Not investment advice.

Introduction

Solana is uniquely positioned to gain market share from existing smart contract blockchains as well as attract new projects and users to the crypto/blockchain space.

Notable Advantages:

  • Scalability (50K TPS/ subsecond global state finality)
  • Low cost (Avg txs fee is $0.0007)
  • Composability (High performance without layer 2s/sharding)
  • Top tier ecosystem partners
  • Decentralized and secure

Scalable composability is not possible with sharding/layer 2s

Solana as a Layer 2

The presence of independent cross-chain bridges makes Solana interoperable with Ethereum (Wormhole), with more cross-chain integrations on the way. Additionally, Ethereum compatible execution environments are coming to Solana, which will make it as portable as an EVM-based layer 2.

Better developer experience

The limited throughput of many existing blockchains incentivizes developers to build as little on-chain as possible to preserve block space and transaction costs. This causes developers to build unnecessarily convoluted technical architecture. Many dApps rely on an array of off-chain systems, and to scale will need to build across side chains or layer 2s. This adds significant development time, opens up attack vectors, and adds limitations to protocol functionality/ decentralization. With Solana’s large capacity, more can be done on-chain than ever before.

Solana smart contracts are written in Rust which is one of the most loved programming languages (4 years running on StackOverflow). On Github, 24K users have contributed code written in Rust, where there are only 3.5K developers who have contributed Solidity code. While this is not a fair statistic to compare developer community size (100% of Solidity devs are working on Ethereum, a tiny fraction of Rust devs are working on Solana), it does demonstrate accessibility for new developers to begin building in the space.

Strategic ecosystem advantage

Solana ecosystem

Ultra-high-performance dApps

Defi’s killer use cases have been limited to less urgent transaction types where the value proposition is strong enough that users are willing to accommodate high fees and slow speeds. Lending protocols and Automated Market Makers have dominated DeFi as they can tolerate longer processing times (though in the short term Binance Smart Chain has proven that there is lots of demand for cheaper transaction fees despite risks of centralization). Use cases that require high throughput and low fees have failed to compete with their centralized counterparts and for the most part, haven’t even been attempted on existing blockchains.

With Solana’s scalable processing capacity these use cases can thrive. Decentralized projects for high-frequency trading, central limit order books(CLOB), derivatives, cloud computing, and cloud storage, have been built on Solana and could support over 1 billion user accounts on a single state machine. The combination of retail and high-performance trading will enhance the efficiency of both interconnected ecosystems.

Many mainstream retail use cases such as gaming, music streaming, collectibles, or social networks, can be decentralized on Solana in ways that would be difficult on other chains. In the future major infrastructure from credit card payments to public equities trading could be deployed on Solana which may one day offer more transactions per second than both the NASDAQ (600K TPS) and Visa (100K TPS). As the cost of hardware and bandwidth fall (by around 50% every two years), Solana’s performance should improve by the same rate. It is expected that Solana’s throughput will double every 2 years (according to Moore’s Law).

There is a flurry of web 2 enterprises and institutions that are clamoring to leverage blockchain and Solan is uniquely positioned to support their millions of users.

Projects building on Solana

Audius is a direct artist-to-consumer music stream platform that solves royalty complexity and creates a seamless process for equitable collaboration. The platform initially launched its ERC-20 token on Ethereum but decided to build its settlement layer on Solana. The team reviewed a myriad of Layer 2 solutions and smart contact platforms but decided on Solana because of its best in class scalability. “We just needed a single source of truth with global availability data and that can clear transactions with a reasonable degree of finality relatively quickly” — Roneil Rumburg, CEO of Audius(link). Today Audius has over 2.5 million users, most users interact with the platform without even realizing the system is recording their usage on a blockchain, only about 6,000 (address) hold the token. What will be interesting to see is if they can start to get their mainstream users to engage more directly with the blockchain functionality, either through staking $AUDIO, or through their planned NFT features. For now, Solana can support the system without issue, Rumberg said they will need to have hundreds of millions of users before they expect to hit bottlenecks.

