© 2026 The DeFi Report. All Rights Reserved.
Hello readers,
Solana was trading at 3% of Ethereum’s market cap in January of ‘23 — a clear dislocation that we shared with you at the time. Pt. 1. Pt. 2.
By July of this year, the gap had closed to 17%. At the time, we wrote “Should SOL be trading at a 83% discount to ETH?”
The fundamentals said no.
The market has since re-rated SOL to a 70% discount.
So now I’m asking the question again. Should SOL be trading at a 70% discount to ETH?
Is the market still dislocated? Let’s dive in.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment, legal, tax, business, or any other advice.
Let’s go.
Note that I’ve included the following L2s in the comps data: Arbitrum, Base, Optimism, Blast, Celo, Linea, Mantle, Scroll, Starknet, zkSync, Immutable, and Manta Pacific.
[Our view is that L2s create new demand for Ethereum L1 blockspace + increase the network effects of ETH the asset. Therefore, we include them in our comp analysis to Solana]
In Q2, Solana did $151m in fees — 27% of Ethereum + the top L2s.
Over the last 90 days, Solana has done $192m in fees — 49% of Ethereum ($374m) + the top L2s ($21m).
[note that the above fees are for gas only and do not include MEV]
Solana did $108 billion in DEX trading volume in Q2 — 36% of Ethereum + the top L2s.
Over the last 90 days, Solana has done $153b in DEX trading volume — 57% of Ethereum ($125.5b) + the top L2s ($145b).
In July of ‘24, Solana had a stablecoin supply of $3.1b (3.5% of ETH + L2s).
Today its stablecoin supply is $4.3b (4.1% of ETH + L2s).
[Note that Arbitrum has more stablecoin supply than Solana. Base has 80% of Solana’s supply.]
Solana did $4.7 trillion in stablecoin volume in Q2 — 1.9x that of Ethereum + the top L2s.
Over the last 90 days, Solana did $963b of stablecoin volume — 30% of Ethereum ($1.9t) + the top L2s ($1.26t).
Why the drop for Solana?
We think it was mostly wash trading and bots/algorithmic trading that was juicing the numbers in Q2.
Furthermore, only about 6% of Solana’s stablecoin volumes are peer-to-peer transfers per Artemis. On Ethereum L1, this figure is closer to 30% — an indication that Ethereum is used more for non-speculative activity than Solana.
Solana ended Q2 with $4.2b of TVL — 6.3% of Ethereum ($60.3b) + the top L2s ($9.5b).
Solana’s TVL is currently $8.2b — 12% of Ethereum + the top L2s.
Solana has pulled a little over $1.2b in TVL from Ethereum over the last 90 days, which represents about 2% of Ethereum L1’s TVL. It pulled $14m from Arbitrum over the same period.
Meanwhile, Solana has actually lost some TVL to OP ($540k) and Base ($5m) over the same period.
Based on 90-day performance, Solana now has:
49% of Ethereum’s Fees (up from 27% end of Q2).
57% of Ethereum’s DEX Volumes (up from 36% end of Q2).
4.1% of Ethereum’s Stablecoin Supply (up from 3.5% in Q2)
30% of Ethereum’s Stablecoin Volumes (down from 190% end of Q2)
12% of Ethereum’s TVL (up from 6% end of Q2)
Finally, Solana has pulled a little under 2% of Ethereum’s TVL over the same period.
Remember. The market is currently pricing SOL at a 70% discount to ETH, a gap that has closed from 83% less than 5 months ago.
We’ll get to whether we think this is right or not later in the report. For now, let’s move into some of the more qualitative analysis.
Remember that price moves first in crypto. Perception, narratives, and fundamentals follow. Given the price action of SOL vs ETH, the narrative would have you think that Solana is poised to overtake Ethereum.
But the reality is that Solana is largely a memecoin casino right now. Yes, there are also real projects such as Helium and Hivemapper. But price action (and fundamentals) are largely driven by the casino right now.
I’m now hearing rumors that this is having an impact on Wall Street’s perception of the chain.
So while the narrative is with Solana right now, we should anticipate that it can change rather quickly. If ETH were to see a rally in ‘25, the narrative could flip from “ETH is dead” to “ETH is the future of finance.”
Meanwhile, Solana’s embrace of the memecoin casino could hurt its perception and narrative.
Something to keep an eye on.
The ETFs. The ETH ETFs have finally started to see some inflows, albeit just a fraction of what we’ve seen with the BTC ETFs. Net flows are at $469m through 11/20, just 1.7% of Bitcoin’s net flows.
We anticipated that ETH would capture 10-20% of Bitcoin’s ETF flows — a view that we’ve been way off on thus far. With that said, the gap here doesn’t seem sustainable. We continue to believe a rotation to ETH is coming later in the cycle.
