Is Solana the next PayPal?

Since its launch in March 2020, Solana (SOL 1.95%) generated a monster return for investors, up over 16,000%. This performance is certainly impressive, even though the cryptocurrency is trading 44% below its all-time high today.

However, earnings can distract from that the blockchain network is working on a new innovative feature that looks promising. Specifically, Solana aims to disrupt the payments space.

Can this cryptocurrency make serious progress and become the next one PayPal (PYPL -1.00%)?

Trying to change the payments landscape

Solana 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 introduced the Solana Pay service in early 2022 to make inroads into the payments industry.

Solana Pay is an innovative payment mechanism that connects merchants and consumers directly through the blockchain. Transactions can be facilitated using the symbol SOL or a stablecoin and it can be paid almost instantly with fees that are fractions of a penny.

For merchants operating on thin margins, using Solana Pay could lead to higher profits as there would be significant savings in money not paid to traditional payment processors. In addition, interesting features such as non-fungible tokensit can replace receipts, allowing customers and businesses to develop deeper connections and encourage future transactions.

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

Solana stands out in the digital asset industry due to its fast throughput. Theoretically, it can handle 50,000 transactions per second. This makes it a prime candidate for use in a payments setting.

It also helps that the industry is very profitable. PayPal executives believe the deal will generate $6 billion free cash flow (FCF) this year. And the two book magistrates, Visa and MasterCardrake in tens of billions of dollars in FCF each year.

PayPal’s long-term success

As of this writing, Solana’s $68 billion market cap is slightly smaller than PayPal’s, which is worth $75 billion. Therefore, I can say that the former has already become the latter in terms of approximate assessment. But that says nothing about utility. I would suspect that Solana’s gain is mainly due to hype, speculative activity and the extremely favorable market environment rather than anything to do with fundamental developments.

To his credit, Solana announced in August that he would join the popular Shopify e-commerce platform. Since that time, the crypto has increased by 600%, a fantastic gain in one 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 PayPal adoption and usage would probably be a major understatement.

This is especially true when you take a closer look 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 and hassle-free way to move money shines brightly in comparison to the many outages the Solana network has had. Consequently, I’m not sure crypto can ever become the next PayPal.

If you look at PayPal’s stock chart, with shares trading 76% off their peak, you’d think the business is on the brink of bankruptcy. But that couldn’t be further from the truth.

It’s true that PayPal isn’t putting up the monstrous growth numbers it did in years past, but that’s not a deal-breaker. It’s still expanding, which is encouraging, and it’s a very profitable business.

Plus, PayPal stock is cheap. It can be purchased from a the forward price-earnings ratio of only 16.3. I think Solana is overvalued, while PayPal seems drastically undervalued. It is clear that the fintech enterprise is the much better investment to make now.