Ethereum killer, Bitcoin rival, and industry disruptor — these three phrases are frequently used in relation to the Solana blockchain. But does Solana really have the potential to take over the DeFi sector?
Excitement about Solana and its SOL cryptocurrency is quite understandable. The blockchain was launched not so long ago, in March 2020, and made headlines in numerous media outlets due to its unique features and, of course, growing value. SOL’s price has witnessed a significant increase: on January 1, 2021, SOL was worth $1.51, and on November 4, 2021, you could buy one coin for $240.29. The same thing happened with Solana’s market capitalization, which at the beginning of the year was $85.8 million, and by November — $72,7 billion. Impressive, right?
Meanwhile, there is Ethereum. Launched in 2015, it is already considered an industry veteran. As of November 4, 2021, its market cap is $537 billion and 1 ETH is worth $4,540.63.
The question is what is the difference between these two blockchains and how possible is it for a newcomer to become the blockchain familiar to most developers and the crypto world in general? Let’s find out!
Briefly about Ethereum
Vitalik Buterin, co-founder and inventor of Ethereum, first described his idea of a new blockchain in a white paper in 2013. He was fascinated by Bitcoin and its underlying technology but was convinced that it needed a flexible scripting language to develop applications. Since he wasn’t an actual developer of Bitcoin and couldn’t influence the way it was designed, Buterin decided to create a new platform and programming language in order to extend the technology’s capabilities.
These days, Ethereum is the most widely used blockchain system because it makes it possible to create and run applications, smart contracts, and tokens. These features have made Ethereum a true innovator in the blockchain world. The other major blockchain of the time was Bitcoin, but its capabilities were limited only to the issuance of virtual currency.
Ethereum features its own crypto called Ether (ETH). In addition to this, the blockchain hosts other tokens using its ERC-20 standard. According to Etherscan, there are more than 460,000 token contracts based on ERC-20. Top crypto projects include Tether (USDT), Basic Attention Token (BAT), USD Coin (USDC), ChainLink (LINK), and Dai (DAI).
The popularity of Ethereum is also driven by the recent boom in non-fungible tokens (NFTs). While ERC-20 is a class of identical tokens, the ERC-721 standard forms the basis for non-fungible tokens. These are unique and can be issued, sold, and purchased on special NFT marketplaces. The most renowned Ethereum-based platforms are OpenSea, Axie Marketplace, CryptoPunks, and SuperRare.
Flow vs Ethereum — how different are these two blockchains? Find out now!
Solana was brought into the tech world as a remedy for major pain points of well-known blockchains such as Bitcoin and Ethereum. Solana Labs co-founder and CEO Anatoly Yakovenko, who previously worked at Dropbox and Qualcomm, watched these blockchain platforms struggle to scale beyond 15 transactions per second (tps) while payment systems demanded a speed that was hundreds or even thousands of times faster.
Yakovenko teamed up with a colleague from Qualcomm, Greg Fitzgerald, and they launched the Solana blockchain. Solana promised to address shortcomings such as low transaction speed, high fees, and scalability issues through a new Proof of History (PoH) consensus algorithm developed by Anatoly Yakovenko. Considering that Solana can currently handle 65,000 tps at an average transaction cost of $0.00025, this blockchain has managed to keep its promise.
Another achievement is how quickly the SOL token climbed into the top 10 crypto market cap rankings. In February 2021, Solana was ranked only 42nd, and as of November 2021, Solana is ranked 4th.
There is, however, a fly in the ointment: Solana’s two outages. The first one happened on December 4, 2020 and lasted approximately five and a half hours. That day, the Solana Mainnet Beta cluster stopped block production. Over 200 Solana network validators successfully initiated network restart instructions and were able to begin creating blocks again. No funds were lost during the network downtime.
The second outage happened on September 14, 2021 and lasted 17 hours. The Solana team explained that a denial of service attack was the cause of the network stall. The problem occurred when the Solana-based Grape Protocol launched its initial DEX offering, and bots were generating transactions that flooded the network and resulted in a memory overflow. Transaction load peaked at 400,000 tps. Solana was back to full functionality in less than 24 hours and no funds were lost.
