue, securing 70% of Layer 1 income. Ethereum’s stronghold extends to the DeFi sector, with Ethereum doubling its total value locked (TVL) since the start of the year.

Solana Ethereum
DeFi TVL Breakdown

BNB Chain follows with $85 billion in the smart contract space, while Solana holds $59 billion. In terms of DeFi TVL, BNB Chain contributed $5 billion in the second quarter, and Solana contributed $4 billion.

Solana Gains Traction, but Ethereum Holds Strong

While Solana shows growth in certain metrics, Ether remains the dominant force. Mert Mumtaz, CEO of Helius Labs, noted that Solana’s economic activity surpasses Ethereum at times, driven by higher MEV and priority fees.

According to DefiLlama, despite Solana’s growth, Ethereum’s DeFi TVL stands at $57.36 billion, compared to Solana’s $4.5 billion. Tron and BNB Chain occupy the middle ground with $7.7 billion and $4.8 billion, respectively. Ethereum’s continued dominance in the Layer 1 sector, despite the rise of Layer 2 solutions, highlights the blockchain’s demand.

Ethereum DeFi Solana DeFi
The SOLETH trade gains strength as ETH faces a market share decline.

Ryan Connor, a researcher at Blockworks, posted on X about the strengthening case for the SOLETH relative value trade. Connor noted Ethereum’s market cap and price-to-sales ratio are near cycle highs, while Solana’s price-to-sales ratio is at all-time lows.

He emphasized Ethereum’s revenue decline and Solana’s growing market share and revenue, raising questions for traditional finance (TradFi) investors about Ethereum’s valuation.

Ethereum Solana
ETH’s trailing 1-month price-to-sales (P/S). Source: Ryan Connor

Ethereum’s trailing 1-month price-to-sales (P/S) ratio fluctuated significantly, reaching a recent level of around 220, whereas Solana’s dropped to 67. Furthermore, Solana’s blockspace profitability has seen a sharp rise, reaching nearly $80 million in emissions.

In contrast, Ethereum’s blockspace profitability peaked at around $2 billion in mid-2021 but has since stabilized.

Solana Ethereum
t30d DEX volume market share chart.

Additionally, the t30d DEX volume market share chart shows ether holding a majority share, although Solana has been increasing its presence, now capturing around 30%. Though the data supports the narrative of Solana’s growing influence, it also emphasizes Ethereum’s sustained leadership.

SOL & ETH Price Performance and Market Outlook

Price performance data reveals significant insights. As of July 3, 2024, Ethereum is priced near $3,280, experiencing a 5% decline in the past 24 hours and a nearly 3% decrease over the past seven days. Ethereum’s market cap stands at $395.8 billion, with a trading volume of $10.4 billion.

Ethereum Solana
SOL and ETH price charts. Source: Santiment

Solana is priced around $142, reflecting a 5.68% decrease in the past 24 hours but a 3.68% increase over the past seven days. This price increase aligns with Solana’s rising market activity, while Ethereum’s relative stability reflects its entrenched market dominance.

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