Maps.me

Maps.me is a nine-year-old travel/navigation tool with a user base of over 140 Million users. They wanted to leverage their existing user base and offer them access to emerging decentralized financial services like passive income generation, efficient foreign exchange, and international payments. Onboarding such a huge volume of mainstream users to defi could only be done by building on a blockchain that could offer mass-market scalability, so they chose Solana. You can read more about our decision to invest in maps.me here).

Oxygen

Oxygen is a decentralized prime brokerage focusing on collateralized lending/borrowing. Lending protocols have been a staple of DeFi for years with a core demographic being niche crypto traders, but Oxygen has a strategy to scale to hundreds of millions of retail users via direct integration with Maps.me. Users will be able to earn passive interest on their portfolio or borrow cash against their existing positions. Built with a performance-first approach, Oxygen has a suite of professional features for leverage, shorting, options writing, and structured products.

Serum

Serum is a decentralized exchange and derivative platform built on Solana. Unlike most DEXs, Serum is the first fully on-chain central limit order book. Benefiting from the high performance of Solana, Serum has a user experience that rivals centralized exchanges with sub-second transaction times and even lower fees.

Raydium

Raydium is an automated market maker(AMM) on Solana that provides liquidity to Serum’s order book. Radium’s integration with Serum compounds liquidity rather than fragmenting it across separate Dapps. AMMs are a critical component to seeding liquidity for new projects that launch on Solana.

Civic

The 2017 era decentralized identity and wallet application is now building its application on Solana and plans to merge it with its existing Ethereum based solution. While the story here is similar — a desire for lower fees, and more scalability, the team also said that Solana’s performance-centric blockchain can support mass adoption, and if that occurs, global regulators will want to ensure an identity system (like Civic) is in place for DeFi to be complaint.

Risk And Threats

Once Solana was back online it received additional criticism because, after 2 hours, no trades had taken place for any non-BTC assets, suggesting that bots make up the majority of the trading volume on Serum and that they had not yet been brought back online. The human traders may have been expressing caution post network outage or perhaps we’re not aware of the network’s recovery. Either way, the large presence of bots bodes well for Solana by suggesting its low transaction fees and high throughput may result in an environment where bots can achieve an increase in efficiency relative to other blockchains. The future of finance will be robotic not human.

Long Term Team

Solana Stats

Comparison of top protocols

The data suggests Solana is the most performant blockchain amongst the leading smart-contract platforms and Layer 2 solutions. Solana has cheaper transactions, more transactions per second, and the fastest finality, without sacrificing composability across shards or layers. Technical superiority is also demonstrated by having some of the most active developers — with more than 13K GitHub commits. In terms of the number of network validators, Solana has more than Cosmos, Polkadot, Algorand, and Near combined, and trails only Avalanche and Ethereum. The large number of validators so early in Solana’s history proves its scalability is not hampered by wide and diverse network participation.

Performance vs. decentralization

Binance Smart Chain

The high costs of transactions on Ethereum have priced out a lot of retail users, who have moved to Binance Smart Chain(BSC). BSC’s accent was bolstered by its alignment with the Binance ecosystem (launch on BSC — get listed on Binance) and its EVM compatibility. For many new users entering the space, decentralized comes second to speed and cost. BSC achieves efficiency by using a Proof of Authority consensus that sees its blockchain validated by only 21 pre-approved participants. This is significantly less decentralized than Solana’s 600+ Validators.

Solana validator map. Source: https://solanabeach.io/

Conclusion

“Because for DeFi to win, it can’t be decentralized OR fast OR cheap OR sophisticated OR innovative OR well-built OR have a large userbase. It needs to be all of those”.

— SBF (Twitter link)

A team of former consulting, Wall Street, private equity, government, and corporate veterans accelerating the blockchain revolution