(Updated 16. September 2022)
Avalanch and Solana are platforms for decentralized apps (Dapps) in competition with Ethereum. I’ll compare them, and decide which one I like best fundamentally and as an investment.
Here’s the short answer:
Solana is a better investment than Avalanche, historically speaking. SOL outperformed AVAX with a factor of 4.86 from 2021 to 2022. Fundamentally, they’re both strong, but their missions, and relative competition in their niches, give Solana the edge over Avalanche.
In this article, I will compare the similarities and differences between these platforms as well as their mission statements. I’ll build my case on numbers and facts, and I hope to give you a better perspective on which of Solana and Avalanche has the brightest future.
What Are Avalanche and Solana:
Avalanche has been called “the Ethereum killer.” They are in theory 100 times faster than Ethereum and aim to become the new most popular blockchain for smart contracts and decentraliced applications (dApps).
Besides being another decentralized platform, their coin, AVAX, can be staked with annual rewards of nearly 10%. And if you want to stake short term, the minimum is only 2 weeks.
They have a mission to provide custom blockchains to solve the quandary of decentralization and scalability without sacrificing security. Avalanch has designed THREE different blockchains: 1) X-Chain, 2) C-Chain, and 3) P-Chain. And, they all work together (interoperable) to address these problems. This mission is problematic in my opinion, as it’s extremely broad, and puts them in direct competition with the likes of Ethereum.
Solana is a blockchain designed to run decentralized apps and provide solutions through “hybrid consensus“. SOL (their native token) is used to pay validators transaction fees as well as a peer-to-peer digital currency. Several exchanges like Coinbase and Binance offer SOL.
Solana goes all in to become the most scalable, fatest and cheapest blockchain in the crypto space. It can theoretically scale up to 65,000 transactions per second, complete a transaction in 0.4 seconds, and the fees are as low as $0.00025 per transaction. Read more about the fees and stuff in this article.
Solana might become the blockchain of choice for centralized players wanting to decentralize, like VISA and PayPal. I like this mission because it carves out a smaller niche of the crypto space, and enables them to rule this subspace of the crypto market.
How Are Avalanche And Solana Similar?
- OPEN-SOURCE. Both are open-source platforms for launching Dapps.
- SCALABILITY. Each project focuses on bringing decentralized finance to a global level with less congestion.
- MULTI-USE. They are both cryptocurrencies and native tokens with many use-cases: securing the network via staking, payment of things like gas fees, governance participation, and peer-to-peer transactions.
- FINITE SUPPLY. AVAX has a cap of 720 million and SOL caps at 489 million.
How Are Avalanche And Solana Different?
- BLOCKCHAIN. Avalanch utilizes three different blockchains to spread out their tasks; Solana uses one blockchain.
- CONSENSUS. AVAX uses a (DAG) protocol to gain consensus and SOL uses a hybrid consensus: Proof of History (PoH) combined with proof of stake (PoS).
- INTEROPERABILITY. Avalanch can share and communicate within their three blockchains; Solana is not interoperable.
- SPEED/SCALABILITY. Solana can process roughly 50,000-65,000 per second and finalize them in 0.4 seconds. Avalanch can process roughly 4,500 transactions per second and finalize them in three seconds.
- CENTRALIZATION: Solana is arguably more centralized than Avalanche. This is bad in most cases, but not a big deal in others.
Tokenomics of SOL and AVAX:
Both Avalanche and Solana have native tokens, AVAX and SOL. Let us take a look at the mechanics behind the tokens individually:
- Supply Cap: 489 million
- Token: SOL. 47.6% of tokens were distributed to seeding, founders, and team members; the remains have been released to the public.
- Incentives: Staking that automatically compounds interest. The current rate is roughly 5.4% per year.
- Inflation: Spanning from 2020 to 2031, Solana has an initial inflation rate of 8% which descends yearly into a long-term outlook of 1.5%. Click this link for a more in-depth look at Solana Tokenomics.
- Supply Cap: 720 million
- Token: AVAX. 60% of tokens are for public and staking opportunities. When a user transacts, a percentage of the fee is burned, increasing the scarcity, and thus the value of the token.
