Multicoin Co-founder Token2049 Speech: Why Solana Will Surpass Ethereum?

Speaker: Kyle Samani, Co-founder of Multicoin

Organizer: Shan Ouba, Jinse Finance

With the rapid development of blockchain technology, Ethereum, once the leader in the industry, has achieved great success. However, after 9 years of development, Ethereum took 5 years to determine its scaling plan and another 7 years to complete the transition from Proof of Work (PoW) to Proof of Stake (PoS). Ethereum has never clearly stated what it wants to become. The scaling plan has constantly changed, lacking a clear direction.

In contrast to Ethereum's confusion, Kyle Samani, co-founder of Multicoin, expressed great expectations for Solana's future in his keynote speech titled "Why SOL Will Flip ETH" at the Token2049 conference on September 19. The entire community has come together around a shared vision—"Decentralized Nasdaq"—with everyone moving in the same direction. Jinse Finance has organized the content of Kyle Samani's speech as follows for readers.

Below is the full text of Kyle Samani's speech (subheadings added by the editor):

Good morning, everyone! I am Kyle Samani, co-founder and managing partner of Multicoin. Today, I will discuss why we believe Solana will surpass Ethereum. Some of you may already agree with this view, while others may find it too radical or unlikely to happen. My goal is to at least get you to rethink the driving factors behind it.

Today's speech is divided into three parts. First, I will briefly review the history of Ethereum, as this is crucial for understanding its current state and issues. Next, I will talk about why Solana is in a favorable competitive position. Finally, we will analyze some key metrics that indicate Solana has already surpassed or is close to surpassing Ethereum, which are on-chain data that Multicoin is very focused on.

Before we begin, I need to make two legal disclaimers. First, the views expressed today are solely my own and do not represent Multicoin. Second, the content of this speech does not constitute investment advice and should not be considered an offer of investment advisory services from Multicoin.

History of Ethereum

Now let's talk about the history of Ethereum. Ethereum has been around for 9 years, officially launching in July 2015. I think this point is crucial and will be emphasized repeatedly today. Ethereum has existed for 9 years, providing ample time to address the issues it faces and to determine its development direction, which I will discuss in detail later.

So, what has happened in these 9 years? I believe there are three very important events. First, the rise of decentralized finance (DeFi) has become the most important application of blockchain. Although DeFi had some development before 2020, the real explosion occurred during the "DeFi summer" of 2020, five years after Ethereum's launch.

The second major event was Ethereum's decision in October 2020 to adopt a roll-up-centric scaling roadmap, made a few months after the EIP-1559 update. However, a clear issue with the roll-up roadmap is that it is not friendly to DeFi, leading to problems such as cross-chain bridges and network fragmentation. Just two months after the DeFi summer ended, they announced this roadmap, and the impact was evident.

The third key turning point was Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS) in 2022. Notably, the Ethereum community had this plan even before the mainnet launch in 2015, but it took 7 years to realize it. This indicates that Ethereum's actions have been very slow and have consistently lacked a clear direction.

Next, I want to briefly discuss Ethereum's scaling roadmap. To be honest, this roadmap has changed multiple times, with early proposals including concepts like Plasma and state channels. If you remember, there were also crazy ideas like Hyperledger at that time. Clearly, none of these were realized. Ultimately, it took them 5 years to officially decide on a roll-up-centric roadmap in October 2020.

However, this roadmap is now also being questioned, or at least partially doubted. Recently, in public discussions, there have been increasing questions about whether to scale L1, whether to introduce multiple block proposals, and so on. These ideas are closer to the strategies of projects like Solana and have now re-entered the discussions around Ethereum.

We do not know what decisions Ethereum will ultimately make; it may take 3 months, 6 months, or even 9 months to see the outcome. But I want to emphasize that the roadmap established four years ago is now at least partially questioned and may even be completely overturned. Ethereum has existed for 9 years, yet it seems to have returned to square one—what is going on?

Before discussing Solana, I want to point out that Ethereum is no longer the center of value capture. The roll-up-centric roadmap clearly shifts transaction fees and MEV (Maximum Extractable Value) fees from L1 to L2, L3, and even L4. While this roadmap successfully pushed transactions to the L2 layer, it also moved most of the value creation away from Ethereum as an asset.

Ethereum Still Lacks a Clear Direction

Some people will tell you that you can still use Ethereum for data availability (DA), and that is indeed correct. But I will show in the next few slides that the value of DA is almost zero. There is enough DA available in Ethereum and elsewhere. People will eventually say that Ethereum's value comes from "ETH is money," but that is completely absurd. This assertion is essentially a circular argument that cannot be falsified; they are merely imposing their beliefs on you without any logical derivation.

The litmus test for determining whether something is money is simple: go to a coffee shop and ask them how they price their coffee. If they price it in ETH, then ETH is money. If it's in dollars, then dollars are money. That is the standard for judging money; everything else is not a standard.

