Is Solana the Next PayPal?

Since its launch in March 2020, Sunny (CRYPTO: SOL) has generated monster returns for investors, rising over 16,000%. That performance is certainly impressive, even though the cryptocurrency is trading 44% below its all-time high today.

Since launching in March 2020, Sunny (CRYPTO: SOL) has generated monster returns for investors, rising over 16,000%. That performance is certainly impressive, even though the cryptocurrency is trading 44% below its all-time high today.

However, the profits may distract from the fact that this blockchain network is working on an innovative new feature that shows promise. More specifically, Solana wants to disrupt the payments space.

Can this cryptocurrency make serious progress and become the next? PayPal (NASDAQ: PYPL)?

Trying to change the payment landscapeSolana Labs, the company that essentially controls the decision-making and development efforts for Solana, is trying to increase the long-term viability of the blockchain. It launched the Solana Pay service in early 2022 to break into the payments industry.

Solana Pay is an innovative payment mechanism that connects merchants and consumers directly via the blockchain. Transactions can be facilitated using the SOL token or a stable coin and can be processed almost instantly, with costs a fraction of a cent.

For merchants operating on razor-thin margins, using Solana Pay could lead to higher profits as there would be meaningful savings on the money not paid to traditional payment processors. Plus, there are exciting features such as non-fungible tokens that can replace receipts, helping customers and businesses build stronger relationships and encourage future transactions.

Solana says there are 280,000 active Solana Pay accounts. It’s unclear whether this specifies the number of merchants who have signed up or the total number of merchants and potential buyers. Still, it’s clear that this is still a very small user base in the grand scheme of things, considering there are tens of millions of retailers around the world.

Solana stands out in the digital asset industry for its fast throughput. It can theoretically process 50,000 transactions per second. This makes it a prime candidate for use in a payment environment.

It also helps that the industry is very lucrative. PayPal executives believe the company will generate $6 billion in free cash flow (FCF) this year. And the two card giants, Visa and MasterCard, earn tens of billions of dollars annually from FCF.

PayPal’s Long-Term SuccessAt the time of writing, Solana’s $68 billion market cap is just a tad lower than PayPal’s $75 billion. Therefore, I can say that the former has already become the latter in terms of estimated valuation. But this does not say anything about usefulness. I suspect that Solana’s gains are mainly due to hype, speculative activity, and the extremely favorable market environment, rather than any fundamental developments.

To clarify, Solana announced in August that it would integrate with the popular Shopping e-commerce platform. Since then, the crypto has risen 600%, a fantastic gain in a year.

But according to Cryptwerk, Solana’s token is only accepted at 737 merchants worldwide. To say that Solana has a long way to go to gain the acceptance and usage that PayPal has would probably be an understatement.

That’s especially true when you look closely at PayPal, which is used in 200 countries. The company processed $1.7 trillion in annual payment volume last quarter and has 429 million active users. Its status as a reliable, seamless way to move money pales in comparison to the Solana network’s many outages. That’s why I have no confidence that crypto can ever become the next PayPal.

Looking at PayPal’s stock chart, with shares trading 76% below their peak, you’d think the company was on the brink of bankruptcy. But nothing could be further from the truth.

It’s true that PayPal isn’t showing the monstrous growth numbers it did in previous years, but that’s no reason to stop. The company is still expanding, which is encouraging, and it’s a very profitable business.

In addition, PayPal stock is cheap. It can be purchased at a future price earnings ratio of just 16.3. I see Solana as seriously overvalued, while PayPal looks drastically undervalued. It’s clear that the fintech company is the much better investment right now.

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