Introduction
Solana has faced challenges in recent times, but it's too early to declare it "dead." The cryptocurrency was one of the top performers in the last bull run, but it has encountered difficulties since the FTX exchange incident. In this analysis, we will take an unbiased look at Solana, covering both the bearish effects resulting from the FTX issue and the unique technology and ecosystem adoption plans it has for the coming years.
It's crucial to assess both the positives and negatives to make an informed judgment on Solana's future. Stay tuned until the end, as I'll provide my price prediction for Solana at the peak of the 2025 bull run.
Solana’s FTX Fallout
Solana's journey has been marked by a significant price decline. From its peak price of $258 on November 6, 2021, the SOL token fell to around $9 at its lowest point, and currently, it sits at $19, which is still a 95% drop from the peak. The total value locked in DeFi protocols on Solana has also witnessed a substantial decline, dropping from $12 billion to just $500 million.
Notably, during the FTX exchange collapse in November 2022, Solana faced a substantial loss. Approximately $1.2 billion of funds flowed out of Solana within a few days. This sharp drop was due to the interconnection between Solana and FTX.
In 2021, Solana had raised nearly $300 million through a private token sale, with one of its largest investors being Alameda Research. It later came to light that Alameda Research and FTX essentially shared their funds and investments. This connection led to rumors during the FTX crisis that the exchange was offloading its assets, including its Solana holdings and ecosystem tokens.
FTX was found to hold over 1 billion Solana tokens, with a combined value exceeding $1 billion at the time. An official article from the Solana Foundation outlined their deal with FTX, revealing the sale of around 58 million Solana tokens to Alameda and FTX, which, at current values, is worth about $1.1 billion. FTX still holds around 42 million Solana tokens, worth approximately $720 million at today's prices. They were granted permission by the U.S. courts to begin selling their cryptocurrency holdings for bankruptcy claims.
It's important to note that these tokens cannot be dumped on the market all at once. There's a scheduled unlocking process that extends over the next five years.
Solana Centralization
Solana has faced concerns about centralization, but the question remains whether a single entity can shut down the network. Solana employs a consensus algorithm called Proof of History for transaction processing, which is based on stake-based voting, similar to other Proof of Stake blockchains. However, the top validators on Solana do control a significant portion of the total stake, providing them with some influence over the network. Solana currently boasts around 2,000 validators, but among these, the top 30 validators already control over 33% of the total SOL stake. This is the threshold of stake required to process transactions on the network.
In essence, if these 30 validators were to collaborate, they could potentially halt the network. However, this situation is comparable to other Proof of Stake blockchains in the industry. For example, Binance Smart Chain requires 29 validators out of a total of 53 to make decisions, while Polygon has 103 validators, and similarly, you don't need all of them to collaborate to process transactions. Phantom, with 58 validators, also sees a significant portion of the stake controlled by top entities.
Avalanche stands out as one of the more decentralized competitors, boasting 1,300 validators, with a cap on the stake amount for each validator. So, all things considered, Solana doesn't appear to be more centralized than other Proof of Stake blockchains based on these metrics.
Another concern is about Solana's performance, with claims that it frequently shuts down. These concerns will be further explored in the analysis.
How Fast Is Solana?
Solana's true advantage lies in its extremely low cost and instant settlement. While Solana can process around 5,000 transactions per second (TPS), this TPS number is not the most critical factor. Many other layer one and layer two solutions boast similar TPS figures. The real strength of Solana is its exceptionally low transaction costs and rapid settlement times.
Solana's transactions cost less than one-tenth of a cent, while other networks like Binance Smart Chain, Cardano, Arbitrum, Optimism, Polygon, and others still require around 10 cents in gas fees for a single transaction. This cost difference becomes more apparent in a bull market when fees on Bitcoin and Ethereum can soar to over $15 per transaction. In contrast, Solana's fees remain consistently low, at less than one-tenth of a cent.
Solana also boasts the shortest transaction settlement time, at only 400 milliseconds, with just one block required to finalize transactions. In comparison, its closest competitors, Avalanche and the Near Protocol, have settlement times of 2 seconds. However, when you examine Ethereum and its layer two solutions like Arbitrum, Optimism, and Polygon, you'll find that they take significantly longer, ranging from 3 minutes to as long as 20 minutes. This means that, even though the transactions eventually go through, they are not fully confirmed for extended periods, often requiring users to wait for a large number of blocks.
The cost and settlement time differences are crucial in providing a superior user experience on Solana compared to other networks, particularly during periods of high market activity.
