At this point, I'm sure you must have gotten tired of the SOL/ETH debate, as it has been argued ad nauseam. I don't mean to rehash the argument, but now and then, gas is added to the fire that makes the debate loud for a while, only to die back in the background. Well, the recent gas that was pumped into the fire was Santi (of Empire's pod), thoughts of there being greater than a 20% chance that SOL, flips ETH this cycle.

I will get to that later. You guys probably know my stance on Solana. While it might seem like I'm anti-Solana, I'm not. In what happens to be the longest research piece I have ever worked on (33 mins read), is Solana aligned. In that article I answered the question: Is Solana dead yet? You can read it here. Would describe myself as more of a modularity maxi, than an ETH maxi. I'm a big believer in the modularity thesis, over the monolithic vision. That, is why I'm not that much of a fan of Solana. If Solana pivoted today towards a modular roadmap, I'd flip 180° and become their cheerleader.

Solana has earned itself the name "third chain", it's the next thing after Bitcoin and Ethereum. No altcoin has survived a full cycle and recovered, but Solana appears to be doing so. So yes, the Solana ecosystem has earned its stripes, it survived the FTX fiasco, and for that the tip of the hat to them.

Blockchains sell two things, blockspace and order flow. With blockspace being the primary source of revenue. In short, blockchains set out to sell blockspace, order flows are just a derivative of that. When I say order flow, I'm talking about MEV. Since blockchains sell blockspace, a profitable blockchain will have to generate enough revenue from its selling of blockspace to continue operation. Revenue is fees less cost. Fees are a representation of demand for blockspace, while cost is what it costs to run a blockchain. There are lots of costs associated with blockchains, but the primary one relevant to the discussion is inflation — the issuance of the native token.

Every blockchain starts that way, they issue their native tokens to validators for them to secure the chain. At first, these tokens have no value, they hope that if the chain is safe, people will come around, and build on it, and the ecosystem thrive thereby returning value to the chain, in the form of fees or ascribing monetary premium to the native token. On a long enough timeframe, the chain generates enough fees to be able to pay its validators and inflation of the native token stops. At that point, or close to it (when inflation is very low), does the native start accruing value? This is the end goal of most blockchains, but none has gotten there, yet. They still inflate their native tokens in a way (no matter how small). Not even Bitcoin, after 15 years of existence, has fully gotten there yet. Bitcoin has already achieved monetary status as it started as money. Ethereum is the closest to Bitcoin, despite not starting as money. Then you have a long tail of assets, which Solana is part of.

To put pen to paper, Ethereum makes $2.7b in revenue and is profitable after paying its validators. While solana on the other hand is raking in $140k in daily fees while issuing 11M SOL. In October, they spent $42M in expenses and brought in $1M. That is a very unprofitable business, by any standard.

There are four angles to the argument.

First things first, let me be fair, solana fees cost pennies, they are essentially free. The goal is to make it up in volume. Fast transactions and almost zero fees would lead to more transactions, which will lead to more fees, although small, adding up over time, which is why they are pursuing scaling on the L1. It's a normal strategy used in the real world, to sell cheaper Toyota Camry and sell more cars, as opposed to selling expensive one-off Ferraris. Going back to Solana, they have the scale, they need more transactions to generate more fees so the chain can become profitable.

The other angle to this is that Solana is a startup. In short, all blockchains are. And it's too early to be discussing profitability. The goal should be geared towards scaling, acquiring market share and users, because that's how you disrupt the incumbents. And that's what Solana appears to be doing. Solana currently has the best UX in all of crypto, no doubt they have nailed it with the user experience. You must bleed cash for some time as you grow. It's a common thing with start-ups.

The other angle to this is the old debate of whether inflation is a cost to the network. Because if inflation isn't a cost to the network, then none of these matters, and Solana is profitable. I guess we are yet to flesh this out, but I think inflation is a cost to the network and it matters. Inflation is a cost to the holders, don't think that one is up for debate.

The last angle to this, which isn't talked about that much, is if blockchains are meant to be profitable. What if that's the business strategy, make nothing on fees and monetize else, for example, order flow, pushing the cost to the dApps, or validators paying to vote on blocks? I'm sure there are ways to monetize a blockchain other than selling blockspace that we have not thought of yet. Is like Google giving you Gmail for free and monetizing via the cloud or somewhere else. You won't say Google isn't profitable because Gmail is free. Perhaps Solana's blockspace is their Gmail, while they are yet to find their cloud.

The last thing I'd discuss is if Solana can flip ETH. It's what started all of these. As I alluded to at the start, Santi thinks that there's a greater than 20% chance that it will happen this cycle. Will take the under on that, while there's a greater than 0% chance that Solana flips Ethereum, it's not in this cycle, and I did put it in the low digits.

Santi lays out 4 reasons why he thinks it's possible.

Parallel Execution and Local Fee Market
Firedancer
Sleek UX
Surviving FTX

Three of Santi's reasons are based on tech. Like I have talked about in the past, tech is non-fungible and can't be compared. If you think Firedancer is cool, what about Proto-dank sharding? If your thesis is based on tech, you also need to access Ethereum's tech to come to that conclusion. Due to the non-fungibility of tech, that's an almost impossible feat.

The second thing is that tech changes every time, and it's not something a blockchain should brag about, let alone hang its hat on. Remember when TPS was a huge deal, and chains with high TPS (like EOS) were thought to flip Bitcoin? Well, we have loads of TPS now, and it doesn't matter if your chain can do 10,000 or 100,000 TPS, they are both fast for users and there's no differentiator there. A user would care less if a txt took 500 ms or 700 ms to process, both are under a second. This is just an example of how tech upgrades can quickly take the back seat. I think PE and Localized Fee Market will soon be accessible to all blockchains, in one way or the other. It's already on Ethereum via L2s. Sleek UX is something every blockchain is gearing to. In the fullness of time, I don't think any of the above sets Solana apart, let alone give it the balls to flip Ethereum.

Surviving FTX is a little overblown, yes, it's a good thing, but I don't exactly see how that imparts the Solana ecosystem generally. Ethereum survived the DAO fork, but there's little happening in ethereum right now that can be sourced back to the survival of the DAO fork. In a long enough timeframe, I think the relevance of Solana surviving the FTX fiasco will gradually fade to obscurity. In short, it's already dwindling — look at SOL's chart.

Am I bearish SOL? No. I'm I bullish SOL? No. I feel indifferent now on Solana, although I lean towards bullish rather than bearish.