From the point of view of price volatility, the exchange rate between solana and usdt has exhibited dramatic differences in the last year: The SOL price rose from 18.5 USDT in August 2023 to 158.2 USDT in July 2024, with an annual return rate of 755%. In contrast, USDT, being a stablecoin that is pegged to 1 US dollar, has a volatility of less than 0.1%. This gap determines the character of Solana as a high-risk and high-return asset. For instance, when FTX collapsed in November 2023, SOL dropped 28% in one day to 9.8 USDT. However, subsequently because of the recovery of its ecosystem, its value rose by 620% in six months much higher than USDT’s zero-yield performance.
From the standpoint of technical efficiency, Solana network has surpassed Ethereum (15 TPS, 12 seconds) hands down with 0.4-second block generation time and a capacity of 65,000 TPS and thus is economical in the context of solana to usdt trade. Statistics show that the average USDT transfer fee on the Solana chain is 0.001 USDT, while the ERC-20 USDT fee on Ethereum is as high as 1.2 USDT, a 1,200-fold difference. In May 2024, cross-border payment giant Visa chose Solana to pilot the settlement of large USDT transactions. It cost only 2 seconds per transaction, reducing 98% in fees and taking the volume of trades on a daily basis for USDT on the SOL chain over 1.2 billion, up 45% compared to the previous period.
On the level of market adoption, the overall value of DeFi assets locked in the Solana ecosystem increased from 210 million US dollars in early 2023 to 4.87 billion US dollars in July 2024 at an annual growth rate of 2,2220%, while the issuance volume of USDT increased by just 34% within the same period (from 66 billion to 89 billion US dollars). On-chain analytics firm Messari pointed out that the solana to usdt trading pair on the solana network accounts for 37% of the total stablecoin trading volume on the entire network, surpassing Binance Smart Chain (BSC) at 29% and being the second-largest stablecoin liquidity pool after Ethereum. In addition, the Solana NFT marketplace Magic Eden’s average USDT settlement volume per month was in excess of 420 million US dollars, which occupied 68% of its total transactional volume, showing the large reliance of consumption situations across the ecosystem on stablecoins.
In terms of risk and regulation, USDT is still the most popular safe-haven asset with 98.3% reserve transparency of US dollars and a 68 billion US dollar daily average trade volume. However, its 0% return is in sharp contrast with the 5.8% annualized return of Solana staking. In June 2024, the US SEC began investigating whether Coinbase’s listing of SOL was in compliance, and the weekly volatility of the exchange rate of solana to usdt increased to 22%. But market confidence was restored by the Solana Foundation at a very rapid pace through technological advancements (such as the Firedancer testnet raising the stability of the network to 99.9%). In contrast, the volume of USDT redemption for one day was only 0.3% of the outstanding volume during the 2023 banking crisis due to Tether’s conservative policy of holding $83 billion of US Treasury bonds, proving its risk-resistance ability.
Lastly, solana greatly outclasses USDT in terms of risk hedging ability and technical effectiveness but is still irreplaceable as a risk hedging instrument due to its liquidity and stability. Investors have to dynamically rebalance the asset ratio between solana and usdt against the risk tolerance (e.g., 85% of the annualized risk of SOL vs 0.1% of usdt) and desired return.