- Incentives: Staking rewards up to 10% with a minimum of two-week lock up.
- Inflation: The circulating supply of AVAX has increase 35% since last year. This is quite high and acts negatively on the price.
Some numbers might have changed when you read this. The data above is from September 2022. You can find updated data here: Solana, Avalanche.
Let’s take a look at how SOL and AVAX performed in 2021 and 2022. I’ll measure the gains in the bull market, and then the decrease in the bear market (which is still going on…).
During the bullish phase of 2021, SOL surged by 24,600%. In the following bear market, it crashed by 88%. It might crash further since the bear market isn’t yet over.
Investing $1,000 in SOL at the beginning of 2021, you’d have $264,000 in November. That amount would then decrease to $31,680 in September of 2022.
During the bullish phase of 2021, AVAX surged by 5,425%. In the following bear market, like SOL, it crashed by 88%.
Investing $1,000 in AVAX at the beginning of 2021, you’d have $54,250 in November. That amount would then decrease to $6,510 in September of 2022.
In 2021 and 2022, Solana (SOL) outperformed Avalanche (AVAX) with a factor of 4.86.
The conclusion is clear: Solana is better than Avalanche, historically speaking.
However, historical performance does not guarantee future performance. Moreover, it’s often a better bet to go with a fundamentally strong project with that is relatively cheap.
I’ve written more about Solana; you might be interested in checking out these articles:
– Can Solana Reach 1000 Dollars?
– Is Solana A Good Investment?
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Future Outlook For Avalanche And Solana:
What is the future of these cryptos? We can only speculate, but here are my thoughts:
Avalanche could have a prominent future, possibly being among the number one smart contract providers with their profound tri-blockchain methodology. I doubt it will take Ethereum’s place, but it might outcompete the other “Ethereum killers” like Binance Smart Chain and Cardano.
Solana could have an influential future, replacing central giants like VISA, with their timestamp proof of history system that can support 65,000 transactions a second. Solana might carve out a significant market share, and rule its own little part of the crypto space.
It is tough to say who will outperform the other in the long run, really. With NFT opportunities for both, this could sustain a strong community around the platforms, and community is everything in crypto. But who will have the trendiest NFTs available? That’s the thing with trends, nobody knows.
AVAX founders have a deep history in the crypto space. Co-founder, Emin Gün Sirer worked on bitcoin and Ethereum solutions and actually created his own peer-to-peer cryptocurrency concept 6 years prior to bitcoin. This makes me excited because veterans have a lot going for themselves and will avoid newbie mistakes.
Not to downplay Solana’s main founder Anatoly Yakovenko. He was an esteemed software engineer at Dropbox before launching SOL.
Anyways, all of these factors can help draw some…
Avalanche and Solana are open-source projects that offer developers a platform to build dapps.
Avalanch is the first smart contract design that CONFIRMS transactions in under a second. That is killer cool!
Solana, the late but great contender shines pretty brightly with its lightning TRANSACTION speeds and low fees by default.
Large amounts of institutional money have been invested in both organizations. Another plus! It’s good to pay close attention, and a good rule of thumb is to follow the big money and swim with the whales.
Which one’s a better investment? In my crypto opinion, I would have to go with Solana. Mainly due to its outstanding historical performance, sound tokenomics and its competitive edge. It is not an “all-around“ blockchain competing with everyone, but a lighting fast scalable one that is perfect for specific use cases.
I also like Avalanch; here are some reasons to invest in it:
- Avalanch has an ecosystem of THREE interoperable blockchains, which will help solve scalability and speed issues, without sacrificing security.
- I like the array of founders and their credentials.
- Avalanche has more room to grow than Solana.
Will I be investing in both? It is always good to spread your risk, so I will own bags from both. That said, my SOL bag will be heavier than my AVAX bags for the time being.
That’s it. I hope you learned some important things about SOL and AVAX. It is always a good idea to get a better understanding of cryptos before you invest. Mitigate the risk and please invest wisely.
I’ll see you in the next crypto avalanche – BTFD!
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