The reaction to the news was varied. Some expressed disappointment and shared that they had lost confidence in this blockchain, while others couldn’t believe that Solana could actually show this kind of transaction speed. Others remembered cases when other blockchains, including Ethereum, experienced outages, but still returned to normal operation and continued to enjoy popularity with blockchain users and developers.
Despite these setbacks, the Solana ecosystem grows by leaps and bounds. There are already over 400 projects running on the blockchain. Solana apps such as 1Sol, Serum, Audius, Hedgehog, Anchor, and Raydium are some examples.
Solana vs Ethereum: Which is better for DeFi application development?
The term DeFi (decentralized finance) has become popular in recent years due to blockchain adoption in the financial sector. DeFi apps are transforming today’s financial world by creating an alternative to traditional financial systems such as banks and exchanges using cryptocurrency. Borrowing and lending crypto are some of the most common use cases.
These days, most DeFi applications and platforms run on the Ethereum blockchain. In fact, it was Ethereum that launched the decentralized finance trend and successfully developed it. This blockchain made it possible for users to borrow, lend, and receive interest on cryptocurrency without turning to banks or relying on other intermediaries.
However, now we have a potential competitor. How good is the much-touted Solana in terms of DeFi app development, and is Solana really the sunshine of the blockchain world as its name suggests? Let’s compare these blockchains and see.
First of all, hats off to Ethereum for being the world’s first smart contract platform. Because of its popularity and widespread use in building dApps, people tend to associate smart contracts with this particular blockchain.
Ethereum’s smart contracts are written with the Solidity programming language. As for Solana, its smart contracts are mostly written in Rust and are called programs. They are stateless and represent just program logic.
The biggest difference between the two is that Solana offers parallel smart contract runtime while Ethereum’s EVM runtime is single-threaded, meaning that smart contracts are queued and one smart contract changes the state of the blockchain at a time.
On Solana, the parallel runtime is implemented through Sealevel, a unique parallelized transaction processing engine developed by the Solana team. As a result, tens of thousands of smart contracts can be processed at the same time. This is one of the features that make Solana highly scalable.
Another distinction is that in Ethereum, data and code are coupled together while in Solana they are separated. A smart contract in Ethereum contains both the code and the data processed by the code. The Solana blockchain’s smart contracts contain only code and no data. All data is provided as input to the program.
Learn more about Ethereum smart contracts and find out how to deploy them
Let’s take a closer look at Solidity and Rust.
In addition to this, Ethereum is currently the most widely used platform for creating dApps with smart contracts. Any dApps, from NFT marketplaces to DeFi platforms, can be built using Solidity.
However, compared to the number of developers well-versed in other programming languages, it’s still true to say that programming in Solidity is a rather rare specialization.
At the same time, according to the Stack Overflow Developer Survey 2021, Rust is the most loved language among developers. It is a statically-typed, high-level, general-purpose programming language. Developers use Rust to build a wide variety of applications, from file systems and browser components to game engines and blockchain platforms. Although Rust is hard to learn, it is also easy to use, in the opinion of many developers.
So, the biggest difference between the two languages is that Solidity was created specifically for writing smart contracts targeting EVM, while Rust is a programming language used to develop many different applications, hence it is more familiar to the general developer community.
So far, Ethereum uses a Proof of Work (PoW) consensus mechanism. This algorithm creates a kind of competition between miners where they need to solve a complex mathematical problem. Whoever does it the fastest wins and gets to add new transactions to the blockchain. The miner then shares the block with the network and is rewarded with ETH.
As you might guess, mining takes a lot of computing power and, as a result, involves high energy consumption. Meanwhile, the world is trying to overcome environmental issues and climate change, so people have concerns about mining and, in particular, the PoW consensus. The point is that the Ethereum PoW mechanism currently consumes energy equivalent to a mid-sized country. Yes, this does provide the security of the PoW chain, but at what cost?
This is probably bad news for miners, but Ethereum is currently in the process of moving to the Proof of Stake (PoS) consensus algorithm, which promises to be 99.95% more energy efficient. The Ethereum team predicts that this change will not only make the blockchain more eco-friendly, but will also lower technical barriers for anyone to stake, allow for better decentralization, and improve security. Ethereum will have completed the transition to PoS perhaps by the end of 2021.
The Solana blockchain, for its part, combines Proof of Stake with Proof of History (PoH) — a new consensus method developed by Anatoly Yakovenko.
