On-chain fees exceed Ethereum. Is SOL really going to replace ETH?

Written by Joyce

Recently, with the listing of Goat, Pnut, Act and other memes on Binance, the Solana ecosystem has ushered in a new wave of enthusiasm. According to statistics from Blockworks Research, after October 19, 2024, Solana's daily on-chain fees have exceeded Ethereum for many consecutive days, and on October 24, the revenue even exceeded 10 million US dollars. The popularity of the Meme track has allowed various funds to continue to enter the Solana ecosystem, making it the hottest ecosystem in the circle.

It has to be said that Solana is indeed the hottest chain in this round of bull market. More than half of the star projects in the DePin craze came from the Solana ecosystem, and there were waves of Meme crazes later. It can be said to be lively.

So, where does the high return of the Solana ecosystem that we see now mainly come from? How long can such a hot state last?

Overview of Solana's on-chain fees

Similar to Ethereum, Solana's on-chain revenue also includes basic transaction fees, MEV tips, etc. After the EIP1599 proposal, Ethereum destroyed all basic Base fees, and MEV tips were directly awarded to the verification nodes. Solana also has a similar destruction mechanism, destroying the basic fees at a fixed ratio (initial setting of 50%), and the rest is distributed to the validators.

Therefore, when comparing the on-chain revenues of Ethereum and Solana, all destroyed basic transaction fees are also included.

Specifically, Solana's on-chain revenue includes basic fees, limited transaction fees, tips (Jito), and voting fees, as shown in the figure below.

From the daily fee change trend on the Solana chain shown in this figure, the basic transaction fee and voting fee have not changed much compared to the other two items, but the priority transaction fee and tip have grown rapidly since March this year.

So, what are these two fees? The priority transaction fee is easy to understand, that is, the fee paid by users to speed up transactions, which is generally added directly at the time of transaction. Tips (Jito) are additional fees paid by users to validators, generally used for MEV-related transactions and targeted payments.

The rapid growth of both means that the activity of the Solana network has increased, and the network congestion caused by the increase in DeFi activities has increased. Users are more willing to increase transaction speed by increasing priority transaction fees. At the same time, validators have more opportunities to capture MEV by optimizing transaction order.

So, what are the specific DeFi transactions on the Solana chain, and are they completely Meme-driven?

It is not difficult to see from the data in the above figure that the transactions on the Solana chain mainly include Meme (Pumpfun), Meme (others), project Tokens, LST Tokens, stablecoins and SOL transactions, etc. Among them, project Tokens include DePin, SocialFi, etc. in addition to all the categories listed above.

In the past two months, the transaction volume of all Memes has increased from 48% to 74%. Of course, the sharp decline in the proportion of other transaction volumes does not mean a decrease in transaction volume. When the market is rising, the transaction volume of projects on the Solana chain, such as Token, LST, stablecoins, and SOL, has increased significantly. However, the increase in Meme is too exaggerated, with an increase of 667% in the past two months. Therefore, the proportion of other transactions has dropped significantly in comparison.

This also confirms the above data. Because of the rapid growth of Meme transactions and the belief that "time is money" in Meme transactions, users are naturally more willing to pay priority transaction fees. The more active the on-chain transactions, the more opportunities there are for MEV.

Active Dapps on Solana Chain

1) DEX

Currently, Meme transactions are the main transactions on the Solana chain, so naturally DEXs are the most active Dapps. Among the DEXs in the Solana ecosystem, Raydium is the most popular. The data in the figure below shows that thanks to the explosion of Meme, Raydium, which is deeply bound to Meme, has accounted for 63.5% of the entire Solana ecosystem transaction volume. Orca, which had an absolute advantage in the Solana ecosystem at the beginning, has seen its market share continuously squeezed as Meme transactions exploded, from more than 60% to the current 15%.

PumpFun, as a meme launch platform, has its own meme trading function, which accounts for nearly 5% of the transaction volume in this wave of meme explosion, and has a trend of gradual increase.

