Solana Low Fee NFTs Gain Market Share As Ethereum Dominance Drops To 58%

Solana NFTs are catching up with Ethereum. Since mid-August, Solana’s NFT trading volume rose from 7% to 27%. According to Delphi Digital, this means that as of September 4, Solana’s NFT market share is closer to Ethereum parity than ever: 36% vs. 58%.

Given the overall decline in NFT trading volume amid the bear market, Ethereum’s NFT market dominance fell by -27%, from a previous 85%. Also, enterprise-class blockchains like Solana and Flow are the only ones, out of the top 5, to have increased monthly NFT trading volumes: +117% and +9% respectively.

Low Fees and Convenience Trump the First Mover Advantage

Although Solana’s reputation has been somewhat eroded by multiple outages, it is still leagues ahead of Ethereum in terms of performance. Solana runs at 2400 tps, while Ethereum runs at 14 tps on average.

More importantly, Solana has consistently low fees, which Ethereum can only achieve through the use of layer 2 scalability solutions. For example, NFT minting on Ethereum typically costs around $10, while Solana NFT minting is under $0.02. Now that the Fed’s rate hikes have punctured the NFT speculation bubble, such cost-cutting measures are more important than ever.

With Solana fees so low, NFT transactions hit an all-time high of 389,000 after 9/11. Likewise, because the NFT market deflated and Ethereum had an edge, Solana NFTs are much cheaper. For example, DeGods is Solana’s highest valued collection at $11.4,000 floor price, which is not even within Ethereum’s top 5 collections.

Therefore, Solana’s top valued NFT collection is 876% cheaper than Ethereum’s top valued NFT collection. At the end of September’s first week, Solana NFT sellers topped 30,000, always more buyers.

Finally, according to Delphi Digital, Solana first-time buyers are up +80%, with repeat buyers up +78% during September.

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Are layer 2 networks too cumbersome for mass adoption?

Bitcoin led the concept of sound money and digital assets. Ethereum pioneered the concept of dApps, powered by more flexible smart contracts. For these reasons, BTC and ETH make up 57% of the total crypto market capitalization.

Among 149 smart contract chains, Ethereum has a dominance of 57.61%, at 31.79 billion TVL. By contrast, Solana only earns 2.45% of this DeFi pie, at $1.35 billion TVL, according to DeFiLlama.

After the merger, Ethereum is yet to lower gas fees and increase transaction throughput, which should come with the Surge upgrade sometime next year. Meanwhile, Ethereum relies on layer 2 scalability solutions. For example, both Arbitrum One and Optimism have greater TVL than Solana.

With that said, the more extra steps present in an ecosystem, the more they pose an obstacle to mass adoption. Layer 2 networks by necessity require bridges to transfer ETH funds from Layer 1 to Layer 2. In addition to disadvantages, this in itself represents a vulnerability.

In contrast, tier 1 blockchains like Solana or Avalanche lack such obstacles, while they are already scaled up in terms of tps and negligible gas fees that are affordable for everyone. All things considered, Solana’s NFT rise, compared to its minute DeFi share, could shape a trend.

Do you think competing chains will significantly shrink Ethereum’s market share by the next bull cycle? Let us know in the comments below.

About the author

Tim Fries is the co-founder of The Tokenist. He has a B. Sc. in mechanical engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate in the investment team at RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.