Ethereum (ETH 1.09%) and Solana (SOL 0.63%) are both priced at what might be a hearty discount, with the former falling by 44% during the past 12 months, and the latter falling by 28% in the same period. It's easy to see why potential buyers would be wary.
But rather than reading too much into those two percentages, investors should focus on understanding two other numbers that are much more important for the long-term performance potential of both coins.
CRYPTO: ETH
Key Data Points
This competitive fight is tilted toward one of the combatants
Decentralized finance (DeFi) is a big part of the investment thesis for both Solana and Ethereum. Being a more efficient place to process borrowing and lending, trade on decentralized exchanges, and make stablecoin transactions means that there's a larger incentive for money to settle on their chains.
Capturing value from traders and app developers looking to use or provide financial services is broadly one of the more common ways that crypto chains have grown to large market caps historically. And the capital that flows through those services can always flow to somewhere else if a new competitor enters the scene and provides a more efficient or more convenient experience.
Across all cryptocurrencies, the market cap of DeFi-focused coins and tokens is $74.6 billion. So the stakes of the competitive fight between Solana and Ethereum over the DeFi segment are fairly high. There is some pretty clear evidence of which chain is winning the fight.
As of noon ET on March 25, the 24-hour revenue of all DeFi applications on Solana's chain was $4.7 million. Ethereum's DeFi applications only brought in $1.3 million in the same period. Those two numbers imply a lot about which of these two coins you should prefer when making an investment decision, so let's put them into context more fully.
Solana's market cap is about $71 billion. Ethereum's is $243 billion. That means Solana's DeFi projects are as a group dramatically outperforming Ethereum's, and its DeFi segment is still producing much more revenue on an absolute basis, despite being much smaller chain.
Which of these two coins do you think will experience more demand from developers or investors seeking to build or interact with DeFi applications? It's obviously Solana by a mile. Capital flows toward where it is more likely to get a better return, assuming there's an equal amount of risk on the table.
CRYPTO: SOL
Key Data Points
There are more factors to consider
What's causing the disparity between app revenue on Ethereum and Solana?
Overall, Solana is an easier place to do business. It's cheaper and faster. There's a much lower barrier for investors with small sums of money to invest their cash, as the gas (user) fees they incur are negligible on average. Developers only need to wait a couple of seconds to process test interactions.
On Ethereum, it might take 30 seconds to a minute, which requires a dramatically slower pace of testing software features and thus app development. And it might cost around $0.50 on a good day, or $50 on a really bad day, like during November 2024. There is no reason Ethereum's chain can't get upgraded to address those issues. In fact, it's already performing much better today than it did in the past. But it is unlikely to improve enough to surpass Solana on those factors anytime soon, and it might not ever.
Therefore, investors should pay attention to the app revenue gap when making their investment decisions. It's undeniable evidence that something is going very right for Solana that's not working well for Ethereum.
It thus makes more sense to buy Solana right now rather than its larger peer. Given the relative underperformance of Ethereum's DeFi projects, it's also worth thinking about whether to sell it.
