SOL is the native and utility token of the Solana blockchain. It was launched in March of 2020 and since then it has maintained its position in the list of Top Cryptocurrencies by means of market capitalization. This guide will present the facts which might help you to answer the question “Is Solana a good investment in 2022”.

Let us start the Fundamental Analysis of the Solana cryptocurrency. But first let us understand what Solana is?

What is Solana?

Solana is a high performance blockchain platform. It is way faster than other blockchain platforms including Ethereum and Bitcoin in processing transactions. It can process up to 65000 transactions per second (TPS).

SOL is the native cryptocurrency of the Solana blockchain. The Solana blockchain platform was launched on 16th March 2020. Solana was founded by Anatoly Yakovenko and Greg Fitzgerald.

Is Solana a good investment?

General analysis

What is the primary objective?

Solana is a blockchain platform on which developers can build high throughput and low latency decentralized applications (Decentralized Applications or Dapps). The Solana ecosystem hosts a number of Decentralized Applications in the DeFi, NFTs, Metaverse and Web3 space.

In a nutshell, the primary objective of Solana is to provide a high-speed, low-cost, low latency, and censorship resistant decentralized platform for the development of Smart Contracts and Dapps. Solana has been able to justify its objective by hosting an array of Dapps in DeFi, NFTs and Web 3.0. Besides owing to the high speed and low transaction cost more and more developers are opting Solana as their platform for developing Dapps and Smart Contracts. The Solana ecosystem (going by the current rate) can give a tough fight to Ethereum, which is the incumbent leader.

What is the problem been solved by Solana?

Solana aims to solve (to an extent) the problem of blockchain trilemma. The concept of blockchain trilemma, which was proposed by Ethereum creator Vitalik Buterin, states that developers find it difficult to create a blockchain which at the same time is able to achieve the three features namely-decentralization, security and scalability.

Solana is a blockchain platform which uses a hybrid of the Proof of History (PoH) and Proof of Stake (PoS) consensus mechanisms. This enables a selection of a leader node for transaction verifications. In a nutshell, the hybrid consensus model (PoH and PoS) makes Solana less decentralized but high speed and highly secure blockchain platform.

Primarily Solana is able to solve the scalability issue in blockchains. It boasts a theoretical speed of over 65,000 transactions per second. Besides it also offers a platform with almost negligible Gas fees.

Which Exchanges is it listed in?

Solana is listed in top cryptocurrency exchanges like Binance, Coinbase, FTX, KuCoin. Hence, Solana can be bought easily on the major cryptocurrency exchanges.

Utility of the token or cryptocurrency

As we know SOL is the native cryptocurrency of the Solana blockchain.

• The SOL token is used to pay the transaction fees in Solana Dapps in the DeFi, NFT and Web 3 space.
• SOL token is used to buy, sell and create NFTs in the NFT Marketplaces supported by Solana like-Solsea, Metaplex, Magic Eden, Digital Eyes and more.
  Read Best Solana NFT Marketplaces
• SOL is also used for lending and as a collateral for taking loans on several DeFi Lending protocols like Solend, Francium, Jet Protocol, Tulip Protocol.
• SOL is used to pay the transaction fees on Solana based DeFi projects like Orca, Saber, Serum, Raydium and more.
• Besides SOL token is also used for staking to earn rewards and the rewards are also paid in SOL. You simply lock your SOL tokens in a Smart Contract and in return you are rewarded with more SOL tokens, which are a percentage of the SOL tokens you have staked.

Hence the SOL token has its utility in a number of Dapps across the spectrum of DeFi, NFTs and Web 3.0. These Dapps are eventually gaining adoption to match the adoption levels of the counterpart Dapps in the Ethereum and BSC blockchains. As these adoptions will increase a consequent increase in the price of SOL cryptocurrency is also expected.

Any Scams or outages?

Over the past few months, Solana has witnessed a series of outages, which halted the operations in the blockchain for hours. The most recent one (at the time of writing this article), occurred on 1st June 2022, when a bug prevented consensus among the validators and hence halted the operations for hours. The issue was resolved by the Validators restarting the Solana Mainnet.

