Solana's Growth Faces Headwinds: Will the Offensive and Defensive Dynamic Between Ethereum and Solana Shift?

Solana's recent strategic pivot toward Layer 2 has sparked heated debate. What are the deeper implications for Solana? Why is Solana making this move? And compared to Ethereum, what challenges will Solana have to contend with?

The appchain boom is here, and Solana can't stop apps from breaking away

Blockchain is maturing, and the next critical phase centers on breakthrough applications. In previous articles, we highlighted two primary vectors for application breakthroughs in this bull market: meme platforms and DePIN. The former builds on DeFi and represents the pinnacle of DeFi functionality — though the dominance of meme projects on such platforms remains constrained by the limitations of the blockchain applications themselves. Beyond that, the author is also bullish on AI-adjacent DePIN, which aligns well with future development trends. DePIN lays the foundational infrastructure, while meme platforms build the DeFi ecosystem on top of it. A full-blown explosion in blockchain applications may be just around the corner. So what phenomena will emerge once these applications take off? And how will that affect public chains?

The author believes that in the early stages of blockchain application development, public chains primarily serve as the launchpad for these apps. However, once a significant user base is established and wealth accumulates, there is a strong likelihood that projects will migrate to appchains. After accumulating enough users, on-chain transactions generate substantial fees — but blockchain applications struggle to capture that value. Driven by profit motives, blockchain applications will consider building their own appchains, enabling them to capture that value, strengthen their project tokens, provide underlying support for token valuations, and increase user stickiness.

Blockchain applications building their own appchains is no longer hypothetical — it's already happening. dYdX, a decentralized exchange (DEX) focused on derivatives trading, particularly perpetual contracts, chose to build its own specialized chain using the Cosmos SDK to meet its product requirements. Beyond dYdX, numerous other blockchain projects are building specialized chains via Layer 2 solutions. NFT brands like Azuki and ApeCoin have built their own specialized chains through Arbitrum, while projects using the OP Stack include Base, opBNB, Zora Network, and DeBank Chain.

As noted, while blockchain applications initially rely on the solid foundation of public chains to grow, profit incentives make launching specialized chains an inevitable trend once they reach a certain scale. Even though Solana attracts a large user base thanks to its superior performance, as blockchain applications mature, building profit-driven specialized chains will become the preferred path for most projects. If Solana maintains its current model, it will struggle to retain most projects going forward. That's precisely why Solana may need to seriously consider a Layer 2 strategy.

Is Solana's Layer 2 strategy viable? Does SOL have to follow Ethereum's path?

Although Solana outperforms Ethereum in throughput, it has experienced multiple outages. Relying solely on Layer 1 performance advantages will still fall short of handling the overwhelming performance demands that a large-scale application ecosystem will bring. For blockchain projects driven by profit, their tokens need to be strengthened, and demand for specialized chains is hard to resist. Moreover, for new developers, modular blockchains significantly reduce development costs. On balance, Solana's shift toward Layer 2 and modularity appears inevitable — but it will also introduce major challenges, putting Solana in a position similar to where Ethereum finds itself today.

Since the start of this bull market, many projects have migrated to or chosen Solana for its performance advantages, fueling Solana's explosive growth. Meanwhile, due to performance concerns, Ethereum has underperformed during this bull run, and its Layer 2 strategy has substantially reduced its ability to capture value. Even the approval of Ethereum ETFs failed to provide strong tailwinds for ETH. However, as Layer 2 and modular blockchains mature, deploying applications is becoming increasingly convenient for developers — leading to improved value capture and a clearer advantage for modular blockchains. It's also worth noting that the early proliferation of Layer 2s caused liquidity fragmentation, but recent cross-L2 interoperability initiatives have made significant strides in breaking down those silo effects. This has indirectly attracted more developers and projects, which explains why few high-profile projects have recently migrated to Solana. As a result, Solana is facing mounting challenges and an increasingly difficult position.

On the question of Solana considering a Layer 2 strategy, DeFi analyst Ignas has pointed out that Solana is at a critical inflection point, attempting to evolve from a monolithic blockchain into a modular architecture. This shift could reshape Solana's standing in the crypto community, depending on whether the concept of "network scalability" gains broad acceptance. In this bull market, ETH sits between BTC and SOL. If Solana adopts a Layer 2 scaling model similar to Ethereum's, SOL could become the new ETH. However, if Solana runs into liquidity fragmentation and similar issues, its position could become increasingly uncertain. On top of that, speculators may redirect their attention to "network scalability" tokens within the Solana ecosystem rather than SOL itself, which could act as a headwind for SOL's price appreciation.

The offensive and defensive dynamic will shift; Ethereum could see a powerful surge

In this bull market, Solana has clearly outperformed Ethereum in the first half of the year. However, as modular blockchains mature, the offensive and defensive dynamic between Ethereum and Solana is set to undergo a significant shift.

In a previous article, the author suggested that Ethereum's breakout moment could arrive in the first half of next year. The reasons include:

First, cross-chain interoperability challenges are nearing resolution. Optimism, for example, is integrating ERC-7683 to enable superchains to achieve interoperability with other Ethereum L2 solutions at the application layer; Polygon is building AggLayer for one-click cross-chain transactions; and there are projects like Caldera's Metalayer, Avail Nexus, and Hyperlane. Vitalik has even declared that people will soon be surprised to find that cross-L2 interoperability is no longer a problem.

Second, the Ethereum Pectra upgrade is expected to launch in Q1 2025, merging the Prague (execution layer) and Electra (consensus layer) updates. This will serve as a major catalyst for Ethereum. One of Pectra's most significant changes is how accounts are handled. Under the upgrade proposal, EIP-3074 allows traditional wallets (externally owned accounts, or EOAs) to interact with smart contracts, enabling batch transactions and a range of other features. All of these advances will pave the way for broader Ethereum adoption.

If Solana pivots to a Layer 2 strategy at this juncture, it would signal a meaningful shift in the offensive and defensive dynamic between Solana and Ethereum. Solana's previous position of leadership would undergo a dramatic change, while Ethereum could welcome its own spring.