Illustration of the growth of the Solana ecosystem


The central theses

  • Solana is a high throughput Layer 1 blockchain that offers fast and inexpensive transactions.
  • The project has been described as one of Ethereum’s strongest competitors.
  • Solana has had a great year in which SOL has increased in value and developed rapidly in its DeFi ecosystem.

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We explain how Solana and its rapidly growing ecosystem established themselves at the forefront of the cryptocurrency space.

A new Ethereum competitor

In early June, Solana hit the headlines after a private round of token sales worth $ 314 million led by Andreessen Horowitz and Polychain closed.

Funding came due to the rapidly growing ecosystem that is developing on Solana and its rising status as a leading competitor to Ethereum, the most widely used public blockchain.

In the past, the huge demand for Ethereum block space has resulted in network congestion that has resulted in very high transaction fees.

This congestion has created opportunities for Layer 2 solutions, sidechains, and new Layer 1 networks that aim to build scalable dApps beyond Ethereum. Solana is one of those Layer 1 networks.

The project was founded in 2017 amid the ICO mania when his team raised more than $ 25 million in private and public rounds. The mainnet beta was finally released in March 2020.

Solana found recognition for its 400 ms block time and its high throughput of 50,000 transactions per second, a thousand times higher than Bitcoin and the current version of Ethereum, both of which depend on the proof-of-work consensus (Ethereum plans on proof-of-work to change). Stake sometime in the future).

With a focus on scaling for mainstream adoption, Solana can theoretically scale up to 700,000 transactions per second, as described in the whitepaper.

How does Solana achieve scalability?

Solana’s architecture explains how the network achieves such high scalability. The blockchain sea ​​level runtime enables horizontal parallel processing of transactions. This means that Solana can continue to scale with improvements to the Validator GPU, which keeps fees low as transactions increase.

According to Anatoly Yakovenko, CEO of Solana Labs, the scalability that the network promises is proportionally tied to the computer hardware. In essence, the network can run tens of thousands of smart contract transactions in parallel using as many GPU cores as there are validators available.

The main disadvantage of Solana is that it requires specialized hardware to run a validator, which can cost thousands of dollars.

With additional features such as proof-of-history and the consensus algorithm Tower BFT, a proof-of-history-optimized version of BFT, the goal of the project is to have a distributed system that can scale transactions proportionally to the network bandwidth.

In addition, Solana enables transactions to be scaled in parallel with the network bandwidth. This means that it can be scaled as the usage of the network increases without relying on sharding or Layer 2 solutions.

There are over 900 validators on Solana today. Although Ethereum is still the most decentralized smart contract network, Solana is more decentralized than many other Layer 1 chains, including Polkadot, Cosmos, Binance Smart Chain, and Fantom.

The Solana ecosystem

Many new projects have chosen to build on Solana to take advantage of its high throughput and extremely low transaction fees.

The rapidly growing DeFi ecosystem uses Solana’s inexpensive and instant sub-second block finality, the highly efficient blockchain, and is now made up of dozens of dApps.

The ecosystem includes decentralized exchanges (HydraSwap, Orca), automated market makers (Raydium, Popsicle Finance), income aggregators (SolFarm, Solyard), stablecoin swap platforms (Mercurial Finance, Saber), wallets (Solflare, Phantom, Solong), NFT -Marketplaces (Solanart, Sollectify), derivatives (Parrot, Mango Markets) and games (SOLife, Sollamas, SolPunks).

In the past six months, many infrastructure-based projects such as data analysis tools, block explorers, oracles and launchpads have also been developed.

Like Ethereum, Solana’s biggest growth area has been decentralized funding. Solana’s fast block times and low transaction fees have proven attractive for onchain trading protocols. For DeFi traders, real-time block finality enables accurate margin values ​​and real-time profit and loss calculations.

Another big contributor to Solana’s DeFi boom was Sam Bankman-Fried, the CEO of FTX Exchange and one of the network’s biggest supporters. In August 2020, Bankman-Fried announced the launch of Serum, a fast, decentralized exchange with no custody. Serum became a great catalyst for Solana’s rapid growth.

Bankman-Fried’s confidence in Solana was enough to bring massive liquidity to Serum through the involvement of some of the leading market makers, including Alameda Research (which he founded) and Jump Trading. Alameda Research has also invested in many emerging projects in the ecosystem.

While acting as a Solana-native decentralized exchange, Serum offers a trading experience similar to centralized exchanges by using a limit order book executed on the network.

An order book enables functions such as limit orders and instant profit and loss updates for more control and precision in trading. Additionally, any other project on Solana can add liquidity to Serum’s on-chain order book. Traders can place limited buy and sell orders that can be matched via Serum. Various types of commercial and financial projects are now integrated into Serum’s order book.

Last year, Serum became the core infrastructure powering several Solana projects, including Radium, an automated market maker that shares some similarities with projects like Uniswap. In return, these projects help to increase the trading volume of serum.

Solana’s fast block time enables high-fidelity Oracle data thanks to projects such as Pyth Network. In this way, precise information can be exchanged between different interest groups and processed in real time in the chain.

Solana hosts many popular stablecoins to ensure high liquidity and scalability to support order book based DEXs. Stablecoins are considered one of the fundamental elements of DeFi. Just recently, the USDC offering on Solana exceeded $ 1 billion.

Stablecoins aside, many Ethereum-native DeFi projects have posted their code on the network or are looking for ways to expand in the future. Aave, Ethereum’s top lending market, indicated it would launch on Solana earlier this month via Neon Labs.

With the existing infrastructure, new projects on Solana also benefit from the so-called “Solana summer”. A new dApp for derivatives trading on Solana, Mango Markets, recently raised more than $ 60 million in a funding round. More than $ 500 million has been deposited with Mango Markets to qualify for public sale, demonstrating the level of interest pouring into Solana’s nascent DeFi ecosystem.

The NFT mania is also making its way into the Solana ecosystem.

Just a few days ago, a collection of 10,000 NFT avatars from the Degenerate Ape Academy was sold out within eight minutes of launching on Solanart. The NFT sale came when Solana’s SOL token rose to an all-time price of $ 63. Since then, it has peaked at $ 81 and now ranks as one of the top 10 cryptocurrencies by market capitalization.

Smart contracts and interoperability

Solana does not support Solidity, the programming language used in Ethereum. This means that there is a lack of EVM compatibility, which could make it difficult to compete with Ethereum’s network effect.

Instead, Solana uses Rust for development. Rust is one of the most popular languages ​​in the developer community.

Projects like Neon Labs are also working to offer EVM compatibility on Solana by porting Solidity Smart Contracts for execution on the network.

In addition, a cross-chain bridge called the wormhole enables the transit of assets from Ethereum, although such solutions come with security tradeoffs. Millions of dollars have been lost in bridge attacks this year.

Solana’s most promising value proposition is providing block times with low latency and the highest bandwidth of any blockchains. With web-scale performance, Solana offers one of the best user experiences of any Layer 1 blockchains, which can lead to wider adoption. With more than $ 300 million in newly raised capital, Solana is also in a good position to accelerate the development of many other domestic projects.

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