Although these outages did not cost the loss of funds, they help in diminishing the level of trust of investors and developers on the Solana blockchain. If this trend continues, Solana will have to face the brunt of distrust from investors and developers.

On Chain Analysis

Market Capitalization

Market Capitalization= Current Price X Circulating Supply

Generally speaking a cryptocurrency with comparatively less market capitalization has more room to grow. But at the same time such cryptocurrencies have comparatively more risks associated, because it is most likely that a larger part of the market is captured by few players only and hence they can manipulate accordingly. On the other hand, cryptocurrencies with comparatively higher market capitalization allow less opportunities to grow your funds. But lesser risks are associated.

The current market capitalization of Solana is $14,543,134,438 ($14 Billion approx.) against Bitcoin’s market capitalization of $442,257,599,281 ($442 Billion approx.), Ethereum’s $198,885,892,100 ($198 Billion approx.), Cardano’s $17,308,126,064( $ 17 Billion approx.). (Source: Coinmarketcap).

Hence, we can see that Solana has still a long road ahead to capture the market comparable to the leaders in the market, i.e. Bitcoin and Ethereum. But this also alludes to the fact that there is ample opportunity for growth in Solana.

Circulating supply and maximum supply

The total circulating supply of SOL tokens at the time of writing this article is 346.5 Million while the maximum supply for SOL tokens is 526 Million (Source: Solana Explorer).

Let us check the division of these SOL tokens among the buyers or wallet holders (you need wallet to hold SOL tokens).

Hence in Solana, there is no such concentration of SOL tokens to only few wallet holders. The tokens are suitably spread among the wallet holders. This prevents from probable market manipulations and swings by few participants in the market.

Website

Solana’s official website is quite professional with ample documentations, tutorials and support. It gives complete set of docs to start building, run a validator node, manage a wallet and more. It provides extensive knowledge in blogs, podcasts and videos.

Overall the website is professionally designed which is aimed at offering a comprehensive and transparent vision, support and roadmap for Solana.

Team and Partner Ecosystem

Team

Solana team comprises of former Qualcomm and Dropbox employees. As per CrunchBase the founders of Solana are Anatoly Yakovenko, Greg Fitzgerald, Raj Gokal, Stephen Akridge, Zed Zed.

Anatoly Yakovenko is the creator of Solana. He led development of operating systems at Qualcomm, distributed systems at Mesosphere, and compression at Dropbox. He holds two patents for high performance Operating Systems protocols and was a core kernel developer for BREW, which powered every CDMA flip phone (100m+ devices). He also led development of tech that made Project Tango (VR/AR) possible on Qualcomm phones.

Overall the team seems experienced, well equipped and diligent in moving ahead the Solana project ahead.

How many tokens they own and how many have they sold?

Around 60% of SOL tokens are controlled by Solana’s founders and the Solana Foundation, with only 38% reserved for the community (Source).

Solana Partner Ecosystem

The Solana partner ecosystem hosts some of the popular Web 3.0 apps, stablecoins, oracles, cryptocurrency exchages and more. Few of the partnerships worth mentioning include:

• Partnership with Audius: Audius is a popular Web 3.0 music application which gives power in the hands of the artists. You can join the community, upload your music pieces, grow a fanbase/followers and monetize it. As the number of subscribers increased to a non-manageable number, the operation of Audius slowed down with delays in uploading and other operations. Audius reviewed over 20 layer 1 and layer 2 scaling solutions, to accommodate the growing members. Finally they selected Solana as their scaling partner to produce high speed and low cost operations.
• Partnership with Circle: Solana is partner with Circle, the creator of the stablecoin USDC. USDC is one of the fastest growing stablecoin with its value pegged to the US dollar. Other than Solana, USDC is compatible to the following blockchain platforms: Ethereum, Algorand, Stellar and TRON. This means USDC can be used for to pay for Gas fee in these blockchain platforms. Hence, partnering with Solana, makes Solana interoperable with these other blockchain platforms. It has other implications also, like Solana making the USDC payments faster, Solana being compatible with other fiat-pegged stablecoins and more.
• Bridge with Ethereum: Solana developers can use Wormhole which is a cross-chain bridge, to achieve interoperability with Ethereum.
• Partnership with FTX: FTX is a top cryptocurrency exchange which partnered with Solana Foundation to build the decentralized exchange Serum.
• Partnership with Tether: This partnership brought USDT to Solana. USDT is another top stablecoin which is used for cross-chain settlements and in several DeFi projects built on different blockchain platforms.
• Integration with Brave Browser: Brave browser is a Web 3.0 browser which is gaining adoption day by day. Recently it surpassed 50 million monthly active users.

