How Neon EVM is Bringing Scalability to the Blockchain Party

Published in

Coinmonks

11 min readFeb 24, 2024

For Ethereum developers, scalability has long been a thorn in the side. This issue manifests in two key ways: exorbitant gas fees and glacial transaction times.

Imagine trying to build a bustling marketplace on a congested highway — that’s the current state of Ethereum for many developers and users. These high fees act as barriers to entry, discouraging developers from building innovative applications and hindering user adoption.

Imagine wanting to buy a coffee but having to pay an extra $20 for the transaction — that’s the frustration users face on Ethereum during peak periods. The sluggish transaction times further dampen the experience, leading to long wait times and a sense of sluggishness that undermines the very essence of a fast-paced digital world.

This scalability bottleneck has a ripple effect, stifling the innovation and growth that Ethereum was designed to foster. Developers are hesitant to invest their time and resources into building applications on a platform where transaction costs can eat into their profits, and users are discouraged by the slow and expensive experience.

…and that is where Neon EVM steps in.

The Neon EVM

The Neon EVM project emerged from a recognized need within the blockchain space: scalability solutions.

In 2021, ideao CoLab Ventures, the team behind Neon EVM, secured $40 million in funding from prominent investors, demonstrating early confidence in the project’s potential to address this challenge.

The initial phase focused on developing a proof-of-concept for the Neon EVM, demonstrating its ability to execute Ethereum-like transactions on the Solana blockchain. This involved extensive research, development, and testing to ensure the technical viability and stability of the solution.

Neon EVM, standing for “Neon Ethereum Virtual Machine,” is not your average blockchain project.

Neon EVM is akin to a translator, effortlessly converting Ethereum smart contracts written in Solidity and Vyper into a language understood by the Solana blockchain. Essentially, it’s an Ethereum Virtual Machine (EVM) implemented as a smart contract on the Solana network.

This unlocks a treasure trove of possibilities for developers and users alike, as it allows developers to deploy existing Ethereum dApps on Solana with minimal code modifications, unlocking the potential of Solana’s superior performance (fast transaction speeds, minimal fees, and unparalleled scalability) for a wider audience.

But how exactly does all this magic happen?

How Neon EVM works

The magic behind Neon EVM lies in its parallelized architecture.

In blockchain transactions, this means processing each transaction in a block one after the other, known as sequential execution. Each transaction necessitates validation from the entire network, resulting in substantial energy consumption and a heightened workload for validators.

Let’s go over Neon EVM’s architecture step by step…

1. User Initiates Transaction:

The user interacts with an Ethereum dApp as usual, initiating a transaction. This transaction is signed and resembles an Ethereum-like transaction.

2. Neon Proxy Takes Charge:

The transaction is directed to a Neon RPC endpoint, similar to how users interact with Ethereum nodes.
The Neon API service receives the transaction and forwards it to the Neon Proxy.
The Neon Proxy analyzes the transaction and provides two key functionalities:

i. Gas estimation: It estimates the fees required for executing the transaction on the Neon EVM.

ii. Wrapping: It transforms the Ethereum-like transaction into a format compatible with the Solana blockchain.

3. Execution on Neon EVM:

The wrapped transaction is sent to the Neon EVM program, which resides on the Solana blockchain.
The Neon EVM program performs the following actions:

i. Unwraps the transaction: It extracts the original Ethereum-like transaction details.

ii. Signature verification: It ensures the transaction is valid by verifying the user’s signature.

iii. State retrieval: It retrieves relevant account data and smart contract code from Solana storage.

iv. Transaction execution: It executes the transaction logic within the secure environment of Solana’s Berkeley Packet Filter (BPF).

v. State update: It updates the Solana state with the results of the transaction, reflecting the changes in the Neon EVM state.

4. State Change and Completion:

Both Solana and Neon EVM undergo a state change to reflect the completed transaction.
This final step confirms the successful execution of the user-initiated transaction on the Solana blockchain.

Unlike traditional EVMs, which process transactions sequentially, Neon EVM leverages Solana’s unique features to execute transactions in parallel.

The execution environment within Solana BPF provides security and efficiency for processing transactions.

