Deep Dive Research
03 Jun 2022
Market Cap: $32,902,188,194
Fully Diluted: $50,443,943,284
Volume (24h): $1,339,734,278
Circulating Supply: 333,703,432.94 SOL
Total Supply: 500,000,000 SOL
Solana is a “high-performance” blockchain supporting builders around the world creating crypto apps that scale today.”
Since its launch back in 2019, Solana has secured its position in the top 10 cryptos in terms of market cap. The current value of Solana’s blockchain is around ~$33B, ranked number #7 at the time of writing.
Solana is also ranked number #5 in total value locked and number #4 in NFT trading by volume.
The blockchain achieves this impressive speed by utilizing a complex technology stack in its architecture with its own novel proof-of-history method. Many believe that Solana will follow Etherirum’s footsteps and archive the four-digit price tag eventually.
The Solana ecosystem has welcomed more than 1,500 dApps and hosted more than 2M unique addresses. The number of applications being built on the blockchain is increasing over time.
The USP of Solana is its high throughput with the ability to process up to 50,000 transactions per second. For comparison purposes, the first and most famous blockchain, Bitcoin, is capable of processing around 5 TPS while Etherium can handle roughly double that amount.
The processing speed of Solana is not only impressive within the crypto landscape, but it also comes ahead even when compared to some of the most recognizable names in the transaction services industry. For instance, VISA - the household name in international transaction services - could only handle up to 24,000 TPS. In reality, Visa is processing approximately 1,700 transactions every second.
Coupled with a blockchain-grade security level, Solana’s speed poses it as a direct competitor to many traditional transaction facilitators in the realm of traditional finance. In fact, Solana does not shy away from the competition with its new product “Solana Pay” - which aims to provide a direct transaction tool for merchants and their customers on Solana’s blockchain. Solana Pay will be discussed in-depth in the later section of the report.
Within the crypto ecosystem, a secure, high-speed blockchain is also highly sought after by many projects, especially in terms of GameFi and NFT.
The success of the Solana blockchain can be attributed to a number of technological advantages.
First of all, Solana supports common programming languages like RUSH, C+, and C++, instead of having to learn an entirely new one like Solidity in Ethereum. This created a friendly environment for developers who wish to take part in the ecosystem.
More developers mean more applications for users. More users mean the ecosystem is more valuable and, in turn, attracts more projects and developers. This one seemingly simple character has completed the value accrual fly-wheel for Solana’s blockchain ecosystem.
Solana is built upon an elegantly complex technology stack that pushes the speed boundaries that has been dwarfed blockchain technology historically:
Proof of History: every block will be marked with its own timestamp. So instead of processing one block at a time to ensure the chronological order of the chain, Solana’s blocks can be validated simultaneously and later rearranged into fitting order.
Timestamps are important to produce a block in the blockchain. Reaching consensus on the mining time for each block is as equally important as the consensus for every transaction in the block.
These timestamps dictate the sequence of blocks in the blockchain.
For Bitcoin (and many other blockchains), the blocks need to be mined one by one to maintain the order of the blocks.
For Solana and PoH: multiple blocks can be mined simultaneously and then later be rearranged into the blockchain, based on their timestamps.
The technology that is used to mark the timestamps in each block is called the “Verifiable delay function” - VDF
Tower BFT (Byzantine Fault Tolerance): a special BFT to optimize the PoH structure
Turbine: a technology that enables Solana to breakdown each block into smaller pieces, easier to distribute in the network of validators
Gulf Stream: a solution to manage the order of transactions coming to each block - reduce confirmation times and memory pressure on validators from the unconfirmed transaction pool.
Sealevel: a “hyper parallelized translation processing engine”. This is a technology that allows Solana to scale up with the ever-increasing hardware prowess.
“Every time Nvidia doubles the number of SIMD lanes available, our network will double in computational capacity. Virtually all other blockchains, which are single-threaded computers by design, can never scale in this way”.
Pipelining: “a Transaction processing unit for validation optimization”
Cloudbreak: “A horizontally scaled memory”. Due to the constraint in RAM, it is hard to maintain the “global state” of the blockchain in a consumer-grade computer. This technology was born to bypass that. It enables Solana to scale in terms of the number of transactions.
Solana housed more than 1500 dApps and recorded more than 900 monthly active developers. Not only Solana has “5x” their number of full-time developers from 2020 to 2021 - which was recorded as the fastest growth in the crypto sphere, but it also ranked number 1 in terms of active developers during 2021, according to Coinn98 Analysis.
Considered one of the top blockchains out there with embedded smart-contract capability, many apps in different categories have been and are being built on top of the Solana blockchain:
DEX: Raydium, Tulip Protocol
CEX: Binance, Coinbase, Crypto.com, all of ‘em.
Wallet: Phantom, Trust Wallet, Bonfida
Oracle: Chainlink, DIA
Stablecoin: USDC, UST, USDT
Game: one of the most vibrant playgrounds on Solana: Star Atlas, Aurory, Synergy Land. Solana is also leading in the Move-to-Earn trend with StepN, Genopets
NFT marketplace: MagicEden, Solart
Defi: Solend, Orca, Marinade Finance, Serum, Lido
Defi is one of the major pieces of Solana’s puzzle with approximately $6.5B stored in its ecosystem. This TVL is only behind Ethereum, Terra, BSC, and Avalanche.
