Web3 Watch – 22 Mar 24

Happy bull market to one and all! Let’s dive into it.

Leading narratives and sectors

Memecoins on Solana

It is clear that recently, memecoins on Solana have been the dominant narrative and sector, while other narratives such as BRC20s, ordinals, modularity and interoperability, have taken a back seat. 

Looking into the future

However, anecdotal evidence suggests the Solana network has gotten much slower, and executing a trade on a DEX especially for unsophisticated users who do not know how to run bots or trade via APIs, have become more cumbersome. A prime example would be trying to trade memecoins on Solana’s most dominant DEX, Raydium, which has been a rather negative experience for users For example, pool liquidity of the token cannot be found, despite it being listed on Raydium, and there have also been instances of failed transactions.  

Twitter user @cryptoMaxi420 referenced a chart from Dune to demonstrate this, showing that ~71% of transactions on Solana have failed:

It is clear that the reason for the community moving from Ethereum to Solana was due to (i) speed / efficiency and (ii) lower costs (with regard to gas fees). However, what is also clear is that the network has lost one out of the two fundamental reasons for users switching from Ethereum to Solana – speed efficiency.

Despite Solana’s extremely strong marketing, branding, community, and relatively easier access and exposure to retail, we share a contrarian view below on why this move to Solana may not be sustainable?  

The Beginning of the End of Solana Summer, and rotation into L2s? 

As mentioned previously, the reason for the masses flocking over from Ethereum to Solana is due to (i) speed efficiency and (ii) lower gas costs. Since Solana has lost its speed and efficiency, potentially due to network congestion, we have a contrarian view that capital may rotate into L2s, due to the fact that L2s solve issues of speed, efficiency and gas costs – the very reason why people moved over to Solana in the first place. 

This view is also bolstered by the recent Dencun upgrade, that significantly reduces transaction costs on ETH L2s, as mentioned in a previous edition of Web3 Watch:

Also, capital outflow from Solana into L2s are already showing, with Base capturing the most capital amongst the L2s:

That being said, there is some downside for capital flowing out from a singular chain (Solana), into L2s, due to fragmentation of liquidity. The implications of this would be lesser ‘pumpamentals’ when it comes to any token (serious or memecoin) on the L2s.

For now, it appears that Base could be the place where the next summer will take place.