Crypto Bank Sygnum Predicts Solana Will Struggle to Beat Ethereum Due to Revenue Tied to Memecoins

• The report raises concerns about Solana’s tokenomics, noting that most of its fees are distributed to validators rather than adding value to the SOL token.
• Sygnum acknowledges Solana’s increasing traction in DeFi and suggests that if it develops stable revenue sources like tokenization and stablecoins.

Crypto banking group Sygnum recently released a report stating that Solana has yet to demonstrate strong potential to surpass Ethereum as the preferred blockchain for institutional use, while noting that it heavy reliance for revenue is still on memecoins.

In a blog post published on Thursday, May 8, Sygnum admitted that the current sentiment around Ethereum remains poor. Besides, it also noted that the market remains focused on Solana’s “transaction volumes and its recent dominance in fee generation.”

However, Sygnum noted that instead of focusing on the short-term sentiment game, “the medium-term outlook will primarily be shaped by traditional financial institutions’ platform choices to bring their product offerings”. It further added:

We do not yet see convincing signs that Solana would be the preferred choice as Ethereum’s security, stability, and longevity are highly prized.

Sygnum – Why Institutions Could Choose Ethereum Over Solana

Sygnum explained that institutions may favor Ethereum over Solana, as the latter’s revenue is perceived as “less stable” due to its heavy reliance on the memecoin sector. “This will limit outperformance as it could be argued that the differential in valuation is accounted for by this difference in revenue sources,” the company said.

Sygnum highlighted Solana’s tokenomics as a concern, likening it to critiques of Ethereum’s mainnet, which has seen stagnant transaction volumes due to reduced costs for its layer-2 networks.

While Solana leads Ethereum in layer-1 fee generation market share, the firm noted that “most of the fees are distributed to validators, offering limited value growth for the Solana token”. “In fact, when it comes to revenues, Ethereum still exceeds Solana 2- 2.5x,” Sygnum said.

The bank group also argued that Solana’s tokenomics are “easier to modify” compared to Ethereum’s scaling approach. However, it cautioned that Solana “does not seem focused on increasing token value,” citing the community’s rejection of a proposal to reduce SOL’s inflation rate in March.

Where Does SOL Have An Edge Over Ethereum

In the blog post, Sygnum stated that Solana might live up to its  “Ethereum killer” image by challenging the No. 2 blockchain’s market share. It added that Ethereum has a dominant market share in use cases such as tokenization, stablecoins, and decentralized finance (DeFi).

However, DeFi is one area where Solana is gaining traction with the amount of value locked on its DeFi protocols. If Solana develops “more stable revenue streams” like tokenization and stablecoins, it could narrow the gap with Ethereum, as highlighted previously.

Sygnum noted that Solana continues to enjoy strong support, even as the Ethereum Foundation shifts its focus back to layer-1 solutions and acknowledges the need to refine its go-to-market strategy.