Solana's ecosystem has recently gained significant momentum, largely driven by the rise of DePIN and meme coins. By December 22, SOL's price had surged to nearly $100. For a brief period, the trading volume on Solana-based decentralized exchanges (DEXs) even surpassed that of Ethereum, sparking discussions around "Solana flipping Ethereum."
Amid this surge, Ethereum has faced various doubts, particularly concerning its DeFi projects, many of which gained prominence during the previous bull run via liquidity mining. While meme coins and DePIN have captured recent attention, how are the established and emerging DeFi projects on Solana actually performing? Have older projects truly recovered?
Liquid Staking on Solana
Liquid staking represents a major growth category within the Solana ecosystem. Staking inherently locks in funds, which supports the price of SOL. Furthermore, various liquid staking tokens (LSTs) can be utilized across other DeFi applications. The promise of airdrops from new projects and additional incentives continues to attract more capital to liquid staking.
The two largest liquid staking protocols on Solana are Marinade Finance and Jito. According to data from DefiLlama as of December 22, their Total Value Locked (TVL) stands at $1.05 billion and $626 million, respectively, ranking them first and second in the Solana ecosystem.
Although the dollar value of assets staked on Marinade is only 57% of its all-time high, the amount of SOL staked—11.15 million—has reached a new record.
Jito differentiates itself by incorporating MEV (Maximal Extractable Value) infrastructure alongside staking. Its highly anticipated airdrop created a strong community foundation. Recently, Jito began incentivizing the use of its JitoSOL token across other DeFi applications, leading to rapid growth in its staked SOL, which now totals 6.42 million.
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Decentralized Exchanges (DEXs)
The leading DEXs on Solana remain Raydium and Orca, with no significant new competitors emerging. Both have upgraded to include concentrated liquidity features, though their market positions have shifted.
Liquidity and trading volume are the most critical metrics for DEXs. Raydium's liquidity peaked at $2.21 billion and now sits at $113 million, just 5.1% of its high. Orca’s liquidity reached a high of $1.41 billion and is currently at $184 million, about 13% of its peak.
A recent point of discussion has been Solana's DEX volumes exceeding Ethereum's. Data from DefiLlama shows that Solana's trading volume was higher than Ethereum's over both the past 24 hours and the past 7 days. Some skeptics suggest this could be due to double-counting volume from aggregators like Jupiter on Solana, which is relied upon more heavily than Ethereum's 1inch.
However, summing the 24-hour volume from Solana's major DEXs—Raydium, Orca, Lifinity, Phoenix, OpenBook, Mango Markets, Drift, and Saber—yields a total of $1.55 billion. This calculation likely excludes perpetual contract volumes from platforms like Drift, which reported a spot volume of $7.6 million against a SOL-PERP volume of $43 million.
In comparison, the combined 24-hour volume from Ethereum's major DEXs—Uniswap, Curve, Balancer, PancakeSwap, DODO, Tokenlon, Maverick, and Sushi—totals $1.18 billion. This confirms that on December 21, Solana's DEX volume did indeed surpass Ethereum's. It's also worth noting that on Ethereum, trading volume is highly concentrated on Uniswap ($940 million), followed by Curve ($140 million), with other DEXs seeing $20 million or less.
Another emerging metric is the DEX volume-to-TVL ratio, which indicates capital efficiency. Raydium and Orca boast ratios of 4.81 and 2.87, respectively. In contrast, Uniswap, Curve, and Balancer have ratios of just 0.26, 0.09, and 0.042. Since liquidity providers earn from trading fees, these figures suggest that providing liquidity on Solana can be far more profitable than on Ethereum for the same capital deployed, potentially attracting more funds to the Solana ecosystem.
Decentralized Lending
The decentralized lending sector on Solana has seen considerable change. Among previously dominant lending protocols, only Solend remains prominent, though it has been overtaken by newcomers. TVL is crucial for lending protocols, indicating the amount of unused capital (deposits minus loans) available.
Solend's TVL peaked at $910 million and is now at $187 million, about 20.5% of its high. The protocol suffered a major setback during the FTX collapse in November 2022, when its TVL dropped 90% from $280 million at the start of the month. Other established lending protocols fared even worse: Port Finance's TVL fell from a high of $260 million to $5.7 million; Larix dropped from $360 million to $4.81 million; and Apricot Finance declined from $350 million to $2.5 million.
This sector has also seen new competitors emerge. marginfi and Kamino now have TVLs of $348 million and $204 million, respectively, and are growing rapidly. Neither has issued a governance token yet, and both have implemented point systems where users earn points for depositing and borrowing. Encouraged by the wealth effect from airdrops like Pyth and Jito, capital continues to flow in. These platforms also support various LSTs, and liquid staking projects may offer additional incentives for using them.