PoH is Solana’s core innovation. It is a blockchain synchronization algorithm that solves the clock problem — issues related to the validity of timestamps in a decentralized network. There is an internal clock that shows the same time at all nodes. It assigns a timestamp to each transaction and prevents bots and miners from dictating the order of transactions. Thanks to speedy and reliable synchronization, Solana is able to achieve high transaction throughput.
Proof of History is indeed a very promising innovation. But which one is better for DeFi application development? The answer is PoH and PoS. PoS-based applications can process and approve transactions faster, are more scalable, and consume less energy. The same is true for PoH. Although PoW is still quite a popular consensus model, some projects have already begun their transition from PoW to PoS (just like Ethereum itself).
To enable users to conduct fast and secure transactions and to access glitch-free solutions, it is vital for a blockchain to be able to scale.
If you look at the Ethereum transaction speed, which is 14.7 tps, it becomes obvious that this blockchain needs some serious improvements. Ethereum developers are currently working on this issue.
The team is planning to introduce “shard chains”. These will spread the network’s load across 64 new chains and thereby reduce network congestion and significantly increase transaction speed. Sharding will also make it easier to run a node by keeping hardware requirements low.
This change, which is one of the phases of the Ethereum 2.0 upgrade, will occur sometime in 2022. Until then, developers can either use Ethereum as it is, or turn to Layer 2 solutions, or choose to develop large applications using other blockchain platforms.
As for Solana, the network claims to be able to process 65,000 tps. This high throughput is achieved by PoH, Tower BFT, and Turbine.
Tower BFT is a PoH-optimized version of pBFT, which can be considered a kind of consensus algorithm. It takes advantage of the cryptographic clock and reaches a consensus without having to pass a lot of messages between nodes. Turbine, in its turn, is a block propagation protocol. It breaks data into smaller chunks which can transfer faster and more easily. All this increases the overall transaction speed on the network.
Thus, in the case of Ethereum, sharding and Level 2 solutions are used, while Solana has its own mechanisms and remains a Level 1 blockchain.
If you don’t fill up the gas tank of your car, it simply won’t go. Ethereum works the same way: to perform a transaction, you have to pay gas. You’re fueling the network with ETH, and the network is then ready to work for you. The price depends on network congestion and is usually between $20 and $70 per transaction.
Yes, it is expensive, but high cost also means high quality. Companies using Ethereum know that they will pay a lot of money for transactions, but they will be confident that every transaction, along with their funds, will be safe.
Solana’s average cost per transaction is $0.00025. The conclusions are quite obvious here: the Solana blockchain is much faster and much cheaper than Ethereum. While the blockchain world is waiting for Ethereum 2.0, Solana has every chance to rise to the top.
At the same time, Solana is unlikely to replace or “kill” Ethereum. Although the Solana mainnet beta was launched in March 2020, this beta period has not yet finished. Solana’s Reddit moderator mentioned that everything works exactly like Mainnet, and “beta” only means that it is developing, while the main features are fully operational. In any case, given recent outages, many users still see the platform as beta (so far). In addition to this, many implementations are still waiting to be launched.
Solana has also been criticized for not being fully decentralized. The reason is that currently there are 19 validators that together control more than 33% of the total stake. Theoretically, if they collude, they can censor/stop the entire network.
Besides, compared to Ethereum, Solana still has a small number of validator nodes: 1,142 working for Solana compared to 200,121 validators for Ethereum.
Nevertheless, Anatoly Yakovenko, answering questions about the obstacles to Solana and DeFi in general, pointed out only one problem:
“I think it’s just our capacity to educate people — that’s the main obstacle.”
How to migrate from Ethereum to Solana
For those who want to transfer their applications, smart contracts, or tokens from Ethereum to Solana, there are several options for how to do this.
You can deploy SOL smart contracts by rewriting everything in the Rust programming language. This is one of the most difficult ways to do it, as it is a double job and therefore increases maintenance costs. The silver lining is that you don’t depend on any other project and can tune the performance according to your needs.
It is possible to use Neon EVM to run Solidity contracts in Solana. Neon helps developers deploy Ethereum dApps without any smart contract reconfiguration. The idea is to simply use Solana to work with Ethereum smart contracts to reduce transaction validation times and gas costs.
