Should SOL Be Trading at a 70% Discount to ETH?

Solana’s
SOL
is
starting
to
rival
Ethereum’s
ether
in
terms
of
on-chain
activity
and
network
usage
metrics,
raising
questions
about
whether
the
market
is
dislocated,
says
Michael
Nadeau.

Updated
Nov
27,
2024,
7:53 p.m.

Published
Nov
27,
2024,
4:19 p.m.

Solana
(SOL)
was
trading
at
97%
discount
to
the
market
capitalization
of
Ethereum’s
ether
(ETH)
in
January
2023
—
a
clear
market
dislocation
that
has
closed
significantly
over
the
last
two
years.

Today,
the
discount
has
shrunk
to
70%.

However,
Solana
is
starting
to
challenge
Ethereum
in
terms
of
on-chain
activity
and
key
measures
of
network
usage.

Which
raises
the
question:
Is
the
market
still
dislocated?

In
this
short
piece,
we
explore
this
key
question
with
relative
analysis
across
four
key
data
points.
Let’s
dive
in.

1.
Network
Fees

Data:
Artemis,
The
DeFi
Report,
Gas
Fees
Only
(does
not
include
MEV).
Please
note
that
we’ve
included
the
following
L2s
in
the
comps
data:
Arbitrum,
Base,
Optimism,
Blast,
Celo,
Linea,
Mantle,
Scroll,
Starknet,
zkSync,
Immutable,
and
Manta
Pacific.

Layer
2s
create
new
demand
for
block
space
on
the
Ethereum
layer
1
and
increase
the
network
effects
of
ETH
the
asset.
Therefore,
we
include
them
in
our
comparatrive
analysis
for
SOL.

In
the
second
quarter,
Solana
did
$151
million
in
fees,
which
is
27%
of
Ethereum
plus
its
top
layer
2s.

Fast
forward
to
the
last
90
days
and
the
ratio
has
jumped
to
49%.

2.
DEX
Volumes

Data:
Artemis,
The
DeFi
Report

Solana
did
$108
billion
in
decentralized
exchange,
or
DEX,
trading
volume
in
the
second
quarter,
or
36%
of
Ethereum
and
its
top
L2s.
Over
the
last
90
days,
Solana
is
up
to
$153
billion
and
57%,
respectively.

3.
Stablecoin
Volumes

Data:
Artemis,
The
DeFi
Report

Solana
did
$4.7
trillion
in
stablecoin
volume
in
the
second
quarter:
1.9
times
Ether
and
the
top
L2s.

Over
the
last
90
days,
solana
did
$963
billion
of
volume:
30%
of
ether
and
the
top
L2s.

Why
the
drop?

We
think
this
is
mostly
due
to
bots/algorithmic
trading
that
were
juicing
the
numbers
in
the
second
quarter.

Furthermore,
only
6%
of
Solana’s
stablecoin
volumes
are
peer-to-peer
transfers,
per
Artemis.
On
the
Ethereum
L1,
this
figure
is
closer
to
30%
—
an
indication
that
Ethereum
is
used
more
for
non-speculative
activity
than
Solana.

In
terms
of
stablecoin
supply,
Solana
has
just
4.1%
of
Ethereum
and
its
top
L2s,
up
from
3.5%
at
the
end
of
the
second
quarter.

4.
Total
Value
Locked
(TVL)

Data:
Artemis,
The
DeFi
Report

Solana
ended
the
second
quarter
with
$4.2
billion
of
total
value
locked
(TVL):
6.3%
of
ether
+
the
top
L2s.

Solana’s
TVL
is
currently
$8.2
billion:
12%
of
ether
+
the
top
L2s.

In
summary,
based
on
90-day
performance,
Solana
now
has:

1. 49%
   of
   Ethereum’s
   fees
   (up
   from
   27%
   at
   the
   end
   of
   Q2)
2. 57%
   of
   Ethereum’s
   DEX
   volumes
   (up
   from
   36%
   end
   of
   Q2)
3. 30%
   of
   Ethereum’s
   stablecoin
   volumes
   (down
   from
   190%
   in
   Q2)
4. 4.1%
   of
   Ethereum’s
   stablecoin
   supply
   (up
   from
   3.5%
   end
   of
   Q2)
5. 12%
   of
   Ethereum’s
   TVL
   (up
   from
   6%
   end
   of
   Q2)

We
think
the
on-chain
data
points
to
a
fair
re-pricing
of
SOL’s
valuation
relative
to
ETH.

With
that
said,
investors
should
consider
qualitative
differences
between
the
two
networks
as
well
as
potential
upcoming
catalysts
as
we
head
into
year-end
and
2025.