Solana experienced big pumps in 2021 but does it have the traction to repeat the performance in 2022? Enough analysts have spoken on Sol's innovative tech, speed, low cost, and scalability, this article goes beyond fundamentals and shares three factors that might convince you that the chain is ready to soar again in 2022.
Institutional money will drive the price for all crypto assets in 2022. When they invite clientele to allocate funds to a few nascent currencies, those assets become more palatable for retail investors. More retail investments mean further institutional confidence and a perpetuating cycle begins. Its a precursor to a powerful cascading effect of demand exemplified in historic bull runs by Bitcoin and Ethereum. Here are three reasons why Solana looks to be the newest target for institutions:
1. Open Interest Growth - Solana futures open interest has grown over 794% from August 2021 ($180 million) to April 2022 ($1.43 billion), peaking at 1.6 billion in November. Futures trading is typically an institutional practice that allows investors to capture a spread premium between spot and futures trade contracts, but they must own the underlying asset (SOL) to perform it. This type of ownership is long-term, reducing SOL market supply and volatility, and appreciating its price.
2. Increasing On-Ramps - Deribit has announced they seek to offer SOL derivatives in the early part of 2022—90% of options activity occurs on the Deribit exchange, so this is a tremendous opportunity for SOL. Besides this, prominent asset managers Osprey Funds and Grayscale have registered Solana Trusts, which opens access to thousands of accredited investors and provides institutions with their preferred method of holding crypto assets.
3. Carbon Neutral - Solana is environmentally efficient. Proof of history allows it to avoid the heavy energy consumption of other blockchains. Going green is a hot topic in the crypto space, if institutions can avoid harmful publicity, they will, and Solana provides an eco-friendly option.
Last week, top assets in the space received the highest institutional inflows of 2022. The rising SOL saw the most influx besides the elephant in the crypto room (BTC). The price was battered in Q1, so although it experienced 60% gains in the last seven days, investors can still get in at a fair price and roughly 48% off its' all-time high.
Arguably the most attractive indicator for Solana is developer enthusiasm. Standard investment advice says to follow price trends, but human capital (or developers) is often the underlying predictor for the long-term sustainability of projects. In the early and mid-2000s, software engineers flocked to Google and Facebook. In 2018-19, Facebook started having difficulty attracting engineers while Google remained strong. In 2022 this manifested itself in Facebook's stock. Developers are bright and motivated. They want to work for companies they deem competent and meaningful. Although it's only two years old, developer activity is an area Solana outperforms most layer 1 blockchains, which says a lot.
Github is a platform for developers, by developers, to learn, share, and contribute to open-source coding projects like smart contract blockchains. Investors use Github to reference developer activity and engagement levels. The commits represent the total additions to a chains' open-source code repository.
Solana has the most code contributors of any layer 1 chain. The leading factor is Rust, Solanas' programming language. It's popular among developers for its ease of use and widespread accessibility. Big names like Google and Amazon Web Services commonly use Rust, and a survey of 80,000+ developers ranked it as a favorite in 2021 (shown above). Rust's popularity makes it easy for Web2 developers to shift to Solana and utilize their prior experience, whereas Solidity (Ethereum's coding language) is brand new and specific to smart contracts, so they must learn it from scratch. This advantage will continue to drive support for the Solana network and attract motivated builders seeking to disrupt.
Decentralized applications (DAPPs) are another great indicator of coder interest and general ecosystem health. DAPPs are computer programs designed to perform specific functions autonomously using smart contracts. They'll disrupt many industries in the next decade, but NFT marketplaces and De-Fi currently hold the spotlight. Layer 1 DAPP ecosystems are flourishing because the disruptive and exciting sector attracts human capital, but Solana's growth has been unreal.
Solana had a fantastic start in DAPP development, and new projects show continued strength. Solana launched in March 2020; 18 months later, it had 423 DAPPs (September 2021), second only to Ethereum in Layer 1s. Since then, growth has been outstanding, reaching nearly 1,500 as I write this in March 2022. That's an increase of 255% in 5 months. Ethereum has 2,929 DAPPs registered currently and grew by 2% in the same period. Despite how positive the numbers sound, Ethereum is passed its high growth phase. It's matured much more than Solana. A justifiable comparison would be Ethereum's highest year by DAPP growth in 2017 (218%). Still, Solana's DAPP growth is impressive and significant capital is pouring in every month to nourish it.
Although DAPP growth shows a robust ecosystem, adoption and revenue lead to longevity. Thousands of Dapps don't matter if no one uses them. Solana is tugged back to Earth in this grander context as the revenue generated from DAPPs lags behind its competitors, and active users reinforce Ethereums' dominance.
This isn't entirely negative news for Solana. Low transaction fees mean DAPP income lacks in the short term but lays the foundation for further user adoption long-term. As volume scales, so will revenue, and clearly, it has not deterred developer interest. Solana's active users are still impressive for a young chain and will continue growing as it matures.
Many people think the race is over, and Ethereum will continue to rule because of its current dominance, but this is a short-sited view. Simply zooming out reveals a space so young that predicting a champ now is ridiculous. It's equivalent to naming Pet.com the champion of the Dotcom Bubble in 1995. No layer 1 operates competent enough to be a global platform yet. The future primary medium of a worldwide digital value exchange could still be an idea in a young programmer's mind. The race is just beginning. There is too much uncertainty to predict a winner with confidence. However, we do know a few things. We can confidently predict an upward trend in the crypto market cap over the next 5 - 10 years. Solana likely isn't an Ethereum killer, but the space will be massive. It only has to be a competent performer to appreciate enormous growth. De-Fi, Smart Contracts, and the Metaverse are here to stay, and their addressable markets are significant, so we're all going to make it.
We can also imagine what a future dominated by layer 1's looks like and, from that perspective, rank current players. It will likely require a blockchain that processes millions of transactions per second, not thousands or hundreds. The fees should allow use by everyone, not restrict adoption to only enthusiasts with extra spending money. The security will have to assure everyone that their money is safe, whether transferring or held in a wallet, and this has to be done smoothly behind the scenes with a simple interface. Solana is not the leading layer 1, and it's debatable whether it's second or third, but it shows the most signs of what a blockchain needs to perform globally.
It has an enormous upside. On the other hand, it's young, relatively unproven, and has some concerns around congestion and centralization. But with all great rewards comes a bit of risk. As long as Solana continues evolving the same way it has been, it will attract new investors, developers, and users and remain among the top players in the space. The numbers look great, and SOL is positioned to experience another fantastic year in 2022.
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