What is Solana? A trader’s guide

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What is Solana?

Solana is an open-source, decentralised Layer 1 blockchain that supports smart contracts and decentralised applications (dApps). It was created by former Qualcomm and Dropbox engineer Anatoly Yakovenko, with its mainnet launching in 2020.

Solana was designed to address the limitations of earlier blockchains, particularly issues with transaction speed and cost. Using proof of stake (PoS) for consensus and proof of history (PoH) as a timing mechanism, Solana can process thousands of transactions per second while charging low fees – which makes it suitable for DeFi, NFTs, and Web3 applications.

Its native cryptocurrency – SOL – is integral to the Solana ecosystem, as it’s used to pay for transactions, staking, and governance. As of December 2024, SOL ranks among the 5-10 largest cryptocurrencies by market capitalisation.

Ethereum vs Solana: What are the differences?

Solana and Ethereum are two of the leading platforms for decentralised applications (dApps) and smart contracts, but they differ in design, technology and performance. Here's how they compare:

*Approximate and depends on network congestion
**Potentially higher when using Layer 2 solutions

Want to learn about Ethereum and ether (ETH)?
Discover how it works, its price history and more in our comprehensive trader’s guide to Ethereum.

How does Solana work?

Solana blockchain uses a unique combination of proof of stake (PoS) consensus mechanism and a proof of history (PoH) timing mechanism. This architecture enables the network to process thousands of transactions per second with minimal fees, which adds to its utility as a platform for dApps, DeFi and NFTs.

Validators stake SOL in Solana's PoS system to participate in the network, validate transactions and secure the blockchain. The PoH mechanism serves as a cryptographic timestamp, which orders transactions and blocks in a verifiable sequence to streamline the consensus process and enhance throughput.

Here's how Solana processes transactions:

1. Transaction initiation: A user sends a transaction request to the network, such as transferring SOL or interacting with a smart contract. This transaction is broadcast to Solana's network of validators.
2. PoH timestamping: The transaction is assigned a timestamp using PoH, creating a historical record that proves the sequence and timing of events.
3. Validation: Validators verify the transaction's validity and include it in the next block, using the ordered timestamps to process them efficiently.
4. Block addition: Once validated, the block is added to the blockchain, and the transaction is confirmed across the network.
5. Rewards: Validators receive SOL tokens as rewards for their participation in securing the network and processing transactions.

SOL is the Solana crypto, and it has no maximum supply cap. While new SOL tokens are issued as staking rewards, Solana implements token burns to offset inflation, aiming for a long-term inflation rate of around 1.5%.

What is the SOL price history?

The SOL price history reflects slow early adoption following Solana's mainnet launch in March 2020, as the platform steadily gained traction within the developer community.

By the end of 2020, SOL surpassed $2, driven by the growing popularity of decentralised finance (DeFi) and the release of innovative projects like Serum, a decentralised exchange (DEX) built on Solana that showcased its high-speed, low-cost capabilities.

SOL’s price increased substantially in 2021, when it rose from $1.50 in January to an all-time high of over $250 in November 2021 – influenced by increasing use of Solana in DeFi, non-fungible tokens (NFTs) and gaming projects.

Solana also hosted early NFT collections such as SolPunks and Degenerate Ape Academy, which began to attract collectors and traders to its ecosystem.

Past performance isn’t a reliable indicator of future results

The market entered a ‘crypto winter’ in 2022, as macroeconomic factors such as rising interest rates and geopolitical instability weighed on cryptocurrencies. The collapse of the crypto exchange FTX—which had significant ties to Solana’s ecosystem and projects—shook trader confidence. By December 2022, SOL had fallen below $10.

In 2023, SOL’s price recovered moderately, buoyed by improvements in Solana’s network reliability and new project launches like BONK, a Solana meme coin. The token climbed back over $20, despite challenges such as the US Securities and Exchange Commission (SEC) attempting to classify Solana as a security in its lawsuit against several exchanges.

Market sentiment improved significantly following the 2024 US presidential election, which influenced many cryptocurrency market prices to rise. SOL’s price surged to a new all-time high of $263.83¹ on 23 November 2024.

Which factors might affect the SOL live price?