However, Neon is still in the testnet phase, so it is quite immature. As a result, this way of moving contracts can be a bit of a challenge. The mainnet is expected to launch in the last quarter of 2021.
You can use the Solang Solidity Compiler, which allows you to compile smart contracts written in Solidity for Solana. However, you will need to tune Solidity contracts in line with Solang constraints.
This is a pretty good option, but there is a temporary problem: Solang is still in active development and many Solidity standard features are not implemented yet. For example, as of early November 2021, there is no support for various opcodes, such as blockhash. Solang also doesn’t support calling Solana contracts in Solidity code on the Solana blockchain.
Many features are expected to be added in the coming months, so Solang may soon become a very convenient option for compiling smart contracts.
Solana has Wormhole 2.0, its own interoperability protocol that serves as a bridge between Solana and Ethereum. The protocol helps transfer digital assets between ERC-20 and SPL (Solana Program Library) blockchains.
Basically, Wormhole is useful when you have assets on Ethereum, and the logic is implemented on Solana. You can transfer tokens from one blockchain to another, but you still have to write smart contracts.
Ethereum DeFi projects
Ethereum is the undisputed leader when it comes to dApp development. As of November 4, 2021, there are 2,876 decentralized applications running on Ethereum. DeFi projects are one of the most common use cases for this blockchain. Decentralized exchanges, asset tokenization platforms, KYC and identity solutions, crypto lending and borrowing dApps, and payment solutions are among them. Let’s dig a little deeper into several of the most notable platforms.
Uniswap is an Ethereum-based decentralized finance protocol for exchanging crypto. It is open-source and automated, eliminates intermediaries in the cryptocurrency trading process, and makes it easy to trade and list ERC-20 tokens.
The protocol is governed by a decentralized community of UNI token holders. They vote on changes to the protocol, which are then implemented by the development team.
Uniswap is unquestionably one of the biggest hits in the Ethereum ecosystem as it boasts a 24-hour trading volume of $798,6 billion.
Check out FunShape, a crypto exchange platform for novice traders on the Japanese market
Augur is an Ethereum-based prediction market platform and betting app. Augur allows its users to create a prediction market on any real-world event with no maximum limits on the amount that they can bet.
The process consists of four stages. First, a market is created, then participants begin to place bets and trade. After that comes a reporting stage, and finally — a settlement. Once the event is over, the outcome is determined by Augur’s oracle, and traders close positions and receive payouts. They are transparent and automated, so nobody, including Augur, can interfere with the process.
Augur has its own native token called Reputation (REP). This token is used by market creators and reporters. By accurately reporting the results of events, token holders receive a portion of the fees paid to the platform.
Aave is an open-source and non-custodial liquidity protocol for borrowing and lending crypto. Borrowers get access to quick loans and lenders earn interest by investing their assets in liquidity pools.
Nowadays, Aave is one of the biggest DeFi projects in terms of total asset value locked in the protocol. The amount is really impressive: $15.4 billion. Meanwhile, Aave has a circulating supply of 13,218,448 AAVE coins. As of November 4, 2021, the price of one coin is $318.37.
Securitize is a regulatory compliant platform for digitizing, managing, and trading securities. In 2019, the platform became the first and only SEC Registered Transfer Agent based on the blockchain.
Securitize offers a simple way to start investing. A new investor registers on the platform, verifies their identity and eligibility, explores offerings and opportunities, and funds their account. The company also provides its users with KYC/AML and capital management services.
The list of Ethereum-based DeFi projects and applications goes on and on. Other successful platforms include Compound, Etherisc, MetaMask, Curve, SushiSwap, Sovrin, etc.
Solana DeFi projects
Solana managed to grow its ecosystem to 400 projects in just a year and a half. It’s worth noting that NFT and DeFi are the two areas where Solana is most commonly used: there are 116 DeFi apps and 193 NFTs running on this blockchain. Let’s find out more about some notable decentralized finance projects.
Larix is a lending protocol with live mining functionality. Larix has adopted a dynamic interest rate model and created capital-efficient risk management pools. The platform accepts all kinds of valuable assets, including crypto, stablecoins, and NFTs.
