Decentralized finance (DeFi) — the lending, trading, and borrowing protocols that run on blockchains — today has nearly $94 billion in total value locked (TVL) in DeFi projects across all crypto networks. That makes DeFi a huge market segment in crypto, and it also means that whichever coins capture the next leg of its growth are sure to outperform.
Solana (SOL +2.58%) is for many investors an obvious choice to get exposure to the future of DeFi. Still, it’s undeniable that the current king of the segment, Ethereum (ETH +4.13%), is going to be relevant for a long time, and it’s also clear that there are other competitors on the playing field. So is Solana the smartest bet here, or is Ethereum or one of the other players a better option?
Image source: Getty Images.
Solana’s velocity is hard to beat, but so is inertia
Solana’s most important technical features for DeFi are its high speeds and low transaction costs, which, when paired with its smart contract capabilities and $6 billion in DeFi TVL, as well as $15 billion in stablecoin capital, make it a very appealing option. For new DeFi projects or those looking to scale up, Solana’s chain being highly responsive and inexpensive to use cuts development time, friction, and costs, and its big pools of capital make it more likely that there will be users with money who will be willing to try out new protocols or park their capital in them to generate a yield.
In contrast, Ethereum’s DeFi positioning rests on sheer scale.
It has $53 billion in DeFi value locked, and it hosts about $165 billion in stablecoins. That stablecoin base exceeds half the global total, which is why financial institutions tend to treat Ethereum as DeFi’s default settlement layer. Even though Ethereum’s transactions close in around 30 seconds instead of in 1 second like Solana, and even though its fees tend to be around $0.09 per token swap rather than a fraction of a penny, there’s no getting around the fact that there’s a lot more capital available for its ecosystem.
Today’s Change
(2.58%) $2.06
Current Price
$81.76
Key Data Points
Market Cap
$47B
Day’s Range
$79.30 – $82.80
52wk Range
$70.61 – $252.78
Volume
3.1B
Nonetheless, Solana leads all blockchains in decentralized exchange (DEX) volume, meaning more tokens are actively swapped on the DEXes associated with its chain than on Ethereum’s. At noon on March 30, Solana’s DEXes reported $1.3 billion in DEX trading volume in the prior 24-hour period, whereas Ethereum’s reported just $765 million.
So the chain’s speed is indeed causing more activity to occur at least in one area within DeFi relative to its much larger peer.
Which coin is the better bet?
Solana’s network performance characteristics are probably going to help its DeFi segment grow over time. On paper, it’s a better platform for DeFi than Ethereum is.
Today’s Change
(4.13%) $85.00
Current Price
$2145.47
Key Data Points
Market Cap
$259B
Day’s Range
$2051.63 – $2165.45
52wk Range
$1398.62 – $4946.05
Volume
19B
But in practice, the capital that currently lives on Ethereum is parked there for a reason: Capital begets capital. And once capital has lodged itself somewhere, it tends to stick around. That suggests Ethereum will remain the leader in DeFi.
So, for now, Solana is probably the second-best bet for getting exposure to decentralized finance in your crypto portfolio, as Ethereum has proven that its lead is tough to challenge.