The SOL live price can be affected by various factors, including network performance, technological developments, market sentiment and tokenomics. Here are a few of them:

Regulatory developments

SOL’s price could be influenced by regulatory actions, as they shape market sentiment and adoption. In June 2023, the US Securities and Exchange Commission (SEC) tried to classify Solana as a security in its lawsuit against several exchanges. This caused SOL’s price to drop significantly within hours, as traders feared potential delistings and increased costs.

Conversely, favourable regulatory developments have driven price increases. In October 2024, the New York Department of Financial Services (NYDFS) granted regulatory clearance to Paxos to expand stablecoin issuance to Solana, making it the second blockchain after Ethereum to receive such approval. SOL's price rose substantially following this announcement.

Competition from other blockchains

Solana competes with other blockchains, like Ethereum (ETH) and Tron (TRX), for users in decentralised finance (DeFi), non-fungible tokens (NFTs), and other Web3 applications. Advancements by competitors may influence SOL's price.

For instance, Ethereum’s ‘The Merge’ in September 2022 – which transitioned Ethereum to a Proof of Stake consensus mechanism – appealed to developers and users, potentially diverting attention from the Solana blockchain.

Meanwhile, Solana’s Proof of History (PoH) consensus mechanism and ability to process up to 65,000 transactions per second provide unique advantages, as its high throughput and low cost boosts its appeal for high-frequency applications like gaming and DeFi.chanism, offer competitive advantages that can enhance its appeal.

Tokenomics and supply dynamics

Solana's tokenomics – including its inflationary supply model and staking rewards – may influence SOL's price. Changes to staking rewards or inflation rates could impact the circulating supply, potentially impacting SOL's price.

In May 2023, the Solana community voted to allocate 100% of priority fees to validators, a move that could make SOL more inflationary and influence its price dynamics. This raised concerns among some traders about the potential for long-term downward pressure on SOL’s price if demand does not keep pace with token issuance.

To offset inflation, Solana implements token burns, aiming for a long-term inflation rate of around 1.5%. Adjustments to staking rewards or changes in inflation rates may impact the circulating supply, potentially impacting the SOL price in either direction.

Network performance and technological developments

Solana’s reputation as a high-performance blockchain can be both a benefit and drawback.

The network’s 17-18 hour outage in September 2021 – caused by overwhelming transaction surges – was followed by a drop in SOL’s price. Similarly, a five hour network halt in February 2024 saw SOL decrease substantially in a single day.

Conversely, successful technological upgrades – such as the integration of PayPal's USD stablecoin (PYUSD) onto the Solana blockchain announced in May 2024 – helped boost trader confidence, which influenced SOL's price higher.

Learn more about the potential future of SOL prices
Discover price targets and analysts’ commentary in our guide to SOL price predictions.

What are the SOL trading hours?

SOL runs on a decentralised blockchain network that is active 24 hours a day, seven days a week. This means you can trade SOL at any time, including weekends and holidays.

• Cryptocurrency exchanges – many exchanges facilitate 24/7 trading, allowing for continuous market participation.
• Online trading platforms – some reliable and trusted brokerages provide SOL trading via CFDs.

If you choose to trade CFDs, you can follow the SOL performance live in US dollars with our comprehensive SOL/USD price chart.

Monitoring the cryptocurrency’s activity can help you to keep an eye out for any key fundamental or technical events that may affect short-term movements in its value.

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How to trade SOL

SOL is a cryptocurrency, meaning that it can be traded directly on a cryptocurrency exchange or through peer-to-peer transactions. Traders may also choose to trade SOL via a derivative, a financial product that takes (or ‘derives’) its value from the price of the underlying asset.

You could use a contract for difference, or CFD, to trade on the price of SOL pairs. A CFD is a contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade.

You can use CFDs to trade on whether you think an SOL pair will rise (called ‘going long’) or fall (‘going short’). CFDs give you access to leverage, allowing larger positions with a relatively small outlay. This amplifies your potential profits, but also your potential losses, making CFD trading risky.

You can learn more about trading cryptocurrencies with Capital.com in our comprehensive guide to cryptocurrency trading.

Aside from CFDs, you can also trade SOL pairs through instruments like futures, options, ETFs and mutual funds. Each offers an alternative to the leveraged trading of CFDs, suiting different risk profiles and strategies.

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FAQs

¹Source: CoinMarketCap - https://coinmarketcap.com/currencies/solana/