The protocol showed eye-popping results within a few days of its launch. Larix mining started on September 17, 2021. In just 5 hours, the total value locked from lending and borrowing exceeded $520 million. The next day, Larix was ranked 15th among the largest lending protocols across all ecosystems.
FTX and Alameda Research wanted to create a decentralized exchange that was as fast and convenient as centralized ones while remaining cheap, secure, transparent, and trustless. To achieve this, they built a DEX protocol based on the Solana blockchain. It is completely permissionless, truly decentralized, and very speedy. Transaction costs are also extremely low: only $0.00001 per operation.
At the heart of the platform’s design is a decentralized smart contract-driven order book. Its goal is to mirror traditional exchanges by matching buyers and sellers. With Serum, users can enjoy flexibility with pricing and order sizes when they submit orders to the exchange. This gives them complete control over their trading and transactions.
Raydium is an automated market maker (AMM) and liquidity provider for Serum. What sets this platform apart from many other AMMs is that it provides on-chain liquidity to a central limit order book. Thereby, pools can access order flow and liquidity on the Serum DEX.
The total trading value of the protocol has recently reached $27.6 billion, which indicates that it is gaining a lot of attention from the crypto community.
Among other promising applications are Saber, a Solana-based cross-chain stablecoin exchange; Hedgehog Markets, a prediction market that enables users to earn a passive yield on their funds; and Tulip Protocol — Solana’s yield aggregation platform.
Introduce yourself to liquidity mining — another emerging trend within the DeFi and crypto space
What does the future hold for Ethereum and Solana?
The future of Ethereum will largely depend on how successful the ETH 2.0 upgrade is. Ethereum 2.0 is expected to solve the infamous scalability issue by introducing shard chains, and moving from PoW to PoS. These changes are likely to happen sometime between 2021 and 2023.
If everything goes according to plan and Ethereum shows great results after the upgrade, the number of dApps built on Ethereum might skyrocket and developers won’t need to consider migrating their platforms to other blockchains. However, if Ethereum fails to solve the scalability problem, more and more new applications will be created on other platforms, and many existing ones may be transferred to new protocols.
At the same time, there are thousands of robust and secure applications built on Ethereum, and not all of them need to cope with a large influx of users. Those applications that have found their niche and work in a stable way on Ethereum are unlikely to change their underlying blockchain.
Meanwhile, the blockchain world is not standing still and offers many alternatives to Ethereum. Solana is undeniably one of the most interesting and worthy competitors. The tech community is already calling Solana the Ethereum killer, but its developers don’t really agree with that.
“I hate the Eth-killer thing. The big misconception that people have about open-source projects is that it’s possible to kill them. There’s no way to kill Ethereum. That’s basically not something we think about” shared Solana Labs CEO Anatoly Yakovenko.
The Solana blockchain is indeed a strong contender for a newcomer. Given the speed at which the Solana ecosystem is growing and the results that Solana-based applications are showing, we can predict that the blockchain will continue to evolve both technologically and economically. There will be many more DeFi apps, and the blockchain will enter other industries as well.
There is still a lot of growth and innovation in Solana’s future, so we should all continue to monitor its developments. It will also be interesting to see how Solana changes when the word “beta” disappears from its name.
Solana and Ethereum are more likely to continue to develop in parallel and coexist. Perhaps over time, Solana will surpass Ethereum not only in speed and cost but also in safety and security. However, the development team behind Solana still has a lot of work to do before they can establish a rock-solid reputation similar to Ethereum.
When it comes to DeFi application development, both Ethereum and Solana are suitable. To choose which one is right for you, you should take into account your project goals.
Given that the main tokens, applications, and swaps are currently working on Ethereum, it’s better to give preference to this blockchain if you want your project to be popularized. If your future project is more isolated and independent of others, then Solana is a great option. You can also opt for Solana if you prioritize high transaction speed and would like to provide your users with low transaction costs.
Let’s also not forget that Ethereum is a time-tested foundation for dApps, while Solana is still a startup (though a very powerful one). Whether you want to give Solana a shot or prefer to stick to Ethereum, you can turn to PixelPlex to create your own dApp. This blockchain developer will advise you on the specifics of each blockchain, help you choose the most suitable one, and as a result, build a fault-tolerant, transparent and reliable DeFi platform.
Don’t put off innovation — join the DeFi wave to outrun your competitors!