Overvalued or undervalued, that is the question
Solana and Cardano are the hottest names in the blockchain space right now. Both are trending close to their all time highs with their native cryptocurrencies enjoying fully diluted valuations of $85 billion and $105 billion respectively. The two questions we want to answer in this article are, are the valuations justified? And, is there additional upside potential for investors?
Solana and Cardano are by no means the only blockchain projects vying to take the food from Ethereum’s plate. In fact there are over 100 different blockchains to choose from. It is not a foregone conclusion that either Solana or Cardano will be leading players in this market with the likes of Polkadot, Cosmos and Algorand all providing their own formidable challenge. However the market has spoken. We are here to explore if investors should follow the market or their own path.
The Solana protocol is designed to facilitate decentralized app (DApp) creation. It aims to improve scalability by introducing a proof-of-history (PoH) consensus combined with the underlying proof-of-stake (PoS) consensus of the blockchain.
Because of the innovative hybrid consensus model, Solana enjoys interest from small-time traders and institutional traders alike. A significant focus for the Solana Foundation is to make decentralized finance accessible on a larger scale.
Anatoly Yakovenko is the founder of Solana. His career started at Qualcomm followed by Dropbox. In 2017, Yakovenko started working on a project which would later materialize as Solana.
One of the essential innovations Solana brings to the table is the proof-of-history (PoH). The purpose of PoH is to encode the trustless passage of time into a ledger. A Proof of Stake (PoS) consensus mechanism is then leveraged for confirmation of the current sequence produced by the Proof of History generator. PoS is also used for voting and selecting the next Proof of History generator node and for punishing any validators that act against the interest of the network.
The network is arranged for maximum throughput and high availability. Transactions flow through the network independent of consensus and are limited only by hardware.
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There are over 50 projects within the Solano ecosystem with total value locked shooting up 350% in the last six weeks alone to around $6 billion. Over half a billion dollars of stablecoins have been issued on the network. It’s top five projects include Saber, Raydium, Sunny, Serum and SolFarm.
What critics say
As many of the implementations still await their launch on the Mainnet Beta, the network doesn’t work as smoothly as advertised.
In addition the network architecture was created to scale with bandwidth and hardware. Validators can leverage GPU cores to parallelize execution and reduce verification times that makes its hardware requirements more sophisticated than competitor protocols. According to estimates, a satisfactory setup costs nearly $5,000 which explains the fact that they have only around 400 validators.
What supporters say
The Solana blockchain is highly scalable and very fast in terms of transaction processing time, processing up to fifty thousand transactions per second, much higher than Bitcoin and Ethereum.
Solana also incorporates the Proof of Stake concept where timestamps will be encoded into messages and transactions that provides the users an insight of their historical records with the exact times in which they occurred. This functionality also aids historic records maintenance.
The Solana token (SOL) can be used to carry out payments within the blockchain and owners can stake their SOL to earn rewards. Investors can earn over 10% through some centralized exchanges.
Solana is also stringent with its safety and security measures focused on protecting the rights of its users utilizing a system similar to the one used by Ripple and Stellar.
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Cardano is a decentralized public blockchain and fully open-source cryptocurrency project. The project is developing a smart contract platform seeking to deliver more advanced features than any protocol previously developed. It is one of the first blockchain platforms to evolve out of a scientific philosophy and a research-first driven approach.
Cardano has been referred to as the “Ethereum killer”. Like Ethereum, it uses a blockchain model together with smart contracts and tokens. Ethereum is a second-generation blockchain whilst Cardano is known as a third-generation which has been able to make improvements on Ethereum.
There is no limit to scaling. When more people use the blockchain more transactions can be processed, The ADA cryptocurrency offers cheap and quick transactions, Cardano’s consensus mechanism is also more environmentally friendly than older blockchains.
The Cardano project is different from other blockchain projects as it openly addresses the need for regulatory oversight whilst maintaining consumer privacy and protections through an innovative software architecture.
Cardano is the first protocol based on Haskell code, which focuses on industrial strength products that deliver the resilience necessary for mission-critical systems, in this case, securing investment.
Cardano was founded in 2015 by Charles Hoskinson, one of the co-founders of Ethereum.
Cardano is about to complete phase 3 of a 5 stage rollout. Stage 3 involves the introduction of the much nticipated smart contract. Stage five is the introduction of governance. The project is expected to be fully functioning by 2024.
There are a number of projects building on Cardano including the likes of SundaeSwap and Cardano City. These and many more are expected to go live as soon as Cardano launches its smart contract capability.