Yield Aggregators
The yield aggregator niche has largely struggled to prove its value on Solana. Unlike on Ethereum, where high gas fees make automated compounding attractive, Solana's low fees reduce the need for such services.
Sunny, once the most notable yield aggregator on Solana, saw its TVL plummet from a peak of $3.4 billion to just $4.02 million. Sunny was often used alongside Saber, and it was later revealed that both projects were developed by the same individual, who used multiple fake identities to inflate Solana's TVL by billions of dollars.
Beyond simple yield farming, some aggregators offered lending and leveraged farming features. However, as yields diminished, these platforms also declined. Francium's TVL fell from $430 million to $20.89 million, and Tulip's dropped from $1.07 billion to $21.41 million.
Perpetual Contracts
Compared to the various perpetual contract projects on Ethereum's Layer 2s, Solana's presence in this sector is less dominant.
Drift is currently a strong contender, utilizing an order book model similar to dYdX and offering leverage of up to 20x. Its TVL has reached a new all-time high of $105 million, with a SOL-PERP trading volume of $43 million in the past 24 hours. Drift also supports spot leveraged trading.
Mango, an older project in this space, has seen its TVL drop from a peak of $210 million to $10.47 million. It was famously hacked through market manipulation, leading to the attacker's arrest and prosecution. Mango primarily focused on lending and leveraged trading, requiring users to borrow funds before trading via Jupiter. It has since added perpetual contracts, though its SOL-PERP volume was only $520,000 in the past 24 hours.
Another competitor is Jupiter's JLP, which operates similarly to GMX V1. With a capital cap set at $23 million, JLP's SOL-PERP trading volume reached $101 million in the past 24 hours, even surpassing Drift.
Decentralized Stablecoins
Solana has never had a standout project in the decentralized stablecoin category.
UXD Protocol is one example. It completed an Initial DEX Offering (IDO) with a valuation of nearly $2 billion, but its TVL peaked at just $42 million and now sits at $11.19 million. Initially, it used a delta-neutral strategy to hedge its SOL collateral but has since shifted to a 1:1 backing with USDC.
Two other projects that issued stablecoins via over-collateralization have also faded. Parrot Protocol's TVL fell from a high of $476 million to $8.61 million, and Hubble's dropped from $39.83 million to $8.06 million.
Conclusion
The Solana DeFi ecosystem shows a mixed picture of revival and challenge. Liquid staking is leading TVL growth, with LSTs gaining utility and incentives across various applications. While DEX liquidity on Solana still lags far behind Ethereum's, trading volumes have occasionally surpassed it, highlighting superior capital efficiency that could attract further investment. New lending protocols like marginfi and Kamino are thriving with the help of airdrop expectations. In perpetual contracts, Drift and JLP are growing. However, yield aggregators and decentralized stablecoins continue to underperform.
Frequently Asked Questions
What is liquid staking on Solana?
Liquid staking allows users to stake their SOL tokens while receiving a liquid staking token (LST) in return. This LST can be used across other DeFi protocols to earn additional yield, all while the original stake continues to secure the network and earn rewards.
Why did Solana's DEX volume exceed Ethereum's?
Solana's higher throughput and lower transaction fees create an environment where trading, especially via aggregators like Jupiter, is more efficient. This, combined with intense meme coin trading activity, led to a temporary surge in volume that surpassed Ethereum's DEX activity.
What are the risks of using new lending protocols like marginfi?
New protocols often attract users with point systems and airdrop potential, but they may carry smart contract risks or unsustainable incentive models. It's important to research the project's audits, team, and long-term tokenomics before depositing funds.
How does Jito differ from Marinade Finance?
Both are liquid staking protocols, but Jito additionally offers MEV reward distribution to stakers. This means users staking with Jito may earn extra yield from block space arbitrage opportunities captured by its network of validators.
Is providing liquidity on Solana DEXs more profitable?
Data suggests the volume-to-TVL ratio is significantly higher on Solana DEXs like Raydium and Orca than on Ethereum DEXs. This indicates that capital deployed in Solana liquidity pools may generate more fee income, though this comes with the risks inherent to a newer, faster-moving ecosystem.
What happened to Solana's yield aggregators?
Many yield aggregators, like Sunny, were revealed to be part of fraudulent schemes that artificially inflated TVL. Furthermore, Solana's low transaction fees reduce the need for automated compounding services, diminishing their value proposition compared to Ethereum.