The first instalment of this series looks at Solana, an ambitious Layer 1 blockchain that strives to solve the many scalability problems faced by blockchain developers and users.
Founded in 2017 by software engineer Anatoly Yakovenko, Solana launched its beta mainnet in March 2020 after three years of development. Though the protocol is still new, it has already hit a number of impressive adoption milestones and remains one of the most talked about crypto projects. And for good reason.
To those of you who have ever used Ethereum – the second-largest blockchain by market cap that pioneered smart contracts and decentralised applications (dApps) – a thorny issue you’ve likely encountered is the higher transaction costs, known as ‘gas fees’.
These gas fees are caused by the huge demand for Ethereum block space, which leads to network congestion. It’s precisely this congestion on the Ethereum network that has created opportunities for Layer 2 solutions and alternative Layer 1 networks that are aiming to build scalable dApps beyond Ethereum.
Solana is one of these Layer 1 networks.
Solana’s chain offers what Ethereum currently cannot – ultrafast transactions at little cost. The average fee on Solana is just $0.00025, which is significantly less than other blockchains. This has allowed the protocol to scale up rapidly and earn the label ‘Ethereum Killer’.
Just like Ethereum, Solana provides smart contract functionality that is opening up a world of possibilities by enabling things like NFTs and DeFi. A key difference is that Solana uses Rust rather than Solidity to write these smart contracts.
Solidity is the most popular programming language in the Web3 space for writing smart contracts, having massively taken off as the use of Ethereum grew. Polygon, Binance and Avalanche also use Solidity.
Unlike Solidity, Rust is not crypto-specific and is highly popular in the gaming community. In crypto, aside from Solana, the programming language is also used by NEAR, Polkadot and Compound.
Solana also has an entirely different system architecture compared to other chains, as it combines Proof-of-Stake (PoS) and Proof-of-History (PoH) consensus mechanisms.
PoH is one of the several innovations Solana has introduced to the blockchain world. This is a new method of verifying transactions and is ultimately where Solana’s impressive Transactions per Second (TPS) comes from. PoH allows Solana to handle up to 50,000 TPS with 400 millisecond block times, which is currently unparalleled in the blockchain space. By way of comparison, the Bitcoin and Ethereum blockchains are able to handle approximately 7 and 15 TPS.
Another notable accomplishment for Solana is the astronomical ascension of the blockchain’s native cryptoasset, SOL. At the start of 2021, SOL traded for $1.80 per coin while just several months later in August, SOL topped $258. Though the price has since fallen dramatically, this spectacular return of 140X in just a few months attracted attention to the platform beyond the crypto world.
When it comes to DeFi, Ethereum remains the undisputed leader. Yet, the Solana ecosystem has been applauded for growing its ecosystem in a short space of time.
What is it? Raydium is the largest Automated Market Maker (AMM) on Solana which leverages the central order book of the Serum DEX to enable fast trades, shared liquidity and new features for earning yield. It is similar to Uniswap operating on the Ethereum blockchain.
What’s its formation story? It was launched in February 2021 by three anonymous founders simply known as AlphaRay, XRay and GammaRay.
What’s it’s native token: The native asset is RAY.
Anything else? Solana’s cheap transaction fees were a key factor behind Raydium’s decision to build on the network. Similar transactions could set users back as much as $50 a time on the Ethereum chain.
What is it? Marinade is the first non-custodial liquid staking protocol built on the Solana blockchain. The protocol strives to make it simple for SOL token holders to earn a passive income via liquid staking.
What’s its formation story? The protocol was launched in August 2021, but it’s unclear who the founders are.
What’s it’s native token: MNDE
Anything else? Marinade operates as a DAO and MNDE is its governance token. This means that holders of these assets have governance and voting rights over the protocol.
What is it? Serum is an on-chain central limit order book built on the Solana blockchain. It strives to compete with AMM-based exchanges such as Uniswap and SushiSwap which utilise liquidity pools to make trading possible. But rather than leaning on AMMs, Serum’s smart contracts match buyers and sellers directly based on price-time priority.
Any cryptoasset – spot, derivatives, synthetics, and so on – can be traded on the order book.
What’s its formation story? It was launched in August 2020 by FTX’s Sam Bankman-Fried.
What’s it’s native token? The native asset of the protocol is SRM.
Anything else? Raydium Protocol and Atrix Protocol are each built on top of Serum’s open-source DEX infrastructure.
What is it? Solend is a lending protocol that allows users to earn interest on cryptoassets (similar to Aave or Compound), and the largest such protocol on Solana.
What’s its formation story? The protocol is founded by Rooter – an anonymous developer – and officially launched on the Solana mainnet in August 2021.
What’s it’s native token? The native asset of the protocol is SLND.