Solana Phone
Solana is actively working on integrating its blockchain into the mobile space, with a focus on simplifying the development of mobile-first decentralized applications. As part of this endeavor, Solana introduced the Saga phone on May 8, 2023. This Android-based phone was developed by the team behind the Essential phone. In addition to the standard Android features, the Saga phone offers three unique crypto functionalities:
Seed Vault: This feature is integrated into the phone's secure chip, effectively transforming it into a hardware-encrypted wallet. This provides a higher level of security compared to typical software-based mobile wallets, making it a secure option for managing cryptocurrencies directly on the device.
Decentralized App Store: Solana's phone includes a dedicated app store that specifically showcases crypto applications. While it currently supports over a dozen applications for trading, NFTs, and DeFi, it is primarily focused on the Solana ecosystem. There are plans to expand its support to other blockchains, such as Ethereum and the EVM stack.
Solana Mobile Stack: The Solana Mobile Stack is designed to seamlessly integrate crypto features into the smartphone's hardware and software. Paired with the secure hardware chip, it enables users to securely send, receive, and trade cryptocurrencies directly on the device.
The introduction of the Solana phone has attracted the attention of prominent tech YouTubers, including MKBHD, who reviewed the device. While the phone may not cater to everyone's needs, the software stack and the DApp store offer more exciting possibilities. Solana has also revealed its plans to expand the mobile software stack and DApp store to other Android phones. This move could empower developers to create mobile-first apps using Solana on a broader range of existing devices, potentially ushering in a new wave of retail users into the Solana ecosystem.
The mobile-first approach holds significant promise for Solana, as many decentralized applications currently exist on desktop browsers, often reliant on tools like MetaMask. By focusing on a mobile app store, Solana aims to provide a genuine mobile experience for its apps, potentially expanding its user base.
In addition to its mobile initiatives, Solana is also exploring Solana Pay as another avenue for adoption in the crypto space.
Solana Price Prediction
Let's delve into the projected supply of Solana by the end of 2025 during the peak of the bull run. According to the official tokenomics, the supply of Solana is estimated to be around 650 million tokens by the close of 2025.
Now, let's explore potential market cap scenarios, starting with a bullish outlook. Contrary to the claims of many Solana enthusiasts, I find it highly improbable that Solana will reach a new all-time high. The previous peak for Solana was $250, and with a supply of 650 million tokens by the end of 2025, this would equate to a fully diluted market cap of $162 billion. To achieve such a valuation, Solana would need to secure a spot among the top 5 cryptocurrencies in the entire industry. This is a formidable challenge, considering the fierce competition. Notably, only two other cryptocurrencies have surpassed a market cap of over $150 billion: XRP during its 2018 peak when it briefly held the number three spot, and Binance Coin (BNB) during its 2021 peak. Even BNB only reached $150 billion at its absolute zenith, and it represents the largest crypto exchange by a substantial margin. Therefore, I remain skeptical about Solana's potential to reach a new all-time high. Even if all the adoption and positive news materialize, I still consider a $250 price target for Solana by the end of 2025 to be exceptionally optimistic. This would amount to a 13x return from the current price of $19, but I believe this outcome is rather unlikely, perhaps with a 30% chance of occurring.
For the bearish scenario, if Solana struggles to define its use case in the next two years, it may lose ground in terms of market cap ranking, potentially falling to the top 20 or even top 30. This trend is reminiscent of what happened to other layer one blockchains like EOS, Tron, or Tezos, which experienced significant price surges in their first cycle but failed to regain momentum in the subsequent one. In this scenario, Solana's price could still rise due to the overall bull market, but the peak market cap of top 20 coins is roughly around $30 billion. This translates to a price of approximately $45 by the bull run's peak or a 2.5x return from current prices.
So, my price prediction for Solana by the end of 2025 falls within the range of $45 to $250. I understand this is quite a wide price range, but it reflects the inherent uncertainties surrounding Solana's future. It's essentially a "Make It or Break It" situation, with various factors influencing the outcome in the coming years. My expected return for Solana in this period is approximately 100% or a 5x return. While I believe Solana still demonstrates more promise than certain underperforming blockchains like EOS or Tezos, it remains a challenging endeavor to reach its previous all-time high of $250, especially considering the hype surrounding Solana in 2021.
I should note that Solana was part of my portfolio at the beginning of the year. However, following this research, I've decided to remove it. With an expected return of 5x to only $100, I believe it may underperform compared to Ethereum or even Bitcoin at their current levels. In my previous Ethereum and Bitcoin price prediction videos, I forecast an 8x return for Bitcoin to reach $200,000 and a 10x return for Ethereum to reach $15,000. I have greater confidence in the potential of Bitcoin and Ethereum to achieve these targets in the next cycle.