Solana overpriced compared to Ethereum, U.S. election may be key to performance, says Standard Chartered

Solana (SOL) is overpriced when compared to Ethereum (ETH), according to a report from Standard Chartered.

The bank’s analysts, led by Geoff Kendrick, have identified many metrics that show Solana is trading at inflated levels.

But what will determine the future performance of both coins, as well as Bitcoin, is the outcome of the U.S. presidential election next month.

Key valuation metrics: Solana vs Ethereum

One of the metrics the analysts looked into is the ratio of market capitalization to network fee revenue for Solana, which is at 250, while for Ethereum, it’s 121.

This means that SOL’s price is over double that of Ethereum based on this valuation method. Solana’s supply is also growing at 5.5% annually, which is much higher than Ethereum’s 0.5%.

This difference in inflation affects staking yields, with Solana offering a real staking yield of 1%, compared to Ethereum’s 2.3%.

Ethereum also dominates when it comes to developer support. Around 38% of all blockchain developers work on the Ethereum network, while Solana only holds 9%.

Kendrick pointed out that for Solana to maintain its high valuation, it needs to make serious strides in areas like consumer applications, and decentralized physical infrastructure networks (DePIN).

According to the report, Solana’s real test lies in whether it can roll out its Firedancer client, which is expected to significantly boost network efficiency. 

It will be key for Solana to compete with Ethereum in the long term.

Financial institutions lean toward Solana

Several financial giants have shown interest in Solana this year, specifically for real-world asset tokenization and stablecoin issuance.

Report from Swiss crypto bank Sygnum shows that even conservative institutions are considering Solana’s scalability advantages over Ether’s.

Visa recently integrated Solana for USDC settlements, citing the network’s high throughput and low costs. PayPal executives have also expressed their interest, with one even saying that:

“Ethereum is not the best solution for payments.”

Asset management firm Franklin Templeton is launching a mutual fund on Solana, and Citi is reportedly exploring Solana for cross-border payments. 

But despite all this, the market capitalization gap between the two blockchains is still massive. At press time, Ether stands at around $218 billion higher than SOL’s. 

Sygnum pointed out that some of Solana’s volume metrics are overstated, with a large portion of the network’s revenue influenced by memecoin issuance and trading.

Former U.S. intelligence contractor Edward Snowden also raised concerns about Solana’s centralization, saying that its network could easily be disrupted if states start targeting it.

Ethereum’s dominance persists

Despite Solana’s recent surge, Ethereum remains dominant in key markets. On-chain data shows it holds 81% of the tokenization market and 49% of the stablecoin market.

By comparison, Solana only has a 3% share in both sectors. But still, Solana has strongly outperformed Ethereum in terms of price action.

The SOL-to-ETH price ratio has jumped 300% over the past year and is up 600% since 2023. But the analysts believe that Ethereum is primed for a comeback.

After two years of underperforming and negative sentiment, Sygnum believes Ether may see a “sharp reversal” if Trump wins the election.

Ethereum derives its value from economic activity and network revenues, making it more comparable to equity investments, unlike Bitcoin, which is generally just viewed as “digital gold.”