Solana (SOL) is getting ahead both in market price and in protocol fees. As meme tokens and liquid staking expand, SOL validators are also gaining ground and producing revenues.
Solana (SOL) is now the fourth largest asset, after flipping the position of Binance Coin (BNB). SOL managed to bounce and expand to $194.34, following predictions of rising to $200. The rise of SOL is boosting the platform’s DeFi apps, while also growing the liquidity for meme tokens.
Recent meme token action shows that there are still niches for top memes, which outperform and move onto centralized exchanges. Highly successful tokens bring in more than $1B in daily volumes on Solana, creating potential conditions for meme-based booms.
SOL has not only taken the place of BNB, but has displaced the chain as the location for new mints and DeFi projects. One of the reasons was that Binance divested some of its NFT, and removed BNB as a reserve token. Additionally, BNB is not as widely used for DeFi and PancakeSwap has a diminished role during this bull cycle. Solana seems to be taking the niche of BNB Smart Chain, which was previously seen as the prime competitor to Ethereum.
The Solana main network is among the top revenue earners, after Ethereum’s protocol lowered its fees. High fees are a bullish signal, though they may discourage some users. In the case of Solana, the fees come from highly competitive transactions with a high failure rate. Solana was meant to be a cheap and fast network, but peak usage also led to the need to pay priority fees, as well as block inclusion fees to validators.
Solana turning into a revenue machine as well https://t.co/6AvPchDvA5 pic.twitter.com/3xp0y1eMQ3
— Token Terminal (@tokenterminal) July 28, 2024
Top validators like JitoSOL help build blocks and prevent MEV and sandwich attacks, leading to increased revenues. The Solana network also has costs, so the final earnings are often negative due to paying out incentives. Additionally, Solana still has to absorb inflation of about 5% due to linear unlocks.
Jito protocol is also the app that produces positive net revenues based on fees for inclusion in blocks. Jito Protocol is just a small part of the trend, where MEV tips and validator tips took off from the beginning of 2024.
The higher price of SOL also lifted the total value locked on Solana to $5.67B. In the past month, most of the leading protocols increased their value by more than 30%, but the leader was Jito Protocol. In addition to being a leading transaction curator and validator, Jito is now expanding its liquid staking.
JitoSOL, the most influential validator, is still producing more than 50% of Solana’s fees, at more than $180M in H1. Solana brought more than $280M in fees for H1, 2024, which is around 20% of Ethereum’s achievement. Currently, as a fee generator, Solana’s total fees are still lagging behind fat-fee apps like Uniswap and LidoDAO.
Solana average fees reflect network congestion
Solana’s structure allows for multiple transactions, but continues to create specific problems. In Q2, both base fees and priority fees had days of significant growth. Overall, SOL transactions rose from $0.005 before the 2024 bull market, and ranged between $0.01 and $0.02 in the past few weeks.
Fees on Solana have not been prohibitive, but the biggest problem remains the failed transaction rates. For some protocols, the failure rate goes as high as 90%.
The fee-based economy of Solana also means meme tokens are not seen as the biggest driver of success. Top tokens on Solana include bridged USDT, as well as SOL. The other layer of important tokens includes those of top validators Jito, Helium and Jupiter.
At the same time, increasing DEX volumes have added to the fees for the above validators. Solana DEX trading and MEV activity continue to take off, reaching levels similar to Ethereum. Solana still faces the problem of ongoing sandwich attacks, exploiting the relatively cheap fees. Optimizing app usage and DEX trading also adds to Solana fees and validator income.
High fees also mean top validators can work as Solana development labs, proposing new projects and features. Even regular validators can also continue to distribute passive income with APY close to 7% on average.
Cryptopolitan reporting by Hristina Vasileva