DeFi & Real World Assets. We’ll be looking to see if the DeFi and RWA narrative heats up as we get closer to regulatory clarity. If this plays out, we could see firms such as Blackrock pushing to tokenize more funds onchain. Three reasons why (speculating): 1) They want to tokenize existing funds for the efficiencies the blockchain will bring to the back-end accounting & admin. 2) They want to capture fees related to the transition. 3) Blackrock is motivated to legitimize its ETF product by bringing more utility to Ethereum as new financial infrastructure.
As more funds are tokenized, we could see new use cases emerge in “permissioned DeFi” to service and trade the assets.
Now. If this is coupled with positive price action, we could see a new narrative emerge for Ethereum as “Wall Street’s chain.”
Coinbase & Base. Base is the fastest-growing Ethereum L2 in terms of fees, active users, stablecoin volumes, etc. Given the value that Base is driving to Coinbase’s bottom line ($68m YTD), we think they may have created a blueprint for other financial services firms to launch L2s on Ethereum.
What happens if JPM, Blackrock, Fidelity, or Robinhood announces an Ethereum L2?
This would further solidify a potential narrative for ETH as “Wall Street’s chain.”
Memecoin Mania. Phantom recently surpassed Google as the number 1 free utility app in the App Store.
We believe this is a clear signal that Solana is onboarding new users to crypto.
[it’s also a sign that the market is overheated]
The question moving forward: how much more room does this have to run? Retail has definitely arrived on the scene, albeit at lower levels from last cycle. One way to measure this is via popular crypto YouTube Channel views. Below we can see that we’re still about 50% off of last cycle’s highs.
We tend to think this will ramp up to extreme levels after BTC$100k, but we are also cautious in the short run.
SOL ETF? VanEck, 21 Shares, and Canary Funds have already applied for Solana ETFs, while Bitwise announced its intent to file yesterday. Given forthcoming changes at the SEC, it’s possible we could see a SOL ETF as early as next year. With that said, unlike BTC & ETH, SOL does not have any regulated futures markets in the US — a criteria emphasized by the SEC when approving ETFs for Bitcoin & Ethereum.
The question here is whether positive headlines will be a “buy the rumor, sell the news” event as we’ve seen with the ETH ETF thus far.
Firedancer. Firedancer is a new Solana validator client developed by Jump Crypto. It promises to significantly improve Solana’s performance, reliability, and scalability by supporting more concurrent transactions. It will also enhance overall network efficiency and reduce operational costs for node operators.
Most importantly, the introduction of Firedancer will eliminate Solana’s single point of failure today and reduce the chances of the chain being halted in the future. Firedancer should be ready for mainnet deployment in ‘25.
While great for Solana’s future, Firedancer is probably not much of a price catalyst for this cycle.
DePIN. We've yet to see the DePIN narrative really take off. Again, it feels like memecoins (and BTC to some extent) are sucking the energy out of the rest of the market. Helium is up 147% YTD but still 43% off its cycle high. Hivemapper is up 164%, and 80% off its cycle high. We have less conviction on DePIN today than we had in July.
Social. In July we wrote that we anticipated a social media app that integrates crypto in some way to go mainstream via celebrities and influencers. While still possible, it feels that this “attention economy” is being expressed through memecoins at the moment. It’s hard to see this shifting anytime soon.
Should SOL be trading at a 70% discount to ETH?
Given that:
SOL/ETH is at all-time highs
The market has repriced SOL 10x relative to ETH over the last few years
SOL is up 25x since Dec. ‘22 low, ETH is up 1.7x
Solana’s onchain fundamentals are largely due to memecoin trading
We tend to think that the relative valuation is about right.
The question now is whether SOL will continue to outperform.
In our July note, we anticipated that ETH would outperform SOL post-ETH ETF. We also thought that SOL would peak at roughly 25% of ETH’s valuation this cycle. We were wrong on both fronts as the ETH ETF was a “sell the news” event (to date, we still think demand will come), while SOL has continued to rally alongside BTC.
Now. BTC has made a huge move over the last few weeks. We’re expecting some volatility and pullbacks heading into year-end. But we also think the market has room to run into ‘25.
In the last cycle, Bitcoin broke all-time highs in Q4-20. ETH broke its all-time high in early February of ‘21 and did a 5.4x in the first 4 months of the year.
Remember. Price moves first in crypto. Narratives follow price.
It feels like we may be setting up for a similar rotation in this cycle. If that’s the case, we could see ETH sentiment and narratives flip in ‘25.
And Solana could experience some blowback as the “retail casino/memecoin chain.”
My conviction on this is not super high.
The offsetting view is that “the things that perform well in the early stages of crypto cycles tend to outperform in the later stages” — which points to continued SOL outperformance.
In conclusion, the market has largely re-rated SOL relative to ETH in our view. The fundamentals are mostly in line with the relative valuation.
And so it’s a bit of a toss-up as to what happens from here. We’ve positioned our portfolio as such.
Thanks for reading and please do your own research.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.