L2 Transaction Data

We can see the proportion of transactions moving from L1 to L2 over the past three to four years. This is very clear; now almost all transactions are on L2, with over 90% of transactions occurring on L2. This is going according to plan; they have indeed achieved their goal, but what is the result? They have been talking about the so-called DA value rules. In reality, L2 is the one making money.

Let's take a look at the revenue and expenditure situation of Base, which is currently the largest L2 by major metrics. It is clear that Base's weekly revenue is around $1 million, while expenditures are almost zero. The reason for zero expenditure is that they only need to pay fees to L1 for DA, and this may remain at this level in the future.

I want to emphasize that while people have been saying that L2 relies on L1, this chart clearly shows that they are actually in opposition. The purpose of Base is simple: to create profits for Coinbase's shareholders; they want to maximize revenue and minimize expenditures. In fact, the incentive mechanisms of Base are exactly the opposite of those of Ethereum L1, as Base aims to minimize the fees it pays. If we look at other major L2s, such as Optimism, the situation shown in the charts is almost the same, and Arbitrum follows the same pattern. This trend is consistent across all L2s.

Ethereum's Vague Positioning

I want to make it clear that Ethereum has never truly defined what it wants to be.

Nine years ago, it launched as a "world computer," but this concept has never been clearly defined, and even now there is no clear definition. Admittedly, I don't think they need to define what a "computer" is; it's just a marketing term. But nine years have passed, and they still haven't told us what practical use this platform actually has. While concepts like decentralized finance (DeFi), Web3, and decentralized identity storage have emerged, what Ethereum currently presents is a mixture of these concepts. Frankly, it has become vague and lacks a prominent direction. Even a few weeks ago, Vitalik and other members of the Ethereum Foundation publicly stated that DeFi is just a circular argument and suggested that people should do something else with Ethereum.

That's fine; I also hope Ethereum can do more things. But the problem is that nine years have passed, and they still have not provided clear guidance or given any clear opinions. The lack of urgency and clear direction has filled the entire system with negative energy. DeFi is the most important thing on blockchain, whether on Ethereum, Solana, or other chains. When I hear someone say "DeFi is not important," I just want to say, if you don't plan to optimize DeFi, then tell us what you plan to optimize. But they haven't, because they don't know themselves.

Let's recap: Ethereum has existed for 9 years, took 5 years to determine its scaling plan, and another 7 years to complete the transition from Proof of Work (PoW) to Proof of Stake (PoS). Ethereum has never clearly stated what it wants to become. The scaling plan has constantly changed, lacking a clear direction. They do not know what they are optimizing. Because of this roll-up roadmap, they have effectively transferred most of the value appreciation from ETH to L2 projects like Base.

Meanwhile, Ethereum's market capitalization remains around $300 billion, making it one of the top 40 assets by market cap globally. However, this project still does not know what it wants to become, and this structural issue is very evident. Next, we will turn to discuss the history of Solana. Unlike Ethereum, which has never found a clear direction, Solana has always had a clear goal.

Origins of Solana

Solana's founder, Anatoly Yakovenko, began conceptualizing Solana in 2017 while he was writing trading bots using an American service provider—Interactive Brokers (similar to a more advanced version of Robinhood). He found that he could not access real-time market data from the New York Stock Exchange and Nasdaq, while companies like Virtu and Jump Trading could easily obtain it. He felt this was very unfair and believed that everyone should have fair and open access to market data.

This unequal experience prompted him to develop Solana, aiming to allow anyone to access market data in real-time, 24/7. The Solana system is designed to optimize information dissemination, enabling anyone with a computer and internet access to receive this data in real-time. This vision has become Solana's "North Star," guiding them to build a global, real-time decentralized exchange from day one.

Although this process has been much more challenging than expected, Solana began development in 2018 and eventually launched version 1.0 in 2020. Despite experiencing multiple failures and issues such as network outages and congestion, they have remained committed to this vision. It wasn't until the version 1.18 upgrade in May 2023 that Solana truly realized this vision. This upgrade enabled features like limit orders and order cancellations to function normally, allowing transactions to proceed smoothly with almost zero fees.

Solana's success lies in its commitment to this difficult and ambitious vision. Despite facing failures, the final user experience is outstanding, and it does not suffer from the bridging and fragmentation issues seen on Ethereum. Additionally, Solana's asset value has significantly increased, now generating $500 million to $1 billion in revenue annually, primarily from MEV (Maximum Extractable Value). Solana's success demonstrates the power of focus, as they took 6 years to turn their vision into reality.

This is also why we believe Solana's market capitalization will surpass Ethereum's. Next, we will explore some key on-chain metrics that indicate Solana's performance has already approached or surpassed that of Ethereum.

Surpassing Ethereum

First, blockchain systems are essentially financial systems. We can see that Solana's on-chain transaction volume has nearly caught up with Ethereum over the past year, sometimes even exceeding it. This is the most important metric we consider, as the core function of blockchain is to facilitate transactions.