These partnerships and integrations of Solana increases the usability of the SOL tokens and aims to make Solana the widely accepted decentralized platform.

Social Media Presence

Solana has a wide social media presence including on popular platforms like Telegram, Twitter, YouTube, Discord, Reddit and GitHub.

Comparing with Ethereum (which is the pioneer and the leader in Smart Contract and Dapps), Solana has over 1 million less Twitter followers than Ethereum.

Solana is quite active on Twitter. In a nutshell Solana maintains an active, wide and responsive social media presence which is essential to build trust on the project.

Competition

The primary competition for Solana are Ethereum and Cardano. All the three blockchain platforms Ethereum, Cardano and Solana hold the vision to create a decentralized ecosystem of applications in sectors like finance, gaming, NFTs, Metaverses, real estate and more.

Pros for Solana

• High throughput and low latency: Theoretically, Solana can process up to 65,000 transactions per second (Source). Average speed attributed by Ethereum is 14-20 transactions per second (Source) whereas Cardano is 250 transactions per second.
• Low Gas fee: The Solana blockchain platform charges very minimal amount as Gas fee for processing transactions (somewhere around $0.00025-Source). Whereas, Ethereum is known for its high Gas fee charged for processing transactions. This makes Solana a platform of choice for developers.
• Environmentally sustainable: Solana used Proof of Stake whereas Ethereum used Proof of Work consensus mechanism (although Ethereum is planning to transition to the PoS). The computing power and energy utilized in PoW is much more as compared to the negligible energy used in the PoS consensus mechanism. This makes Solana environmentally sustainable.

Cons

• Ethereum hosts most of the Dapps in the decentralized ecosystem. The Total Value Locked of Dapps in Solana is merely $2.71 Billion as compared to $56.83 Billion in the Ethereum ecosystem (Source: DeFiLlama). All the major Dapps in DeFi, NFTs and Web 3.0 are running on the Ethereum blockchain. With the advent of Ethereum 2.0, it is probable that these Dapps will continue running on the Ethereum blockchain.

Current popular Dapps-DeFi, NFTs, Metaverses

Solana has Dapps built in varied domains like staking, liquid staking, Decentralized Exchanges, Lending, NFT Marketplace. A quick comparison graph of the Dapps built on different chains is given below.

The graph below gives a quick snapshot of the TVLs of the Dapps built on different blockchains (at the time of writing this article). As you can see out of the total area, Solana still acquires a very small part. Ethereum captures the major chunk with almost 65% Dapps built on the platform.

However, at the time of writing this article, Solana is at the 5th spot after Ethereum, BSC, Tron and Avalanche, for TVL of Dapps built on the platforms. This is expected to grow owing to the high throughput, low fees and environmentally sustainable solution offered by Solana. Hence, apparently growth in the number of Dapps on Solana is expected which can result in even higher utility of the SOL token.

FAQs

Conclusion

To start with, let me state that crypto investments are volatile and risky in nature. This guide is not at all an investment advice. It only tries to present some of the facts that might help you to take an informed decision to whether to buy Solana or not.

If you ask me, I am bullish for Solana. I have in fact myself invested in Solana. The primary reason for this faith is the increasing utility of the SOL tokens. Solana is aimed at becoming a platform for Dapps development. It offers the highest speed and lowest fees for transactions. The Solana blockchain is highly decentralized with a good number of validators (1894 at the time of writing this guide), which minimizes any chances of manipulation or malpractices. In essence, somewhere Solana offers features which Ethereum 2.0 promises to offer.