Solana Faces Challenges as Memecoin Trading Declines, Ethereum Gains Ground

Layer-1 blockchain Solana may be evolving into a “one-trick pony” for memecoin generation and trading, according to a recent report by Standard Chartered. The report highlighted that Solana’s design, which prioritizes fast and cheap transaction confirmation, has made it dominant in areas demanding high-volume, low-transaction-cost solutions. However, this advantage has primarily benefited memecoin trading, which accounts for the majority of activity on Solana, as measured by application revenue.

Standard Chartered noted that while the memecoin frenzy served as a stress test for Solana’s scalability, the volatility and speculative nature of such assets have posed drawbacks. As memecoin trading volumes decline, the bank warned that Solana may struggle to maintain momentum. The report suggested that Solana should expand into other sectors that require processing large volumes of transactions cheaply and quickly, such as high-throughput financial apps and traditional consumer apps like social media. However, scaling such applications may take years, with potential dire consequences for Solana.

According to the report, Solana may underperform Ethereum over the next two to three years before catching up, at least in real terms. This prediction is based on Ethereum’s modular design, which separates data availability, execution, and consensus, allowing it to scale more efficiently while preserving decentralization. The Dencun network upgrade in March 2024 has enabled Ethereum layer-2 platforms to catch up with Solana in terms of average transaction cost, putting pressure on Solana’s value proposition as the cheapest high-throughput blockchain.

Solana has long positioned itself as a fast and inexpensive layer-1 blockchain with smart contract support, competing directly with Ethereum. However, the narrowing edge between Solana and Ethereum layer-2 platforms in terms of transaction costs may challenge Solana’s competitive advantage. The report underscores the need for Solana to diversify its use cases beyond memecoin trading to sustain its growth and relevance in the blockchain ecosystem.