Better Crypto Buy: Solana vs. Hyperliquid

Solana (CRYPTO: SOL) and Hyperliquid (CRYPTO: HYPE) are both fast, cheap-to-use blockchains. Today, Solana's market cap is $47 billion, whereas Hyperliquid's is $17 billion.

So which one is the better buy?

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Where the fees actually flow

The transaction fees that networks capture are one of the most important economic metrics to watch as a crypto investor.

On June 30, Solana's fees yielded $57,625 in chain revenue, while Hyperliquid pulled in around $2.4 million in fees. The two networks are not in the exact same line of business, as they generally target different user populations, with Solana aiming for a much wider audience, though they do overlap in select areas like tokenized stocks.

On that note, Solana is a general-purpose blockchain that's capable of operating smart contracts and hosting everything from meme coin launchpads to decentralized finance (DeFi) projects. Its development road map is structured around delivering improvements to the network's scaling and throughput such that it can eventually serve consumer-scale applications, like payment processing, as well as hosting exchanges that deal in many different kinds of tokenized assets and cryptocurrencies.

Hyperliquid, in contrast, is an application-specific chain that's built around its decentralized exchange, which is known for being a hotbed of activity in a type of financial derivative called perpetual futures (or perps for short). Its DeFi ecosystem is nascent, with only a few projects that operate mostly as providers of basic financial infrastructure for traders using the exchange.

Solana is focused on volume. About $6.8 million per day in ecosystem fees pass through the network, but those fees mostly go to ecosystem applications, so the slice that flows back to the coin's holders is modest, because the fee is set in fractions of a cent. Thus, it will likely take a vast amount of activity on the network to make a meaningful difference.

Hyperliquid takes the opposite approach. The exchange charges a few types of fees on its order book, and 99% of the resulting revenue pool moves through an automated fund that buys HYPE coins on the open market and removes them from circulation; the protocol itself retains the rest to pay for its expenses. At the current run rate, the protocol is bringing in nearly $830 million in revenue on an annualized basis.

Solana doesn't lack economic activity on its chain. But the path from activity to the token appreciating in value is much shorter on Hyperliquid.

The risk profile is different

Hyperliquid is a specialized network, and Solana is a general-purpose one, and that breadth is also Solana's moat.

A general-purpose chain has more ecosystem segments to absorb a downturn, and it's also far more likely to act as a laboratory for potential new growth segments to emerge, and then either gain traction or fail. Hyperliquid's revenue is concentrated in its perpetual futures listings, and that's a big risk because perpetual futures activity is highly reflexive. It spikes in bull markets, shrinks in choppy periods, and plunges during bear markets. What's more, Hyperliquid is drawing plenty of aggressive competition from rivals like Aster.

Hyperliquid's buybacks can slow sharply if activity drops. That raises another issue: its supply, of which only 42% is currently in circulation. The next core contributor unlock of coins lands on July 6, and when it does, it will release roughly 9.9 million HYPE, worth about $645 million.

For the buyback flywheel to keep net supply shrinking, trading fees have to outpace the new tokens entering the float. That's a problem Solana had at one point, too, but now, there simply isn't much of the supply remaining to be disbursed (just 7.7%), so it's hardly an issue for investors today.

So which coin is the better buy?

On the basis of its value capture of network activity, Hyperliquid is the better buy, but it's important to note that "better" does not mean "safer."

Solana is an established coin with more than five years of history, a large ecosystem, and more than enough versatility to survive through multiple market cycles. The main issue is that there isn't a strong linkage between network activity and benefits for coin holders, which could be solved in the future.

Hyperliquid is a newer and much smaller player in an increasingly competitive market that it can't easily pivot from, and where it happens to be winning at the moment. It's significantly riskier.

Of course, it's perfectly reasonable for an investor to have exposure to both of these assets, as I do.

Alex Carchidi has positions in Solana. The Motley Fool has positions in and recommends Hyperliquid and Solana. The Motley Fool has a disclosure policy.