5 Solana Predictions for 2022

2021 was Solana's year, but can it carry that momentum into 2022?

2021 was an extraordinary year for Solana (SOL). It grew over 11,000% and moved from being a relatively unknown altcoin to one of the top cryptos by market cap. Solana is one of the fastest cryptocurrencies on the block, and its low transaction fees have made it an attractive alternative to Ethereum (ETH). It's now listed on most major cryptocurrency exchanges.

Ethereum is still the biggest smart-contract crypto and hosts a good number of applications. But crazy-high fees and heavy network congestion are driving developers and investors to seek alternatives. Solana is one of the big beneficiaries of this shift.

The question is: Can Solana sustain that growth in 2022? Crypto is full of stories of coins that flew sky high for a short time, only to sink back down the charts in the following months. That's partly because it's such a fast-changing industry, and partly because it is awash with speculation that pushes prices to unrealistic heights.

Here are five Solana predictions for 2022:

1. Solana will continue to attract new projects

When I wrote about Solana at the end of August, it had over 400 projects on its website. Now, just four months later, its website says there are over 1,000 projects. That number is sure to grow next year, as more developers flock to this easy-to-use network.

For investors, it's also interesting to look at the individual projects being developed on Solana. From decentralized finance applications to non-fungible tokens (NFTs) and Web 3, there are some interesting new cryptocurrencies taking shape. As I write, one of the most popular is Star Atlas (ATLAS), a multiplayer metaverse token.

2. Solana's total locked value will grow

Solana's total locked value -- the assets staked on the decentralized finance apps on its network -- has grown from around $1 billion in July to over $11 billion now, according to DeFi Llama. Popular DeFi apps include Raydium (RAY) and Serum (SRM), decentralized exchanges that increasingly appeal to investors who don't want to pay high Ethereum gas fees.

3. Solana will become more decentralized

One of the big criticisms of Solana is that it is too centralized. A key aspect of Bitcoin (BTC) and the ethos behind cryptocurrency in general is that it is not reliant on a centralized body such as a government or bank.

There are concerns that the Solana Foundation controls too high a percentage of the SOL in circulation. Another worry is that there aren't enough validators. Without getting too technical, the more validators you have, the more decentralized the network. Solana has 1,360 validators, compared to Ethereum's 275,830.

It is expensive to run a validator node on Solana, but as the network grows, so will the number of validators.

4. Regulation will have an impact

Increased regulation is going to have an impact on the whole cryptocurrency industry next year. In the long run, reasonable regulation is likely to build investor confidence. But we don't know what shape regulation will take -- and even reasonable regulation will have a short-term impact on prices.

Even under existing regulations, Solana could face problems in the U.S. Its more centralized nature means the SEC is more likely to categorize it as a security. This is one of the reasons the SEC is pursuing a lawsuit against Ripple (XRP). Securities need to register with the SEC and follow certain guidelines, but if there's no central party driving an enterprise (like Bitcoin), it shouldn't count as a security. SEC Chair Gary Gensler has warned that many existing cryptocurrencies are operating as unregistered securities -- something he plans to act on.

5. It will face increased competition

Solana may have stolen the show in 2021, but there are many interesting smart-contract cryptos waiting in the wings. There are a host of underlying blockchains like Avalanche (AVAX) and Cardano (ADA). You also have to factor in layer 2 solutions that sit on top of existing networks, such as Polygon (MATIC) and Loopring (LRC).

It's not a winner-takes-all scenario. But we are likely to see four or five main players emerge from the pack. If Solana can continue on its current trajectory, it has a good chance of being part of that group. But as we've seen, a year is a long time in crypto.

Some big caveats

I'm excited to see what Solana can achieve in the next 12 months. It already far exceeded many people's expectations. But I also advise caution. Here are some potential roadblocks that could stop Solana in its tracks:

• Technical problems. In September, Solana had a 17-hour outage that was blamed on something called "resource exhaustion." Some put it down to growing pains, but more technical issues next year could cause developers to lose confidence.
• Security problems. Solana hasn't experienced any major security breaches, but its proof-of-history validation model is still pretty new. Solana hasn't been road-tested to the same degree as Ethereum or Bitcoin.

These are risks that apply to many cryptocurrencies, and part of the reason you shouldn't invest money you need to meet other financial goals. That way if Solana -- or the whole crypto market -- crashes, it will be frustrating, but you won't face financial ruin.

Ready to buy? Check out The Ascent's list of the best places to buy Solana.