Solana Flips Ethereum in Monthly DEX Volume, But What About L2s?

Solana has topped all blockchains in monthly DEX volume. After surpassing the Ethereum Layer 1, is it time to set higher targets?

Finn Miller

Published: Aug 1, 2024 at 16:00
Edited: Aug 1, 2024 at 15:57

Rising like a phoenix from the ashes of the FTX collapse, Solana has flipped Ethereum to lead all blockchains in monthly DEX volume.

Yet, the wider crypto community has cast a skeptical eye on Solana’s achievement. Counterparties argue that volume from Ethereum Layer 2s must also be considered and contend that much of Solana’s DEX volume is artificially inflated.

Is there truth to these claims, or is this simply a case of shifting goalposts?

Solana Gains DEX Trading Dominance on Ethereum + L2s

At the close of July’s monthly candle, Solana made history. Recording $55.87B in DEX trading volume, Solana finally flipped the Ethereum L1 to lead all blockchains, based on Artemis data.

According to DeFiLlama, Solana (pictured below in red) captured 29.32% of DEX trading volume across the industry, narrowly edging out the Ethereum L1's 28.26%.

While the Solana faithful are celebrating this significant milestone, the wide crypto community has been quick to discredit the achievement. Commentators across the space have noted that Ethereum L2 volume also needs to be considered.

Due to low transaction throughput and high gas fees, the Ethereum Layer 1 is poorly suited for widespread adoption. The network relies on dozens of Layer 2 networks for scalability, like Arbitrum and Base.

If we include L2 DEX trading volume in the equation, Ethereum is obviously the leader. Based on Dune Analytics data comparing Solana vs Ethereum + L2s over the three months, Solana accounts for 35.98% of total DEX volume. Witnessing over $311.08B in trading volume Ethereum and its numerous L2s have a clear lead.

dex volumes

However, that may not be the case forever. Month on month, Solana has been siphoning dominance away for Ethereum + L2s, steadily closing the gap on its biggest rival.

In May, Solana’s monthly volume comprised 31.05% of the total. This increased to 37.43% in June, then further increased to 39.62% in July. What’s more, the Solana actually eclipsed Ethereum + L2s on the 28th of July following NEIRO trading frenzy.

Additionally, including L2s in any discussion surrounding Ethereum opens a Pandora’s Box of controversy. Solana has long been criticized as a centralized blockchain propped up by venture capitalist funds, but Ethereum L2s aren’t so squeaky clean either.

Ethereum L2s like Starknet and Optimism both raised over $200M a piece and zkSync attracted over $400M of venture funding. What’s more, Ethereum Layer 2s are plagued by centralization and security issues, as highlighted by researcher Justin Bons.

Wait, Artificial Volume Isn’t Solana Exclusive?

Attempting to further discredit Solana DEX volume, analysts have targeted wash trading and inorganic volume. Granted, artificial volume is a contributor to Solana’s growing DeFi economy, but this burden plagues all blockchains.

Offering a counterargument to claims of artificial volumes, Blockchain researcher Dan Smith posits that meme coin wash trading is “not a chain-specific event”. Smith contends that the highest gas consumers on any chain are consistently applications like MEV bots, decrying the belief Solana is the only chain with bot-driven volumes.

According to Sonya Kim's analysis, the difference between Solana MEV and Ethereum is almost negligible, with MEV as a percentage of DEX trading volumes being slightly higher on Ethereum than on Solana.

Additionally, DeFiLlama founder 0xngmi contends that the popular analytics platform has removed low-TVL pools when calculating Raydium's volume.

Ultimately, the discussion has led some researchers to consider alternative metrics like TEV (Total Economic Value) as a superior method of tracking blockchain usage.

In this regard, Solana has also shown considerable strength, outperforming Ethereum and its numerous L2s on a weekly timeframe.

For all its transparency, blockchain data can be easily manipulated. Malicious actors exist on every network, but bot activity and arbitrage algorithms have existed in TradFi for years already. Inorganic volume is not Solana-exclusive.

However, one thing is certain: July was a historic month for the Solana blockchain. With Solana dethroning the Ethereum L1 in monthly DEX volume, the industry’s most performant network has now set its sights on surpassing Ethereum + L2s.