Solana 'leads the battle' for blockchain payments, Bernstein says

Looking back at recent stablecoin metrics, Solana SOL -3.88% is "leading the battle" for blockchain payments amid growth in market liquidity and improved investor sentiment, according to research and brokerage firm Bernstein.

“The big change this cycle has been the dominant market share of Solana (43% highest share) in value of stablecoins transferred vs. prior cycle market leader Ethereum,” Gautam Chhugani and Mahika Sapra wrote in a note to clients on Tuesday.

They argue that Solana’s single-layer design — compared to the complexity of bridging to Ethereum Layer 2s — direct on-ramps from crypto exchanges, higher throughput and low transaction cost has led to the rise in stablecoin settlement on the network.

Stablecoins transfer volume. Image: Bernstein.

However, in terms of stablecoins issued on the blockchain, Solana still lags significantly behind Ethereum, according to The Block’s data dashboard. USDC +0.053% — the most popular stablecoin on the network — has a supply of $2.2 billion on Solana, compared to $26.4 billion on Ethereum, though it is slowly gaining market share.

Beyond being a global settlement network for cross-border payments and despite pilots with Visa and Shopify, the analysts noted that Solana is yet to break into more mainstream consumer or B2B payments.

Chhugani and Sapra cited scalability requirements as the main bottleneck, requiring a 15-20 fold increase in transactions per second, from around 700 to more than 10,000 TPS on Solana, with blockchains in general yet to cross that chasm. 

The Solana network has grappled with congestion issues in recent days, leading to noticeable delays in transaction processing and a large number of transactions being dropped. The congestion is largely due to spam transactions, with bots attempting to prioritize their activities over regular users. The Solana development team is working on software patches and updates to address these issues, although these will take time to deploy.

Signs of resurgence in the stablecoin market

The stablecoin market peaked at $180 billion in 2021. However, as the subsequent crypto bear market took hold, the market cap fell 33% to a low of $120 billion.

“With improved crypto market sentiment late 2023 onwards, stablecoins in circulation are back on the growth path and circulating supply currently stands at $150 billion,” the analysts said.

Tether’s USDT -0.051% and Circle’s USDC dominate stablecoin supply, accounting for 75% and 22% of the market, respectively.

While stablecoin supply has increased, the value settled and transferred on blockchains like Ethereum remained “sticky,” the analysts noted, at around $5 trillion in 2023 compared to $7 trillion in 2022.

However, Q1 2024’s annualized value transferred shows signs of growth at $6.8 trillion, with the monthly value of stablecoins transferred across all chains increasing more than threefold from $630 million in September 2023 to $1.9 billion in March 2024.

“Stablecoin value settled on the blockchain indicates a strong adoption trend of digital dollar within the crypto trading ecosystem as well as a cross-border payments currency,” Chhugani and Sapra added. “While the initial usage has been driven within the global crypto ecosystem, there are signs of general adoption by payments players (Paypal, Visa) and consumer fintech platforms (Grab in Singapore, MELI in Latin America).”