NFTs are also one of the domains which Solana is known for. At the moment, more than 2,400 NFT projects have been launched on Solana, which makes it number #2 in terms of total NFT projects among all blockchains.
Solana’s architecture is also gaining traction among GameFi. Many iconic Crypto games chose Solana as their facilitators. Namely: Star Atlas, Audrory, Synergy Land.
The two leading titles of the “move to earn '' trend are Genpets and Stepn also chose Solana as their native blockchain.
The co-founders of Solana are four individuals with deep credentials in technology and cryptography. They have experience working for big technology companies like Qualcomm and Intel.
Two pillars in the blockchain’s ecosystem are the Solana Foundation (Switzerland) - which focuses on community-building efforts - and Solana Lab (San Francisco) is the core contributor to the development of the blockchain.
Solana has raised a total of $335.8M over 7 rounds. Among the early backers are familiar VC names like:
Without a hard cap on the number of $SOL, the initial 500M $SOL is being allocated as followed:
25%: Founders & Project
38%: Premined Rewards & Airdrop
This allocation is heavily in favor of the early investors, AKA VCs, endowing them with 37% of the total token issued. The phenomenon has raised many questions regarding the decentralized nature of Solana’s blockchain.
3 years since the launch of Solana, at the time of writing, more than 30% of SOLs are still in the hands of the top 100 wallets. In another report issued by Messari, 48% of the total SOLs issued is currently under the control of “insiders”, while the entire public sector possesses less than 40% of SOLs in circulation.
This high “whale concentration” is the prerequisite condition for a manipulated market.
According to Solana’s vesting schedule, there was a massive amount of $SOL unlocked for founders and early investors in January 2021 and linearly vested throughout the next few years. It was impeccable timing for these whales as the price of $SOL reached its ATH in November last year (~$260). After that, Solana’s price has come down more than 60% from the November peak (~$100).
Solana blockchain has 99.76% uptime. This is less than the near-perfect uptime from AWS (99.99%) or Google Cloud(99.9%) services. This is one of the most important criteria for financial transaction services.
Cheap transaction prices on the Solana blockchain expose them to DDOS-like attacks, where the hacker floods the blockchain with a big volume of meaningless transactions.
The team is working on a solution for this. By compartmentalizing each block into different sessions and limiting the data that can be written in each of them, Solana can raise the transaction fees for a specific area of the blockchain while maintaining a low fee for other parts.
The token allocation of Solana makes it less than an optimally decentralized blockchain. On top of this, the blockchain requires industrial-grade computing hardware to run its validator nodes. This factor diminishes the contributions to the network from “average Joes”, which in turn undermines decentralization overall.
There are a number of potential development for the Solana ecosystem from the Road map of the team:
Technically, Solana is still in its beta version. The team would like to thoroughly test the Solana mainnet before launching its alpha product. The Alpha version is rumored to be released this year in Q3 and if it happens, we can expect a positive price action on $SOL. However, the same rumor was circulating in the Solana community last year and it did not happen, so maybe take it this time with a grain of salt.
Under the “Solana program library” on GitHub, Solana has outlined an on-chain governance blueprint. Even though there is no official announcement regarding when it would be released, we can see that there are plumbing works being built to support the feature.
Launched in early Feb 2022, this is Solana’s first step in its journey to conquer traditional financial transaction services. Solana Pay is a framework which payment applications can be built upon. This move makes Solana the direct competitor to VISA and MASTER payment services.
Solana Pay can be a catalyst for the price movement of Solana given it can attract a large audience of userbase. Historically, blockchain adoptions peak during the bull market, so we might be able to see an adoption event at scale for Solana Pay in the next bull market.
According to Google Analytics, the interest in Solana Pay comes from trend-driven countries like the US, Australia, Canada, and the UK. If Solana can sustain the audience in these areas, there is a good chance for global adoption down the road.
The Solana blockchain offers a number of advantages over its competitors in the TraFi markets:
Having a lighting fast system with abundant throughput prowess, which is even faster than the big players in the traditional payment industry like Visa or Master
Blockchain-grade security level
Cheaper fees than the current Visa charge (~2% for the merchant)
USDC, which used Solana as its official blockchain, is vastly popular in the cryptoverse.
However, there are also certain obstacles in the way of Solana Pay becoming a household name:
The popularity of the feature is heavily influenced by the price fluctuation of the crypto market
SOL price fluctuates by itself, rendering it unfit to be a medium of exchange
Heavy competition from similar services
The unstable performance displayed by the Solana Network recently
Circle, the company that issued USDC and announced in early Feb that it’s building a decentralized ID protocol. Since Solana is the official blockchain of USDC, the protocol will probably live on Solana.
Identification protocol is one of the focal points of the crypto market and if this product is being launched on Solana, we can anticipate a substantial raise in SOL's unique address count.
Solana is actively trying to increase its developer community by partnering with Major Language Hacking, as well as hosting its own hackathons (Riptide).
Even though fully functional as a complete blockchain network, the “beta” stigma of Solana is still somewhat discouraging for outsiders, especially for non-crypto audiences.
Since the blockchain is looking to onboard more mainstream users, having a “full version” of the Solana up and running might contribute to the credibility of the blockchain and drive adoption.
One of the closest competitors of Solana is NEAR, and NEAR seems to have stolen Solana’s thunder:
They have similar blockchain architecture
Built by the same programing language
Backed by the same VCs
Software companies that built the two are in the same area
A full comparison with NEAR will be issued in a future Layer 1 report.