The Solana Thesis: Outperforming Ethereum

Joe McCann, a prominent figure in the cryptocurrency space, presents a compelling bull case for Solana in this episode of the Lightspeed podcast. His thesis revolves around Solana's consistent outperformance of Ethereum across various metrics, despite having a significantly lower market capitalization. McCann argues that Solana's fundamentals are improving, and the market is taking notice.

The core of McCann's argument lies in Solana's execution of its publicly available roadmap. He points out that the Solana Labs team and the broader open-source community have been transparent about their intentions to develop a high-performance, high-throughput blockchain. This transparency has allowed investors and developers to anticipate and prepare for upcoming developments.

One of the most significant improvements McCann highlights is Solana's reliability. He states:

"Have we had any reliability issues lately with Solana? No. Has the activity been at all times highs? Yes. What does that tell you?"

This improvement in reliability, coupled with record-breaking activity levels, demonstrates that the Solana team has effectively addressed past challenges and implemented necessary changes.

Solana vs Ethereum: A Metrics Showdown

McCann draws attention to several key metrics where Solana is outperforming Ethereum. He references a presentation by Kyle Samani of MultiCoin Capital, which details how Solana is surpassing Ethereum's core metrics. This outperformance is particularly noteworthy given that Solana's market capitalization is only about 20% of Ethereum's.

One standout metric is the "real economic value" (REV) generated by the Solana blockchain. According to BlockWorks research, Solana recently set a weekly all-time high of $9 million in REV and is poised to break that record again. This metric is crucial as it represents the income generated by the blockchain itself.

Another significant metric is the SOL/ETH ratio, which recently hit 7% for the first time ever. This ratio compares the price of Solana to Ethereum and serves as an indicator of relative value between the two cryptocurrencies.

The Rise of Geto: A $2 Billion Annualized Run Rate

McCann specifically mentions Geto, a project in the Solana ecosystem, as an example of the explosive growth occurring on the platform. He reveals:

"They're running at a $2 billion annualized run rate right now. $2 billion. That's insane, especially given that the narrative for so long has been that, 'Oh, Solana has a chain. Is it going to generate any real revenue, and it's not sustainable?'"

This substantial revenue generation directly contradicts the notion that Solana lacks sustainable income sources. It demonstrates that the value derived from network activity is not only real but also rapidly growing.

Meme Coins: A Double-Edged Sword

The discussion touches on the role of meme coins in Solana's ecosystem. While some view meme coins as a potential weakness, McCann sees them as a strength. He argues that the intense speculation and trading around meme coins serve as a constant stress test for the network, pushing it to its limits and revealing areas for improvement.

McCann states:

"This is exactly what you want to see. We can debate the merits of meme coins. I think they're great. Other people think that they're a sour spot as it relates to crypto, but it's a permissionless network. We should encourage innovation is my broader view."

He further emphasizes that the activity generated by meme coins contributes significantly to the overall ecosystem, from DeFi to infrastructure projects like Geto and Jupiter.

The US Election: A Potential Catalyst for Crypto

A significant portion of the discussion focuses on the potential impact of the upcoming US presidential election on the cryptocurrency market. McCann believes that the market is currently pricing in a Donald Trump victory, which he sees as bullish for Bitcoin and, by extension, for Solana.

McCann explains:

"If Donald Trump is the presumptive winner of the presidential election, what is going to do well in that outcome? It's going to be obviously Bitcoin and the things that trade beta to Bitcoin."

He argues that Solana, with its higher beta to Bitcoin compared to Ethereum, stands to benefit significantly from a Trump victory. McCann even goes as far as to predict that if Trump wins, Bitcoin could quickly reach $100,000, and in the case of a "red sweep" (Republican control of both the presidency and Congress), it could hit $150,000.

The Ethereum Dilemma

Throughout the discussion, McCann consistently positions Solana as a more attractive investment compared to Ethereum. He points out that Ethereum's beta to Bitcoin is currently less than one, meaning it's not providing the level of returns that traders seeking higher risk and reward are looking for.

McCann states:

"Ethereum is of a beta of less than one as it relates to Bitcoin. That's not where you're getting beta, right? Solana's beta is much higher than that."

This difference in beta makes Solana a more appealing option for traders looking to capitalize on potential market upswings, especially in the context of the upcoming US election.

Blockchain Performance and User Experience

The podcast delves into the technical aspects of Solana's performance, particularly in relation to transaction failure rates. In April, during a period of intense meme coin activity, Solana's transaction failure rate peaked at over 75%. However, recent improvements have brought this rate down to around 35%.

McCann views these improvements as a testament to the Solana team's ability to identify and address issues in a real-world, high-stakes environment. He argues that it's impossible to replicate mainnet conditions in a test environment, making this real-world problem-solving crucial for the network's development.

Institutional Interest in Meme Coins

An intriguing aspect of the discussion is the revelation that institutional investors are becoming more active in the meme coin space. McCann references a tweet by Ray, CEO of L1D, suggesting that liquid funds are more involved in meme coins than many would expect.

McCann confirms this trend, stating:

"Yes, I was the first institution to buy a meme coin. It was bonk worked out really well for us, but it was also a validation of my thesis around the tokenization of, you know, internet culture."

He argues that fund managers have a responsibility to make money for their investors, and if meme coins are outperforming traditional crypto assets, it's logical for them to participate in this market.

