Solana In A Nutshell
The FASTEST decentralized network at the time of this writing and the most underrated network (even despite technical problems!).
Introducing Solana Network
The project was founded in 2017, during the crypto frenzy when thousands of projects where launched who never saw the light of day. Solana did. In 2020. After more than 3 years of hard work, their main net went live in beta. To this day it is still technically in beta which might explain the technical outages experiences in this first half year. But more on this later.
Solana is run by Solana Lab, a US-based company. Its development is coordinated by the Swiss NGO Solana Foundation. In the past 5 years, both Solana Lab and Foundation raised an astonishing $350 million from various crypto venture capital investors. This is on top of the $ 25 million raise during a series of ICOs in the period from 2018-2020, before the main net went live.
SOL is Solana’s native token used to pay transaction fees and rewards to validators. SOL ranks in the Top 10 crypto currencies based on market capitalization with $ 12,5 billion in valuation. This represents roughly 1,25% of the entire crypto market.
ETH in comparison represents 20,8% ranking at #2. BTC still at #1 with 41,2% of the market.
Some other medals on their chest:
🏅SOL ranks #3 in NFT sales on Magic Eden (Solana’s NFT Marketplace)!
🏅SOL is known for the most advanced onboarding protocol for validators
🏅Staking rewards are at 6% for validators, delegators, and holders (which means that if you own SOL you will receive 6% per year)
How Is Solana So Fast?
Similar to Polygon Network, Solana’s transaction are processed by a subgroup of 100-150 validators. As you can see from the screenshot above of Solana’s network data, there are currently 1,916 validators live on the net. The subgroup is randomly selected when a new block of transactions is ready to be processed. This makes Solana’s transaction approval speed ridiculously fast currently between 50,000 – 65,000 transactions per second. According to founder’s Anatoly Yakovenko, the network’s potential has not been reached yet. 😮
This is a serious competitor to Ethereum. It is going to be interesting to see how they will evolve. Ethereum is facing the challenge to update their network protocol to achieve speed and cost efficiencies. On the other hand, Solana has to further scale and gain market capitalization without losing the current speed and cost efficiencies. Maybe this is why Solana’s hardware requirements for validators are SO strict. They are ensuring the network quality as they scale (just a thought) 🤷🏻♂️ We shall see. Time will tell.
Solana News
Do you notice anything odd in this list below?
🗓 May 2022
- Early May, Solana went down for 7 hours as bots clogged up the network around an NFT minting event
- SOL network has been pivoting to payments (SOL PAY) continuing to onboard issuers and merchants
- USDC runs on Solana’s network
- Meta to support NFT on SOL, FLOW, ETH, MATIC
- Magic Eden tops Open Sea in NFT sales volume (for the first time)!
June 2022
- Solana went down again in June for a bug in the transaction storage system
- Chainlink launches price feeds on Solana to provide more accurate data and pricing to DeFi ecosystems
- Solana Ventures launched a $100 million fund for GameFI and DeFi in South Korea
- Magic Eden raises $130 million Series B at $1,6 billion valuation
- Announces a crypto phone SAGA and a $10 million incentive fund for DApp developments
July 2022
- Lawsuit against the project with allegations that SOL is sold as a security (note a security designation could kill the project)
- Solana’s Nakamoto coefficient reaches 27 (this indicates how many validators are required to corrupt its blockchain). This is the 3rd best Nakamoto coefficient of all major PoS blockchains, behind Avalanche (28) and MATIC (82)
- Solana announced opening of a physical store in NYC, the concept is similar to the Apple Store and they even plan to launch their own Solana phone!
August 2022
- Magic Eden expanded to ETH as an aggregator rather than a standalone solution
- 10.000 Solana wallet drained of 10 million Solana
- Solana wallet creator called Slope had saved the secret keys to generate wallets in a centralized database. This database was hacked
- The Solana Foundation is allegedly planning to compensate affected users
Roadmap
This is the one news item I am MOST excited about! 🚀
FTX, a crypto exchange specialized in derivatives and leveraged crypto products, is working with Solana on asset tokenization through security tokens. This means that FTX will be able to tokenize shares, bonds, currencies pairs, etc. These derivatives will be available the FTX Decentralized EXchange (DEX) built on Solana’s network!
My Concerns
- Unresolved Technical Problems
Yes, You read it. Technical outages in May and June, ongoing lawsuit started in July, and a fraudulent scheme costing holder 10,000,000 SOL across 10,000 wallets. This bad publicity is the main reason SOL has seen a major drop in value since the start of the year. Since the peak in November of $ 260, it dropped to $ 178 in January 2022 and drastically to almost $ 35 at the time of this writing (August 25, 2022).
I started this article with the sentence “Solana is the most underrated network (despite their technical problems)”. However, if these problems continue, there is a big chance Solana loses retail adoption. - Strict Hardware Requirements
The hardware requirements to run a validator node are the HIGHEST in the crypto market. There is a big argument to be made here in favor of this strategic decision. This is because by controlling the hardware requirements, Solana ensures they can scale without losing their massive speed and cost efficiencies. However, with the requirements getting stricter and stricter, there is a chance that more and more transaction will be declined because of hardware incompatibility. There is also a chance that validators will be unwilling to update their infrastructure and pivot to ETH or MATIC. Right now, the percentage of transaction declined because of network incompatibility can be as high as 25%. This means that 1 out of 4 transaction will simply NOT go through. - Regulations
There is an ongoing lawsuit against the network. If SOL is a security according to the US Security and Exchange Commission (SEC), Solana’s future will have to be re-evaluated. For now, this is not yet the case.
In Short
Solana’s remains a project I will continue monitor as part of my portfolio. What is crucial for its future valuation is:
- On the short term – avoid technical problems as big as an outage that can undermine retail adoption;
- On the long term – scale their network without losing their speed and cost efficiencies.
PS: By the time I finished writing this article, Solana processed 16,199,904 transactions!
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Disclosure
These are unqualified opinions, and this newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor, and do your own research.
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