Solana: A New Hope for DeFi
The Scalability Problem
To understand the rationale, let’s first look at DeFi and the issue of scalability. For a blockchain economy to be a viable workhorse of decentralized finance, the network must be able to handle the stress of millions of transactions per second. The inherent design of leading applications in the DeFi space have severely limited growth and adoption. As networks expand, congestion increases, and transactions become slower and more expensive. This is a product of network design in which blocks are limited in size and frequency, and a large amount of transaction data simply cannot be handled in a practical amount of time. Herein lies the “scalability problem.”
One way to address the issue of scalability is via “layer-2” solutions, which are networks that operate over top of an underlying native blockchain to improve certain elements of the underlying chain. While doing so may improve scalability and efficiency, it also adds complexity to the network and presents a problem to developers. Many layer-2 solutions are not interoperable, meaning decentralized applications (dApps) cannot easily communicate with each other. Further, entering and exiting these layer-2 networks will always require interaction with the native underlying chain architecture and, by extension, all the strengths and weaknesses of that layer-1 network. Figuratively speaking, you can’t build a great building on a weak foundation. We feel that addressing scalability with layer-2 solutions is not a viable long-term option, and for this reason we are excited about the innate capabilities of Solana in layer-1 form.
Solana: a Hyper-Scalable Layer 1 Network
Solana is a native layer-1 blockchain with several strong elements, top among them — speed.
Solana is easily the fastest blockchains in existence, capable of 50,000 transactions per second (TPS). For perspective, Ethereum Processes approximately 50 TPS. Bitcoin, the grandfather layer-1 network, achieves an average of 5 TPS. The Visa payment network can handle just shy of 2,000 TPS.
Instead of using layer-2 solutions, Solana achieves this degree of speed through its Proof-of-History (PoH) protocol, a novel chain protocol to handle transaction throughput. Unlike Proof-of-Work (PoW) or Proof-of-Stake (PoS) protocols which require real-time production of blocks and consensus across nodes to validate a given transaction, the PoH protocol hashes incoming blockchain events in real-time and time-stamps each transaction with its own internal clock (a.k.a. “sequential-hashing verifiable delay”). This creates a cryptographic historical record of events as a function of time which can be reassembled asynchronously irrespective of network delays and time difference across local computer clocks. This adds a layer of objectivity and functionality which speeds up validation and ensures the network is never delayed, regardless of the degree of variability caused by block producers. It’s also what permits a reduction in block time to a mere 400 milliseconds, with similar confirmation times (as comparison, the Visa network can validate a transaction in about 2.5 seconds).
Solana’s PoH protocol serves as the foundation of its second and arguably more exciting strength — its economics. Most blockchain economies are built upon a congestion-driven fee model that relies on protocol rewards to support the economy. As the network becomes more congested and resources stretched, the cost per transaction increases to reward node validators accordingly. Because Solana is capable of dramatically faster transaction speeds and sub-second confirmation times, the likelihood of a “congested” network is only theoretical at this time. This translates to a) transaction fees that are astonishingly low, on the order of $0.01 per transaction (compare with ETH gas fees sometimes over $100), and b) transaction fees that are relatively stable and do not fluctuate during times of high network traffic. Competing blockchain economies that offer similarly low transaction fees can only do so by making the exchange more centralized — Solana’s sheer speed, a product of its novel design, permits the network to offer low fees without sacrificing decentralization. Furthermore, as hardware improves and the Solana network grows, its speed stands to only increase, and its fees stand to only become more stable.
As competing blockchain networks struggle to meet the booming demand of DeFi products, Solana stands to be a truly web-scale blockchain with transactional scalability that can gracefully handle real-world demand. It is a blockchain which maintains speed without sacrificing decentralization or network security, and for this reason Solana is uniquely positioned to become the preferred network for decentralized applications. To date, it has already become home to a host of projects (e.g. Serum, Audius, Wormhole) and continues to garner positive recognition and partnerships. Another avenue that will make Solana thrive is the attention it has received from the gaming industry given its flexibility in development, cheap transactions and high speed, along with high frequency trading platforms which require real-time interactions. We at StarLaunch recognize its potential and are excited to partner with Solana to bring our launchpad experience to the platform and contribute to Solana ecosystem growth.
A new hope awaits, Commanders.
About StarLaunch
StarLaunch is a unique and dynamic incubator and launchpad, connecting promising Solana projects to early supporters and a network of key partners. The StarLaunch team operates by prioritizing its community first. Starlaunch brings thoroughly vetted projects to its community and protects IDO participants with an in-house insurance program.
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