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Home»ALTCOIN NEWS»Ethereum faces Solana challenge as validator income increases
ALTCOIN NEWS

Ethereum faces Solana challenge as validator income increases

By Crypto FlexsMay 9, 20243 Mins Read
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Ethereum faces Solana challenge as validator income increases
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  • Analysts show that Solana is approaching Ethereum across its entire validator inome.
  • Solana’s high earnings make becoming a validator more attractive.
  • However, DeFi traders run the risk of their transactions being outpaced by validators.

In the blockchain ecosystem, Ethereum and Solana are competing fiercely to attract validators. The more validators there are, the more secure the network becomes and the more demand there is for tokens in a proof-of-stake (PoS) system.

Recent data from one analyst suggests that Solana could soon surpass Ethereum in total value that validators can earn from their activities.

Solana is set to surpass Ethereum in validator earnings

On Tuesday, May 7, Dan Smith, Senior Research Analyst at Blockworks, said: shared data This means that Solana’s total economic value is close to that of Ethereum. In particular, Solana may soon surpass Ethereum in total transaction fees and maximum extractable value (MEV).

Okay, you guys ran with this without any evidence, but here’s the data.

We define “Total Economic Value” (please give me a better name) as the total transaction fee + captured MEV returned to the validator.

yesterday
Ethereum: $3,165,772
Solana: $2,803,313 https://t.co/sZAvN0MCUV pic.twitter.com/QqXStScrvk

— Dan Smith (@smyyguy) May 7, 2024

On May 6, the combined value of Ethereum was $3,165, and Solana’s combined value was not far behind at $2,803. Smith’s analysis suggests that Solana could soon “flip” Ethereum, perhaps within a week.

Learn more

Crucially, Solana fees still lag behind Ethereum at $1.49 million versus $2.75 million for Solana, so flipping relies on the relatively high MEV that Solana validators can extract.

MEV, initially known as Miner Extractable Value, is the maximum potential profit a validator can earn by including or excluding transactions in a way that generates additional profits. MEV does not charge users directly, including transaction fees. It is extracted from opportunities such as arbitrage, forward trading or liquidation.

Why are Solana MEV levels so high?

Solana validators are in a relatively good position to benefit from sources other than fees. First of all, Solana’s low fees and fast speeds increase trading volume, providing more arbitrage opportunities. The more transactions, the higher the fees and MEV a validator can earn.

At the same time, lower fees and faster speeds make it easier for validators to profit from MEV strategies. Because transaction costs are a low barrier, validators can engage in large numbers of arbitrage transactions, which are uneconomical on Ethereum.

However, this strategy has drawbacks, especially due to persistent network congestion. A high transaction failure rate of up to 60% means that validators cannot be sure whether a transaction will pass.

The MEV strategy is a mixed bag for traders. First of all, validator preemption harms traders involved in DeFi, increasing effective transaction costs. At the same time, MEV opportunities increase demand for the token by making verification more attractive.

On the flipside

  • Despite the growth, Solana’s total value locked (TVL) was only $3.96 billion as of Wednesday, May 8, compared to Ethereum’s $53 billion.
  • Solana has suffered several outages due to excessive demand, which has raised concerns about its reliability.

Why This Matters

As MEV extraction increases on Solana, traders may face increased preemption risk and higher transaction costs. On the other hand, enhanced validator incentives could increase demand for SOL, potentially impacting the token price.

Learn more about Solana’s dominance outlook:
Here’s how Solana outperforms BNB and USDT: Franklin Templeton

Learn more about how to get blockchain certified.
Bitget trains over 6,000 students: Here’s how to get certified:

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