State of The Network: Solana Leads Layer-1 Rivals In Key Economic Metrics

In its recent Layer-1 Sector Analysis from CoinMetrics, a crypto data platform, Solana stands out in terms of on-chain usage and economic activities.

Layer-1 blockchains are the bedrock of the digital currency ecosystem. The technologies, DApp activities, and community sentiment around these protocols tend to shape their overall outlook.

Some of the specific metrics profiled in the report include transaction activity, transaction fees, and transaction ordering.

Solana Tops in Layer-1 Transaction Activity Trends

According to CoinMetrics, there are different yardsticks to measure a layer-1 protocol’s capabilities. Transaction activities are one of these measures.

Despite coming off as one of the most important tech considerations, there is a limit to the number of transactions a chain can permit per technical architectural constraints.

The report highlighted Solana’s dominance as it processes a weekly average of over 100 million non-vote transactions. This figure is noted as nearly 50x as high as the next chain.

Judging by the highlights of Solana’s year-to-date, the SOL memecoin ecosystem might be responsible for this big transaction shift.

Ethereum was also featured, but was unable to compete in transaction activities because of its major tradeoff. This tradeoff is shown in how it has offloaded some of its execution capabilities to its Layer-2 ecosystems.

Avalanche C Chain and the Bitcoin blockchain are also featured in the metrics with non-negligible transaction counts.

Transaction Fees: The Adoption Make or Break Factor

In the retail-dominated crypto ecosystem, the cost of fees remains a major determinant of whether a chain will grow or not.

The rule is that the more costly the transaction fees, the less likely it is to be adopted for small transactions. Despite the benefit of fees to validators, the consumer factor cannot be ignored.

As CoinMetrics noted, median fees may soar in line with high blockspace demand. In January, during the TRUMP token mania, Solana’s average fees spiked significantly.

In the past market cycles, there have been different shifts in total fee dominance.

Bitcoin dominated the chains in the early years of the market. However, the emergence of NFTs and DeFi made Ethereum take over from Bitcoin.

The higher transaction throughput of Solana has given the chain the upper hand in this regard. As per the report,

“While Bitcoin generated the lion’s share of total fees among L1s in prior years, Ethereum quickly grew to over 90% of total fees in 2021 as DeFi and NFT activity surged on the chain…Since then, Solana’s high-throughput, low fee model has drawn growing volumes of on-chain activity, with both networks now capturing nearly ~40% of total fees. Layer-1 value capture from fees has often been the subject of intense discussion.”

One major challenge innovators are working hard to balance is the need to lower costs while keeping the chain profitable for validators.

While not naturally designed to be low-cost, Ethereum introduced Blob space through the Dencun Upgrade. This move helped lower the costs on its Layer-2 chains significantly.

On Transaction Ordering

This is a more technically based feature that largely determines user experience.

If the design of an L-1 in terms of how transactions are organized in blocks offers a bad experience, it can impact the chain’s overall outlook.

Ethereum uses a memepool where transactions are entered before the block is constructed. This contrasts with Solana’s constant streaming model, removing the lag Ethereum is known for.

Every blockchain in the industry is working towards enhancing its speed, throughput, and fees.

With the influx of institutional investors into the ecosystem, the narrative is changing across the board.

Regulation is also seeking to shape the current innovation as new niches like RWA tokenization are set to define which layer-1 network will dominate in the future.