Is SOL's 70% Discount to ETH Justified?

In January 2023, Solana's SOL was valued at a 97% discount to Ethereum's ether, highlighting a notable market disparity that has significantly narrowed over the past two years. Currently, this discount stands at 70%. However, Solana is increasingly challenging Ethereum in terms of on-chain transactions and key network usage indicators. This raises an important question: Does the market still reflect a dislocation? This analysis explores this query through a comparative examination of four critical data points. Let's examine the details. Firstly, considering network fees, Solana generated $151 million in fees during the second quarter, which accounted for 27% of Ethereum's fees, including its top layer 2 solutions. Over the last 90 days, this ratio has increased to 49%. Secondly, in terms of decentralized exchange volumes, Solana facilitated $108 billion in trading volume during the second quarter, representing 36% of Ethereum's volume, including its top layer 2s. Over the last 90 days, Solana's volume has risen to $153 billion, or 57% of Ethereum's. Thirdly, regarding stablecoin volumes, Solana processed $4.7 trillion in stablecoin transactions during the second quarter, nearly twice that of Ethereum and its top layer 2s. However, over the last 90 days, Solana's stablecoin volume has decreased to $963 billion, which is 30% of Ethereum's. This decline is largely attributed to the diminished impact of bots and algorithmic trading. Additionally, only 6% of Solana's stablecoin transactions are peer-to-peer, compared to 30% on Ethereum's layer 1, indicating that Ethereum is used more extensively for non-speculative activities. Furthermore, Solana's stablecoin supply accounts for just 4.1% of Ethereum's, up from 3.5% at the end of the second quarter. Lastly, considering the total value locked, Solana ended the second quarter with $4.2 billion, representing 6.3% of Ethereum's total value locked. Currently, Solana's total value locked stands at $8.2 billion, or 12% of Ethereum's. In summary, based on 90-day performance, Solana has made significant strides in closing the gap with Ethereum. Our analysis suggests that the on-chain data supports a fair reevaluation of SOL's valuation relative to ETH. Nevertheless, investors should also consider the qualitative differences between the two networks, as well as potential upcoming catalysts, as we approach the end of the year and 2025.