The Future of Crypto Venture Capital

The podcast concludes with a discussion on the future of venture capital in the crypto space. McCann sees the recent acquisition of Bridge by Stripe as a positive signal for the industry. He believes this acquisition will encourage more traditional Silicon Valley VCs to consider investments in the crypto and Web3 space.

McCann predicts:

"I do think you're going to see a circle IPO next year. And I don't think that that's going to be the last one."

He anticipates increased M&A activity and potentially more IPOs in the crypto sector, especially if regulatory clarity improves and larger tech companies look to bolster their Web3 offerings through acquisitions.

Solana's Potential Risks

While the overall tone of the discussion is bullish on Solana, McCann does address potential risks to his thesis. The primary concern he identifies is the possibility of poor developer go-to-market execution. He emphasizes the critical importance of maintaining developer mindshare and continually improving the onboarding process for new developers.

McCann states:

"The risk to Solana is, um, a poor developer, go to market. Currently we don't have that problem. Um, developers love to build on Solana. There are absolutely areas that we can improve."

He also mentions that a significant and prolonged drop in network activity could be cause for concern, as it might indicate a shift in user preference to other platforms.

The Evolving Landscape of Crypto Speculation

McCann draws parallels between the current meme coin craze and previous speculative cycles in the crypto market, such as the ICO boom and the NFT craze. He views these cycles as iterative improvements, likening them to software versions:

"The way that I look at it is kind of like software, meaning when, when you ship software, you have like version 1.0, that was the ICO craze. Then there was version 2.0, which were NFTs. And then you have, you have a version 3.0 right now, which is meme coins."

He argues that each cycle brings more users and capital into the ecosystem, ultimately contributing to the growth and maturation of the crypto space.

Conclusion: A Bullish Outlook for Solana

In summary, Joe McCann presents a strong bull case for Solana based on its improving fundamentals, outperformance of Ethereum on key metrics, and potential to benefit from macro factors such as the US presidential election. While acknowledging potential risks, McCann remains confident in Solana's ability to continue its growth trajectory and potentially challenge Ethereum's dominance in the smart contract platform space.

The discussion provides valuable insights into the current state of the crypto market, the evolving nature of speculation within the industry, and the increasing interest from institutional investors. As the crypto landscape continues to evolve, Solana appears well-positioned to capitalize on these trends and potentially emerge as a leading player in the next bull market.

Facts + Figures

• Solana recently set a weekly all-time high of $9 million in Real Economic Value (REV)
• The SOL/ETH ratio hit 7% for the first time ever
• Geto tips alone brought in over $6 million in a single day
• Geto is running at a $2 billion annualized run rate
• Solana's transaction failure rate has improved from over 75% in April to around 35% currently
• Coinbase.com has a scheduled outage, potentially making Solana more reliable than Coinbase for 2024
• Ethereum's beta to Bitcoin is currently less than one, while Solana's is higher
• Joe McCann predicts Bitcoin could reach $100,000 if Trump wins the election, and $150,000 in case of a "red sweep"
• The US dollar index (DXY) has moved from around 100 to over 104 recently
• Stripe acquired Bridge for $1.1 billion, signaling increased interest in crypto infrastructure from traditional tech companies
• Light Speed raised an $8 billion fund, potentially indicating more investment in crypto and AI
• 99.9% of meme coins created on pump.thon are at zero or minus 99%
• The percentage of people who have made over a million dollars on pump.thon tokens is approximately 0.00003%

Questions Answered

What is Joe McCann's main thesis on Solana?

Joe McCann's main thesis is that Solana is consistently outperforming Ethereum on key metrics despite having a much lower market cap. He argues that Solana's fundamentals are improving, its reliability issues have been addressed, and it's experiencing record-breaking activity levels. McCann believes Solana has significant upside potential and could potentially challenge Ethereum's dominance in the smart contract platform space.

How does the upcoming US presidential election potentially impact the crypto market?

McCann believes the market is currently pricing in a Donald Trump victory, which he sees as bullish for Bitcoin and, by extension, Solana. He predicts that if Trump wins, Bitcoin could quickly reach $100,000, and in the case of a "red sweep" (Republican control of both the presidency and Congress), it could hit $150,000. McCann argues that Solana, with its higher beta to Bitcoin compared to Ethereum, stands to benefit significantly from a Trump victory.

What role do meme coins play in Solana's ecosystem?

McCann views meme coins as a positive force in Solana's ecosystem. He argues that the intense speculation and trading around meme coins serve as a constant stress test for the network, pushing it to its limits and revealing areas for improvement. Additionally, meme coin activity contributes significantly to the overall ecosystem, from DeFi to infrastructure projects. McCann also reveals that institutional investors are becoming more active in the meme coin space, recognizing their potential for high returns.

How has Solana's performance improved recently?

Solana has made significant improvements in its reliability and performance. The transaction failure rate has decreased from over 75% in April to around 35% currently. McCann attributes this improvement to the Solana team's ability to identify and address issues in a real-world, high-stakes environment. He also highlights that Solana is setting new records in metrics such as Real Economic Value (REV) and the SOL/ETH ratio.

What potential risks does Solana face?

While McCann is overall bullish on Solana, he identifies potential risks to his thesis. The primary concern is the possibility of poor developer go-to-market execution. He emphasizes the critical importance of maintaining developer mindshare and continually improving the onboarding process for new developers. Additionally, a significant and prolonged drop in network activity could be cause for concern, as it might indicate a shift in user preference to other platforms.