Investors would struggle to find a better-performing asset than Solana (SOL +0.57%), whose price has skyrocketed by 1,500% since the start of 2023. Despite this monumental gain, this innovative cryptocurrency still trades 39% below its all-time high (as of May 16).
While it's been a smart idea to speculate on Solana in the recent past, that price momentum could distract you from the true potential of this blockchain network, particularly as it relates to the payments landscape. Solana is doing some interesting things in the space that can't be ignored.
But can it become the next PayPal (PYPL 1.57%)?
Disrupting payments
CRYPTO: SOL
Key Data Points
I think the ultimate survival of a crypto project rests solely on its ability to bring about a real-world use case. Solana Labs, the governing body of Solana, is trying to make progress in this regard.
In early 2022, Solana Pay was launched. This is a payment system that utilizes the blockchain, resulting in instant settlement and almost no fees. Merchants and consumers can deal with each other directly via the Solana network, using the SOL native token or a stablecoin.
One reason this is a game-changing concept is because of the savings merchants could see. A typical retailer probably already operates with thin margins. Keeping the 2% or so of sales that go to payment processors could result in improved profitability.
Moreover, Solana Pay allows for innovative ways that merchants and consumers can interact. For example, a consumer who buys shoes from a sneaker shop could get a non-fungible token (NFT) that acts as her receipt. The retailer could notify the shopper when there's a sale happening, with the NFT acting like a coupon that can be used in the future.
Because Solana can theoretically handle 50,000 transactions per second, it's a prime candidate that can help disrupt the current payments industry. And this is a lucrative area to focus on. After raking in $4.2 billion in free cash flow in 2023, PayPal executives believe it can generate $5 billion in 2024.
Already the dominant player
NASDAQ: PYPL
Key Data Points
Can Solana become the next PayPal? Well, from the perspective of market participants, the crypto network's $71 billion value already exceeds the $67 billion value of the digital payments firm. I'd chalk this up more to hype and speculative behavior than anything related to the fundamentals. In fact, most of the credit probably goes to the favorable market backdrop that has propelled the overall crypto and stock markets higher.
Maybe the news of Solana Pay integrating with e-commerce platform Shopify was what got investors excited, as the crypto has soared almost 700% since this announcement last August. But according to cryptwerk.com, Solana is only available as a method of payment at 696 merchants, a drop in the bucket when compared to PayPal's broad adoption.
This means that from a purely usage-based perspective, Solana isn't even close to PayPal. To give you an idea of PayPal's scale, it currently has 427 million active accounts and processed $404 billion of total payment volume in the first three months of 2024. This makes it a leader in electronic payments, a position that has come about from its more than two-decade history spearheading the industry.
Users trust PayPal thanks to its strong brand, security, and reliability. Solana lacks in this department, despite its fast throughput and low fees, as the network has had multiple outages in the past.
Solana might be one of the most exciting cryptocurrencies out there. But I don't think it will get anywhere close to PayPal anytime soon in the payments industry. Nonetheless, investors should keep close tabs on any new developments.