Solana ecosystem DEX market share, source: Dune.com

2) Aggregate DEX and trading robots

In addition to direct transactions on DEX, aggregated DEX and trading robots in the Solana ecosystem are also very active. The figure below shows the Solana ecosystem DEX market share by transaction source. The latest data shows that Jupiter's transaction volume accounts for 33%, and other protocols (including trading robots) account for 19%.

Solana DEX market share by transaction source, source: Dune.com

Jupiter is the largest aggregated trading Dex in the Solana ecosystem. Currently, TVL has exceeded US$1.57 billion, setting a new high, and Jupiter has been very active recently:

• First, on October 2, "Unclaimed 230 million JUPs were used to extend and fund The "ASR" proposal was passed, and the Active Staking Rewards (ASR) will continue for another year;

• Then on October 8, the mobile application was launched, supporting multiple payment methods such as Apple Pay and credit cards, and was considered a new legal B channel;

• On October 17, Solana MemeCoin terminal "Ape Pro" was launched, focusing on achieving MEV protection and improving the sandwich attack phenomenon in transactions.

• Under a series of actions, the price of Token JUP is also very strong.

In addition to the aggregated trading platform, the trading robots in the Solana ecosystem are also very active, with more than 10% of transactions contributed by trading robots, of which the top four in terms of revenue are Photon, Trojan, BONKbot and Banana Gun. Photon’s revenue in the past thirty days reached $29.85 million, making it the second-highest protocol in the Solana ecosystem after the Solana main chain. In addition to the Solana main chain and the Pump protocol, the other three of the top five protocols in the Solana ecosystem are all trading robots, which shows their ability to attract money.

Solana ecosystem protocol revenue ranking, source: DefiLlama

3) Other Dapps

Although DEX, aggregated DEX and trading robots around Meme were very popular throughout the Meme season, with the popularity of the Solana chain, the price of SOL has also risen all the way, thereby driving the pledge, re-pledge, borrowing, leverage and other protocols in the ecosystem. The following are several of the more popular Dapps.

Jito

Jito is currently the DApp with the highest TVL in the Solana ecosystem, with a TVL of more than $3 billion, accounting for more than one-third of the TVL of the entire Solana ecosystem. Jito supports users to deposit Solana or Solana's LST Token for re-staking. Compared to other staking protocols, Jito's biggest feature is its MEV suite, which extracts MEV income from transactions in the Solana ecosystem and distributes this part of the income to the stakers, thereby increasing the income of the stakers.

Currently, Jito's re-staking deposits have reached a hard cap of $25 million, indicating that the upper limit will be increased in the second phase to meet the staking needs of more users.

Kamino

Kamino is the top stablecoin and LST asset income platform in the Solana ecosystem, integrating functions such as lending, liquidity provision and leverage. The TVL of the entire protocol has reached 2 billion US dollars.

Kamino supports a one-click automatic compounding centralized liquidity strategy, allowing users to maximize returns by controlling borrowed funds. In addition, Lend V2 is expected to be launched in the fourth quarter of this year, which will allow the creation of different lending markets without permission to meet a wider range of user needs, as well as the introduction of automated single-asset lending vaults to aggregate liquidity across markets, in order to become the foundation layer of Solana on-chain finance.

Marinade

Marinade is also a liquidity staking protocol for the Solana ecosystem, with a current TVL of 1.79 billion, ranking fifth after Raydium. However, as a liquidity staking protocol, the revenue of the Marinade protocol is far inferior to that of Jito. Recently, Marinade has been promoting the Solana staking service for institutional investors, and its TVL has risen by nearly 50% in the past month and a half.

Summary

The Meme craze has indeed driven the popularity of the entire Solana ecosystem, and the most direct manifestation is Solana's on-chain revenue and user activity.

However, the current Meme is only a product of a specific period of the bull market. Once the bear market enters, if the MeMe market no longer continues, how the Solana ecosystem can maintain its leading edge in the public chain is something that needs to be considered. Just like the once popular NFT market, after the feast, it is also a mess. Can Solana take advantage of the popularity of MeMe to create a healthier ecological income structure?