Looking to the Futures

The Solana blockchain launched in 2020 with a focus on speed compared to its peers. The Bitcoin blockchain can only process about seven transactions per second. The second largest cryptocurrency, Ether, can handle roughly 30,000 transactions per second on its Ethereum network. The Solana network can handle twice that amount. This makes Solana ideal for high volume and real-time applications. 

The difference in speed comes from Solana’s architecture design and consensus mechanism. Bitcoin uses Proof of Work (PoW) which is arguable the most secure but takes the most effort and time. Ethereum uses Proof of State (PoS) which utilizes validators who stake Ether to secure transactions and add blocks to the blockchain. Solana utilizes Proof of History (PoH) where participants similar to Ethereum validators can use timestamps on transactions to build block concurrently instead of sequentially. 

Another key difference between Solana and its key competitor, Ethereum, is Solana’s monolithic approach compared to Ethereum’s modular approach. The monolithic approach means all operations and information are handled within the blockchain. Whereas a modular approach separates different functions of the blockchain into different layers. The monolithic approach enables high transaction speeds and more straightforward upgrades to the blockchain. However, it can face scaling challenges after certain thresholds and limits the flexibility for innovations. The modular approach allows greater flexibility as many transactions and functions are handled independently of the main chain. 

Solana’s speed and low transaction costs make it very competitive for lending, borrowing, and other decentralized finance (DeFi) applications, especially non-fungible token (NFT) marketplaces, gaming, Web3 apps, and meme coins. 

Although the three cryptocurrencies have their different structures and use cases, their prices tend to follow one another. Solana has a one-year rolling correlation with ether and bitcoin at roughly +0.7. This is slightly less than the correlation between the two largest cryptocurrencies with one another. Many say the cryptocurrencies trade like risk-on technology stocks, which is only partially true. Each of the three cryptocurrencies are correlated with the Nasdaq-100 at approximately +0.4. 

According to the CME Group, Solana’s volatility has been 80% over the last 3 months, which is twice as volatile as bitcoin and about one-third more volatile than ether. 

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New Futures contracts are live! Please be aware that the following products are now available to trade with an approved futures account on all thinkorswim platforms:  

• 1 OZ Gold (/1OZ)
• Solana (/SOL)
• Micro Solana (/MSL) 

Go here to explore the wide variety of futures markets available for trading through Charles Schwab Futures and Forex LLC.