How Solana Works, and What to Check Before You Buy SOL
Solana is a layer 1 blockchain that launched in 2020 and uses proof of history alongside proof of stake. That one sentence contains most of what makes it different — and most of what makes it controversial. Here's a practical breakdown of the design, the data, and the questions worth asking before you take a position.
Solana vs. Ethereum: Two Ways to Scale
Every blockchain has to handle two jobs. Execution is the work — processing transactions, running computation, matching orders. Settlement is finality — the point where a transaction becomes irreversible on the ledger.
Ethereum increasingly scales outward. Layer 2 rollups take on much of the execution while Ethereum's layer 1 acts as the settlement layer. Users share rollup costs, which is why L2s have grown for reasons of price as well as speed.
Solana keeps both jobs on one chain. Execution and settlement happen on layer 1. The upside is simplicity and speed. The downside is concentration: one chain means one point of failure, with no layer 2 fallback if something goes wrong.
What Proof of History Actually Does
In 2017, a Solana engineer published a paper arguing that the real bottleneck in blockchains isn't processing transactions — it's getting thousands of computers to agree on the order in which things happened. Validators going back and forth to establish sequence costs time.
Proof of history is a sequencing tool. Think of it as a clock: agree on time and ordering first, then run consensus. Security still comes from proof of stake, where validators stake SOL to participate, much like Ethereum. Proof of history is the piece unique to Solana, and it's why the network can target throughput most layer 1s can't.
The Outage History You Should Know About
Solana's record is genuinely mixed:
- 2020 — network goes live
- 2021 — explosive growth attracted by speed, plus the first outages
- 2022 — FTX, a major backer, collapses, hammering the price
- 2022–2023 — five significant network halts
- 2024 — the last major incident
- 2025 — spot ETFs approved
The FTX damage was a backer problem, not a protocol problem. The halts were the protocol. It's been roughly two years since a major incident, and the Fire Dancer upgrade aims to cut finality from around 13 seconds to milliseconds. Whether the reliability fixes hold is the single biggest open question on the chain.
Usage Data: Cheap Fees, Huge Volume, Real Ambiguity
Average transaction fees sit around a quarter of one hundredth of a cent. Throughput runs roughly 600–1,100 transactions per second in practice, compared with Ethereum's 15–20. Cumulative transactions exceed 400 billion, with about 2.2 million daily fee payers.
On capital, Ethereum holds around 53% of all DeFi total value locked versus Solana's roughly 7%. On activity, Solana's April 2026 DEX volume of about $11 billion outpaced Ethereum's $7 billion weekly. About a third of every dollar swapped across all decentralized exchanges moves through Solana. Same chain, same day, two opposite conclusions: Ethereum holds more money, Solana moves more of it — but earns far less per transaction.
One more figure worth tracking: roughly $15 billion in stablecoin supply sits on Solana, nearly three times its DeFi TVL. That's capital parked in wallets, not deployed on chain.
What's Actually Built on Solana
The ecosystem goes beyond speculation. Jupiter holds around 95% of DEX aggregator share. Kamino covers lending and derivatives. Jito handles staking. Phantom is the dominant wallet. Helium runs a decentralized wireless network, Pyth and Render serve data and AI, and tokenized equities have appeared as real-world assets.
But a large share of historical transaction counts came from memecoin trading. Nearly 12 million tokens have been created on Pump.fun alone since 2024, most of which went to zero. When you look at Solana's transaction history, you're looking at a blend of genuine usage and disposable speculation — and there's no clean way to separate them yet. If you're going to trade smaller-cap tokens at all, understanding position sizing and risk control for volatile altcoins matters more than picking the right ticker.
Four Questions Before You Buy
1. Does it earn? Yes, but modestly — near-zero fees offset by volume.
2. Does the earning reach the token? Partly. A portion of each fee is burned and stakers are paid.
3. Is the burn bigger than issuance? Not currently. Supply is still growing.
4. Does it beat Bitcoin? Chart SOL against BTC over time and decide for yourself.
That last step is where a charting platform earns its keep. Setting up crypto ratio charts and indicator alerts on TradingView lets you watch SOL/BTC and DEX volume trends instead of reacting to dollar prices. Toggle TVL between USD and SOL so price moves don't get mistaken for inflows — the same mistake people make when reading corporate treasury holdings in dollars instead of token counts. If you hold layer 1 assets long term, it's also worth reading up on holding crypto in a tax-advantaged retirement account before your next buy. And if trading generates a lot of transactions, learning how to track crypto transactions for tax season early saves real pain later.
Solana currently ranks around seventh by market cap, trading in a 2026 range of roughly $60 to $150 and down more than 50% from its peak — though with most of the market down, that's context, not a verdict.
Want to work through crypto evaluations like this one with other investors? Join the weekly breakdowns at skool.com/crypto-profit and build the habit of knowing exactly what you own before you buy it.
---
Affiliate Disclosure: This site may contain affiliate links. If you use them, we may earn a commission at no extra cost to you. Content is for educational purposes only — not financial advice.