Solana Price Analysis: SOL to Overtake ETH and ADA in Ordinals Race?

Insights:

• Solana (SOL) price reclaimed $75 territory on Tuesday as the bulls regained control of the markets reversing the 15% correction from the yearly high of $80 recorded on December 15.
• The Ordinals Inscription wave on the Solana network has triggered a significant spike in fee burned and staking rewards. 
• In a bid to capture more gains from the staking reward largesse, SOL validators have staked an additional 15.7 million SOL this week. 

Solana’s (SOL) price reclaimed $75 on Tuesday, Dec 19 as it continues to outperform rival layer-1 coins including Ethereum (ETH) and Cardano (ADA) for 2023. The on-chain analysis examines how the Solana has captured value from the spike in Ordinals inscriptions across various EVM-compatible chains this week. 

As the Layer-1 altcoin race hots up ahead of 2024, will staking dynamics see SOL price gains leapfrog ETH and ADA? 

Ordinals Inscriptions on Solana Jump Past 1 Million Mark

Solana price rallied on the news and impact of Ordinals inscriptions sweeping across EVM-compatible blockchain networks this week. 

Similar to the popular Bitcoin Ordinals (BRC-20), these Inscriptions refer to creators embedding images or other data directly on the smallest unit of the on-chain data. These inscription can be used to create unique digital assets like non-fungible tokens (NFTs) and even decentralized applications (dApps).

While they have been criticized for causing fee spikes and network congestion on Proof of Work chains like Bitcoin, Dogecoin and Litecoin, EVM-compatible networks like Solana, Cardano and Ethereum have displayed superior scalability to handle the millions of daily Inscriptions. 

Indicatively, The inscriptions on the Solana network (SLP-20) commenced around Nov 16 has now reached historic peaks. On Dand over the next two days, more than 66,000 SLP-20s were inscribed on the network.

The Ordinals activity on Solana exploded over the weekend, with a whopping 287,000 inscriptions minted on Saturday, Dec 16 alone. Notably, that brought the cumulative number of SLP-20 ordinals transactions to the 1 million mark, as illustrated in the chart above. 

Ordinals Inscriptions Have Triggered Increased Fees for SOL Holders

But rather than create network outages, and congestions, the Solana ecosystem seems to be capturing value from the Ordinals Inscription wave. Between, Dec 16 and Dec 19, SOL price has gained 12%, bouncing from $67 to $75. 

On-chain data trends reveal that SOL price benefiting from the inscriptions could be attributed to Solana’s unique staking rewards and fee burn dynamics. 

According to TokenTerminal, an on-chain data tracker, the ordinals inscriptions had triggered an astronomic rise in daily transaction fees generated on Solana network in the last few days. 

As depicted below, Solana generated a record $300,000 in total transaction fees on Dec 14, just at the ordinals inscription wave began. 

The Revenue Share chart above illustrates the dollar-value of fees generate on the Solana blockchain network daily. It also goes a step further to show how much of the daily fees is burned and how much is distributed to node validators i.e stakers. 

By design, 50% of the SOL fees generated is burned permanently, while the other 50% is distributed to the node validators. 

Unlike proof of work networks, these EVM chains like solana are able to handle batches of millions of ordinals inscriptions without significant network disruptions. 

However, compared to Cardano ($0.17 average transaction fee) and Etheremu ($13 average transaction fee), Solana has an average transaction fee of $0.00025 according to Coinwire.

Hence more Ordinals creators may be incentivized to direct majority of their inscriptions to Solana network. 

If this scenario plays out, Solana could re-distribute more value to current holders. With those holders less willing to sell, SOL price could increase faster than ETH and ADA as the demand rises in the weeks ahead.