All participants, in the cryptocurrency community are currently grappling with a challenge, the fees associated with withdrawing funds from centralized exchanges (CEX). Despite the increase in decentralized exchanges (DEX) over the years most DeFi projects are still primarily built on the Ethereum ETH -1.06% blockchain. Transactions made through wallets, such as those involving USDT using Ethereums ERC20 standard often come with gas fees.
Although TRC20 transactions have gas costs many wallets lack compatibility. Therefore exchanging between ERC20 and TRC20 networks usually requires going through an exchange and incurring fees. This issue mainly stems from the fact that numerous wallets are built on Ethereums network making transfers and trades quite expensive.
Since its inception Ethereum has been widely acclaimed for its contracts and scalability features. Many tokens like EOS and USDT were issued on its network before 2017 due to its thriving ecosystem. Despite this success Ethereum faces challenges related to its throughput capacity of than 50 transactions per second (TPS) resulting in network congestion and high transaction fees.
To tackle these problems Ethereum has transitioned from using the energy Proof of Work (PoW) consensus mechanism to an efficient Proof of Stake (PoS) system. Additionally it has expanded its Layer 2 network to alleviate some of the burden on the chain by offloading transactions. These changes aim to improve efficiency, within the Ethereum ecosystem.
However the Layer 2 network can be compared to a scenario where a large truck is towing cars on a two lane highway. In contrast the Ethereum network remains constrained like a fixed two lane highway without addressing the underlying issue.
Subsequently Solana SOL -6.08% was developed to address this concern and offers scalability to Ethereum. It incorporates Proof of History (PoH) consensus mechanism to tackle the problem of lacking a time source, in networks. By utilizing delay functions PoH enables each node to generate timestamps through hash calculations eliminating the need for broadcasting across the entire network. This significantly improves network efficiency.
As a result Solana achieves a throughput of 50,000 transactions per second (TPS) making it currently the blockchain in existence. In comparison Ethereums robust Layer 2 network (sidechain) Polygon MATIC -4.38%, only manages around 700 TPS. This highlights Solanas advantage over Ethereum. Contributes to lower trading costs within Solanas extended ecosystem compared to Ethereum. Consequently this fosters development within Solanas DeFi ecosystem.
Due to the FTX incident in 2022 there was a drop in Solanas price by 60% in than a week leading it to be temporarily disregarded as an asset. However with market recovery in 2023 Solana experienced a surge of over 400%, in five months and currently holds at a price of approximately $94 USD.
Solanas trading volume has now exceeded that of Ethereums DEX making it the third largest, in the cryptocurrency market.
This indicates that Solanas ecosystem is poised to surpass Ethereum in the future. One of the reasons for this is that deploying DeFi on Solana is more affordable compared to Ethereum. To illustrate the founder of Orca had to abandon their projects on Ethereum due to transaction costs and opted for development, on Solana instead.