Anything else? Solend came under scrutiny in June 2022 after its community initiated a controversial action to take control of a whale wallet to prevent a selloff amid the broader market crash.
Solana’s burgeoning NFT market has made a lot of noise this past year with collections such as DeGods, Solana Monkey Business, Degenerate Ape Academy, Shadowy SuperCoder DAO and Okay Bears, gaining significant traction.
Notably in May 2022, the most popular NFT marketplace on Solana, Magic Eden, spectacularly overtook OpenSea in daily trading volumes.
The explosive growth of Axie Infinity has demonstrated that blockchain gaming, or ‘GameFi’, is a huge market, and one that Solana, Polygon and Avalanche are all battling on.
Solana first showcased its aim of becoming a hotbed for gaming development in November 2021 after Solana Ventures, the strategic investment arm of Solana, established a $100m gaming fund with crypto exchange FTX and Lightspeed Ventures.
A month later in December 2021, Solana announced a $150m fund with game-focused firms Forte and Griffin Gaming Partners.
In June 2022, Solana doubled down on its gaming ambitions with the formation of a $100m fund to support the growth of GameFi, DeFI and NFT projects in South Korea.
The platform is backed by some of the most renowned venture capital names in the digital asset space which include a16z, CoinShares, Alameda Research, Coinfund, and Parai Capital.
The reputation of its investors and the money they have provided has undoubtedly helped enhance Solana’s presence in the industry. While it’s widely believed that sustained interest from these large investors is positive for Solana’s future growth, a high VC presence has also been a key criticism of Solana.
In June 2022, Solana announced an audacious move into the smartphone development business with ‘Saga’, its flagship Android mobile phone. The crypto specific device will feature a Web3 dApp store, contain a hard wallet and purports to allow users to easily develop applications as well as securely and efficiently manage their digital assets, including NFTs.
Early 2023 will see the delivery of the Solana Saga, which has a 6.7inch OLED display, 12GB RAM, 512GB storage and is powered by a Snapdragon 8+ Gen 1 Mobile Platform.
While Solana has made enormous strides in ecosystem growth, questions have been raised about the network’s stability and resilience.
As of 23 August 2022, the network has experienced a total of five outages over the course of the year. Of these five outages, there have been two instances in April and June where block production was ceased as a result of stalled consensus.
Meanwhile, a recent hack on 3 August 2022 saw as much as $8m in funds drained across a number of Solana-based hot wallets. Days after the breach, fellow ‘Ethereum Killer’ rival, Polygon, edged past Solana to claim the fifth position in the DeFi TVL rankings.
To address some of the issues the network has faced on the back of enormous user growth, Solana has rolled out several upgrades. Some of the new technologies its developers are introducing to the platform include QUIC, stake weighted QoS and local fee markets. You can learn more about these upgrades and see how they are progressing on Solana by visiting this page.
A recurring criticism of Solana among the wider crypto community is that the network puts less emphasis on decentralisation than some of the other Layer 1 counterparts. According to research by Messari in 2021, almost 50% of Solana’s tokens are held by VC firms, its core developers, and the company itself.
It’s also worth noting that confidence in Solana’s DeFi figures have been rocked by a CoinDesk investigation in August 2022 revealing that two brothers used pseudonymous developer profiles to inflate the TVL on Solana by $7.5bn.
*Although TVL is a popular measure of DeFi ecosystem or protocol performance, this metric has often come under fire as it’s not necessarily the best metric to measure the value of a blockchain or protocol. For an interesting read on why we need better metrics than TVL for assessing DeFi, check out this report by our research team.
Solana is technologically fascinating and will undoubtedly be a vital project to watch as the protocol continues to evolve and mature.
As outlined above, Solana’s major strength lies in its low fees and speeds due to its use of the PoH algorithm. However, it’s our view that future momentum of Solana hinges on the robustness of its network, but also on the implementation of the Merge – aka the Ethereum update which is slated to solve many of the network’s current problems. Assuming the Merge is successful, Ethereum will likely continue to rank ahead of its competitors as the leading smart contract platform.
Copper’s institutional clients are now able to access Solana’s $1.5bn DeFi ecosystem through CopperConnect. This is a simple, highly secure Google Chrome application which provides institutional investors an ultra-secure way to connect digital assets stored in Copper’s multi-party computation MPC wallets with dApps.
Did you know that SOL is one of the cryptoassets available for staking on Copper validators? Our specialised validator node infrastructure allows Copper clients to earn staking rewards from the safety of their MPC-secured wallets – without having to run their own infrastructure 24/7. Our hassle-free solution also offers protection against slashing, simple and loss-free migration, along with Copper’s signature white-glove service.
Our settlements and clearing service is backed by our award winning custody technology