Published: September 13th, 2021
While Ethereum is the blockchain of choice for Decentralised Finance (DeFi), several projects are hoping to knock it off of its pedestal. Two of them, Solana and Algorand, have seen their prices surge in recent weeks, with the latter’s ALGO coin leaping in price by 100% over two days last week.
Figures from CoinGecko show that ALGO hit a high of USD 2.43 last Wednesday, more than double the USD 1.20 price seen two days prior. At the time of writing, the price had fallen back to USD 2.30, but that still leaves it up 98 per cent for the week and 167 per cent up over its price 30 days ago.
Algorand hasn’t seen its native coin touch those levels since it launched in June 2019. CoinGecko figures show an all-time high of USD 3.55 in the feverish period around launch, but prices dropped below USD two dollars soon after and stayed there until last week.
Algorand is an Ethereum-alternative blockchain that uses a faster, more energy-efficient transaction verification system called proof-of-stake. It's similar to Solana, and Ethereum’s own upcoming 2.0 launch, designed to address concerns that the chain has become too large and unwieldy to accommodate the unprecedented growth in DeFi, dapps and NFTs.
It’s built for speed and scalability with DeFi protocols in mind, aiming to become the go-to platform for developers. At its peak price last week, ALGO made it to 12th on CoinGecko’s list of the largest cryptocurrencies by market cap.
How to explain Algorand’s sudden surge? Two factors seem to be impacting demand. On 1st September, blockchain payments firm Koibanx announced that the government of El Salvador had engaged it to build an Algorand-based blockchain infrastructure for the Central American country. Koibanx is also planning to use Algorand for other blockchain-based services, including a tracking system for coronavirus infection.
Spillover from the parallel rise of rival platform Solana could also be driving sentiment. Over the last month, Solana’s SOL native coin has risen from around USD 36 to a peak of USD 212 last Tuesday.
Solana is seen as one of Ethereum’s top challengers, thanks to low fees and its ability to accommodate a large volume of blockchain transactions at any one time. As an alternative to both Ethereum and Solana. Algorand’s lower-priced coin and smaller market cap may have put it on investors radar as a potential grower. If they missed out on Solana’s price surge, maybe Algorand will hand them a second chance for fast gains.
DeFi usage on Algorand is also on the up, with about USD 90 million in smart-contract total value locked (TVL) on the platform. That represents a 52 per cent increase over the last month. That said, it's small potatoes compared to DeFi activity on other platforms. Market leader Ethereum counts more than USD 125 billion in TVL on DeFi protocols, while Solana, even in distant second place, boasts around USD 8.5 billion.
What’s missing on Algorand is growth in NFTs. Ethereum pretty much owns the NFT ecosystem, but Solana has begun to make inroads, however, with popular collections like Aurora launching on Solana in August, driving tens of millions of USD in transaction value.
Algorand hasn’t seen an NFT influx, but Solana's successful NFT collections could provide a template for future growth.
In a report this past July, the Algorand Foundation said that more than half a billion USD had entered the Algorand ecosystem in Q1 and Q2 of 2021, including a USD 100 million investment by digital asset management firm Arlington Capital. The foundation says it expects ‘more adoption of Algorand-based NFTs, decentralised applications, and DeFi applications to continue that momentum.’
In August, Solana’s SOL native coin embarked on a meteoric rise that saw its price nearly double in a week.
According to data from Defi Llama, SOL’s price touched just below USD 39 on 13th August, rocketing up 96 per cent five days later. Earlier in May, SOL reached a high of USD 55 then headed downward again, along with the rest of the cryptocurrency market.
With Bitcoin and the broader crypto market bouncing back, Solana is soaring too, posting gains that have put it at the forefront of the crypto pack.
Solana is a proof-of-stake blockchain built to overcome structural weaknesses that have begun to hobble Ethereum. It uses smart contracts that execute transactions automatically. Their arrival on the scene has revolutionised crypto and paved the way for innovation in a wide array of decentralised finance services, including peer-to-peer lending and trading.
While Ethereum is the most popular network for building new DeFi services, NFTs, and decentralised apps (dapps), Solana was built to be fast from the ground up. It can handle a much higher transaction throughput than Ethereum can, more than 2,000 times more transactions per second than the DeFi market leader.
Ethereum isn’t resting on its laurels and has recognised the competitive threat from Solana, Algorand, and others. Solutions like Polygon work alongside Ethereum’s main net blockchain to boost transaction handling, and Ethereum will soon upgrade to a proof-of-stake network model of its own. Until that happens, expect Solana and Algorand to keep exploiting Ethereum’s weaknesses and draw in more developers eager to see their services supported by a blockchain that’s future-proofed for growth.
Solana boasts around USD 8.5 billion in smart-contract total value locked (TVL), while Algorand has about USD 90 million in TVL. Market leader Ethereum still counts more than USD 125 billion in TVL on its DeFi protocols, but in the crypto market, things can change fast.
Solana recently announced a new event for DeFi developers, an annual conference dedicated to building and improving the Solana ecosystem. It’s scheduled for 7-10 November in Lisbon, Portugal, unless new COVID-19 lockdowns force a re-schedule.