What critics say
Despite all the apparent benefits of Cardano, many experts state that since the team hasn’t yet implemented a lot of projects due to incomplete smart-contract and token standards, it’s still hard to use for people who want to run their ICOs and implement asset tokenization,
It is a risk that competitors overtake Cardano because of its slow development. For example the regulatory environment can change, demanding different requirements for the platform.
One of the possible drawbacks of Cardano is that it wants to implement a blockchain voting system, whereby holders of tokens can vote with regard to the future of the blockchain. There would be a kind of library where upgrades and modifications can be proposed and token owners can vote. Implemented blockchain features are very difficult to reverse and token holders are not necessarily experts in blockchain matters, but splits, such as Ethereum and Ethereum Classic are unlikely to occur.
Another drawback to Cardano is that many features are not available yet. There are many plans for future features, but all of these have yet to be implemented. Many of the claims that ADA makes are theoretical, as the blockchain is still being developed. Other blockchains, such as Ripple, Stellar Lumens, and of course Solana are already able to process more than 1,000 transactions per second. The maximum scalability at the moment is only 257 transactions per second.
Staking ADA is a major draw with investors able to earn on average 4.5% by staking their ADA in over 2,500 staking pools.
Finally many feel the academic nature of their approach slows things down and may well lead to a more superior solution but the final product may not be commercially viable. They could even miss the boat by the time the final project is introduced. Scientists make bad entrepreneurs as their focus is on the perfect rather than getting a project to market.
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What supporters say
Ethereum is considered to be the second generation of blockchain. Its advent unlocked the real potential of blockchain technology in the form of smart contracts. Cardano on the other hand is proclaimed to be the third generation and it was specifically designed with the aim of offering all the necessary functionality while overcoming the problems other currencies have encountered.
There are a number of advantages that are being attributed to Cardano over other blockchain platforms. Cardano is considered to be more reliable than other crypto platforms through the use of it’s PoS algorithm. Proof of stake validation eliminates the need for extra machines within the system as the nodes will be responsible for throughput and the system will be less susceptible to interference as a result.
The other security advantage is that it is a two-layered system where each layer is responsible for a complete set of tasks, thus allowing it to work more on interoperability with different crypto platforms. Cardano is more scalable than Ethereum and more decentralized through the use of the PoS since it scales through side-chains horizontally, unlike its older counterpart, which evolves vertically.
The privacy of transactions can be guaranteed because transactions can be executed without the metadata, which for example is processed by Ethereum as standard in transactions. Cardano makes it easier to make updates to expand the network.
Cardano is the only proof-of-stake protocol with mathematically proven safety and peer review of it’s code, Among others, the University of Edinburgh, University of Connecticut and the Tokyo Institute of Technology have contributed to the development of the code.
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What we say
There is a reason why we focused on Solana and Cardano. The market believes they have the best chance of usurping Ethereum as the leading blockchain. What was noticeable in our research was that there were more Cardano sceptics than Solana doubters. Solana is performing, having already built a very healthy ecosystem. Cardano has been promising to do this for some time now with one delay after another, however the day of reckoning is upon them as they are set to launch their smart contract functionality on September 12th.
Valuations are based on the future potential of a project using historical information as a guide. The valuations of both Solana and Cardano are based on them both taking a significant chunk of business from Ethereum as well as controlling a significant share of the blockchain space. In reality by the time Cardano has completed its platform Ethereum will have also gone through its own upgrade which will have eroded much of Cardano’s technical advantages. The driver behind these apparently sky high valuations is the vulnerability of Ethereum caused by it’s slow speed and high fees. Although Ethereum’s inefficiencies have allowed competition to creep in, it is temporary.
We believe there is room for a handful of blockchains to lead the way. Cardano and Solana will no doubt be amongst the mix.
Ethereum’s market value currently sits at $400 billion, compared to SOL’s $85 billion and ADA’s $105 billion. Whilst SOL has experienced a remarkable increase in market value over the last three weeks we consider it to be now fully valued. Cardano on the other hand, in our opinion, does not deserve a premium rating to Solana. It is unproven and its current valuation assumes it is going to transact 25% of the volume and fees generated by Ethereum. As they say, there is many a slip between cup and lip. In our opinion too much faith is being put into a project that is run by scientists. Long term we would be holders of Solana at this level and buying below $150. We are sellers of Cardano down to $1.10.
No Financial Advice
This report does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is a high risk, and you could lose 100% of your investment.