Next, let's look at the second metric: validator rewards. Solana has also caught up with Ethereum in this regard, with some weeks where Solana's validator rewards even exceed those of Ethereum.

The final metric is the transfer volume of stablecoins. While Solana still lags behind Ethereum in this area, its growth rate is astonishing. About a year ago, Solana's on-chain stablecoin transfer volume was 1/10 to 1/20 of Ethereum's, but today it is approaching half, indicating that funds are flowing more and more on the Solana chain.

If you believe these metrics will continue to maintain the same growth trend, it is reasonable to speculate that Solana's market capitalization will also grow in the same direction.

Structural Advantages of Solana

Next, I want to talk about Solana's future and its three unique advantages, which are nearly impossible for other communities to replicate and are also why we are more optimistic about its future.

The First Advantage is Token Expansion Features

The token expansion feature was launched earlier this year, providing many features for payment companies or global major asset issuers, such as built-in yield functionality, confidential transfer functionality (hiding sender and receiver), asset issuance and revocation functions, etc. These features were developed based on the direct needs of payment companies and Wall Street and are now live on the mainnet.

I emphasize this because we not only have DeFi and other decentralized financial tools but also need to meet the needs of regulated finance. Without these integrated features, regulated financial companies will not be able to scale on-chain. These features are fully integrated at Solana's L1 layer and can be used at any time. We believe this is a significant advantage for Solana, and it is nearly impossible to replicate in Ethereum's ecosystem.

Ethereum's EVM (Ethereum Virtual Machine) is fragmented, with many different versions, such as Optimism, ZK-rollups, Polygon, etc. While they share about 98% of the same code, they are not entirely consistent. If you want to establish common standards for things like confidential transfer stablecoins across these different EVM versions, it is very challenging to get these systems to communicate and cooperate with each other. This is not a technical issue but a human coordination issue. You need to get these different teams to sit down and reach an agreement, which is very challenging.

The first project to use token expansion is PayPal's stablecoin PYUSD, which went live on the mainnet a few months ago. We expect that the token expansion feature will become one of Solana's signature features in the next 3 to 4 years, allowing it to stand out among numerous blockchain projects.

Firedancer

Next, I want to talk about Firedancer. Firedancer is a new Solana client that is about to launch, with an expected announcement in the coming days or weeks. They may reveal the exact date at tomorrow's Breakpoint conference. If you are not familiar, Firedancer is a new supply client developed by Jump Trading, one of the largest high-frequency trading firms in the world, known for its speed among all high-frequency trading companies.

We believe this is very important because the Jump team is applying all the knowledge and experience they have accumulated in building high-performance trading systems to this client. From the beginning, Solana's vision has been to create a decentralized Nasdaq, and now we are bringing the wisdom of this globally leading trading company into it to build the fastest commission-free exchange in the world. This system will have strong scalability and speed, allowing us to enhance the Solana characteristics we love—composability, no bridging issues, etc.—under Firedancer.

Hardware Expansion

Finally, I want to discuss hardware expansion related to Firedancer. One of Solana's design principles is to scale naturally through parallel hardware. Since the project's inception, Solana has been discussing this issue. I have also been talking about it for several years. The core idea is simple: if the number of cores in the system doubles or triples, you would expect the system's performance to also double or triple. This is a very intuitive idea.

This idea applies not only to Solana but also, due to Moore's Law, has seen significant performance improvements in systems that can leverage parallelism over the past 50 years, especially in the last 10 to 15 years as the number of cores has increased. Today, this idea is particularly important because a renaissance in the AI field is occurring, with substantial capital flowing into the entire semiconductor value chain, from design to manufacturing, and this sector has experienced the fastest growth rate in the past 30 years.

This is all thanks to the explosive growth of AI chips, which are developed by numerous startups, as well as companies like Nvidia and AMD. Most of these chips are highly parallel, and while not all chips are suitable for Solana, that doesn't matter; we only need a few of them to be compatible, which will significantly enhance Solana's performance. Remarkably, this AI renaissance is completely unrelated to cryptocurrency. Anyone in the cryptocurrency space does not need to understand or care about what is happening in the AI field, but the $30 billion, $40 billion, or even $500 billion in R&D investments in AI will indirectly boost the performance of the Solana network.

This is a key concept at the core of system design: to win what we believe will become one of the largest markets in the world—decentralized Nasdaq. The EVM (Ethereum Virtual Machine) is a single-threaded processor; although they have been talking about parallelization for 9 years, there has been no substantial progress. We believe this comprehensive embrace of parallel processing will become more evident in the coming years, especially as on-chain assets expand.

Finally, we are very optimistic about Solana's future. Everyone is working towards the same goal. Everyone is committed to building this decentralized Nasdaq. We have strong development teams, asset issuers, token expansion features, and efficient clients, all of which work together to build a scalable network and create an asset that appreciates as the network expands. We look forward to seeing further developments in Solana over the next few years.

Thank you all!