The launch of Ethereum in 2015 ushered in a new era for the crypto industry. Its programmable nature extended blockchain's utility beyond peer-to-peer payments, allowing developers to build software on a decentralized network. And like ordinary software, those decentralized applications (dApps) have a wide range of use cases, from decentralized finance (DeFi) services to video games and social-media platforms.
So, what's the difference? Those dApps aren't controlled by corporate entities, meaning no one is collecting your private data in the background, and no one can censor your content. Similarly, DeFi products eliminate the need for intermediaries like banks and credit-card networks, making financial services more efficient and accessible.
That value proposition has made Ethereum popular with crypto investors, and the ETH token has long ranked as the second-most valuable cryptocurrency behind Bitcoin. However, rising transaction volume has exposed its lack of scalability, causing speeds to slow and fees to rise. And while the developer community is working to solve that problem, a scaling solution isn't expected until 2023.
However, blockchain projects like Solana (SOL -2.01%) and Terra (LUNC 1.05%) appear to have the scalability problem solved, and both are gaining momentum in the crypto economy. More to the point, both could eventually be more valuable than Ethereum.
Here's what you should know.
Solana is a programmable blockchain powered by the SOL token. Its core innovation is a unique consensus mechanism that blends proof of stake (PoS) and proof of history protocols to accelerate network throughput. In fact, Solana can theoretically handle 50,000 transactions per second (TPS) while achieving finality in as little as 13 seconds. By comparison, Ethereum handles less than 15 TPS and can take up to six minutes to finalize those transactions.
That makes Solana much more scalable than its predecessor, and in turn, that scalability has kept transaction fees very low. In fact, the average fee on the Solana blockchain is a fraction of a cent, while the average transaction fee on Ethereum now sits near $20. Not surprisingly, the promise of fast and cheap transactions has the crypto community excited, so much so that Solana ranks as the sixth-largest DeFi ecosystem, with $8.5 billion invested on the blockchain.
Better yet, Solana recently announced Solana Pay, a protocol that will allow consumers to send digital currencies like USD Coin -- a stablecoin tied to the price of the U.S. dollar -- directly to merchant accounts. And because those transactions are powered by the Solana blockchain, they will be settled almost instantly and will cost a fraction of a cent.
As dApps and DeFi products on Solana continue to gain popularity with consumers and investors, demand from the SOL token should rise, driving its price higher. And down the road, it's not hard to imagine this innovative blockchain surpassing Ethereum.
The Terra blockchain features two primary coins. The first is the Terra stablecoin, which can be pegged to various fiat currencies. For example, TerraUSD (UST) is tied to the U.S. dollar. The second coin is LUNA, a cryptocurrency designed to absorb volatility and help stablecoins maintain their value. Specifically, if rising demand pushes the price of TerraUSD above $1, the system incentivizes token holders to convert LUNA to TerraUSD, which increases its supply and lowers its price. The system works the same in reverse.
The Terra blockchain is secured by Tendermint, a PoS consensus mechanism designed for speed. To that end, Terra can handle 10,000 TPS, and it can achieve finality in just two seconds, making it much more scalable than Ethereum. Collectively, Terra's value proposition -- a fast stablecoin ecosystem -- has made it a popular platform in the crypto economy. In fact, Terra currently ranks as the second-largest DeFi ecosystem, with more than $14.4 billion invested on the blockchain.
Of course, numerous popular dApps exist on the platform, but Anchor and Mirror are two of the most interesting, and both have disruptive potential. The Anchor protocol is designed to replace traditional savings accounts, and it's much more efficient because it's built on blockchain. In fact, you can earn a 19.3% annual percentage yield (APY) by lending TerraUSD on Anchor right now.
The Mirror protocol allows investors to buy and sell synthetic assets that track (or mirror) the price of real-world assets. That could be anything from stocks and exchange-traded funds to other cryptocurrencies. For instance, mAAPL is one of the most popular synthetic assets on Mirror, and it tracks the price of Apple stock. The advantage of such an asset is that anyone with a smartphone (and TerraUSD) can buy it without setting up a brokerage account. The platform also enables fractional ownership, a feature not offered by all brokerages.
As dApps and DeFi products on the Terra blockchain become increasingly popular, demand for Terra stablecoins will rise. And because LUNA is used to absorb that volatility, rising demand for Terra stablecoins will translate into rising demand for LUNA, driving its price higher. In short, the more Terra is used, the more LUNA will be worth.