This enables it to achieve unprecedented transaction speeds, reaching a staggering 730 transactions per second (TPS) on the Solana mainnet — a significant leap compared to Ethereum’s current capabilities.

The Neon Ecosystem

The Neon Ecosystem is a comprehensive suite of tools and services built around Neon EVM, a revolutionary bridge that unlocks the power and speed of the Solana blockchain for Ethereum developers.

For Core Infrastructure, we have:

Neon EVM: The heart of the ecosystem, this smart contract on Solana executes Ethereum-like transactions while adhering to Ethereum’s established rules. This allows seamless migration of existing dApps with minimal modifications.
Neon Proxy: This acts as the translator, taking Ethereum transactions and packaging them into a format compatible with the Solana blockchain. This enables smooth interaction between Ethereum dApps and the Solana network.
Neon DAO: A decentralized governance mechanism powered by the NEON token. NEON holders participate in voting on proposals that shape the future of Neon EVM, fostering community involvement and shared decision-making.

For Essential Tools and Integrations, we have:

NeonScan: A block explorer providing transparency and insights into transactions occurring within the Neon ecosystem.
NeonPass: Facilitates the bridgeless transfer of ERC-20 tokens between the Ethereum and Solana ecosystems.
NeonFaucet: Provides test tokens for developers to experiment and build dApps within the Neon ecosystem.
Integrations: Seamlessly connects with oracles like Chainlink and Pyth, enabling dApps to access real-world data and build intelligent functionalities.

Wallet Support: Works with popular EVM-compatible wallets like MetaMask, ensuring a familiar and user-friendly experience for dApp users.
WalletConnect Integration: Adopts the decentralized standard for connecting wallets and dApps, promoting interoperability and user choice.
Tracer API: An invaluable tool for developers, offering debugging, tracing, and analysis capabilities to optimize their smart contracts deployed on Neon EVM.
Development Tools: Supports popular tools like Hardhat, Remix, and Foundry, providing developers with a familiar and efficient development environment.

The Neon Ecosystem‘s contribution to Solana

One of Neon’s most significant contributions lies in its ability to address Solana’s inherent scalability limitations. Neon tackles Solana’s inherent limitations by enabling Ethereum-like transactions on its high-throughput network. This translates to faster transactions, lower fees, and a smoother experience for users and dApps across the entire ecosystem.

Several DeFi protocols, including deBridge and MeredianFi, have integrated with Neon, showcasing its growing success in the industry, primarily on the back of Ethereum and Solana’s rising prominence.

Neon acts as a bridge, allowing developers to seamlessly migrate their dApps to Solana and leverage its superior performance and cost-effectiveness.

DeFillama data shows that Ethereum is the largest DeFi blockchain, with $45.87 billion in total value locked (TVL) on the network, while Solana’s TVL recently climbed above the $2 billion mark.

This influx of talent and innovation fuels the growth and development of the entire Solana ecosystem.

Tokenomics

The Neon EVM ecosystem is powered by the NEON token.

The NEON token serves a dual purpose within the Neon EVM ecosystem, acting as both a transaction settlement token and a governance tool.

Neon as a transaction settlement token:

NEON serves as the primary currency for paying gas fees associated with executing transactions on Neon EVM. When an Ethereum dApp interacts with the Solana network through Neon EVM, users pay the corresponding gas fees in NEON tokens.

These fees are then distributed as follows:
Proxy Operator: Receives a portion of the fees to compensate for their role in facilitating transactions.
Solana Validator: Earns a portion of the fees for securing the Solana network.
DAO Treasury: Receives a portion of the fees to fund ongoing development and ecosystem initiatives.

Neon as a governance tool:

NEON empowers its holders to actively participate in the governance of the Neon ecosystem through the Neon DAO.

By locking their NEON tokens in the DAO’s smart contract, holders gain voting rights on crucial proposals impacting the future of Neon EVM, including:

Feature development and upgrades.
Resource allocation and ecosystem growth initiatives.
Partnerships and integrations.

NEON token holders can participate in the voting process by simply locking their tokens in the Neon DAO smart contract during the designated voting period.

Token Distribution and Release Schedule:

Treasury & Ecosystem Growth: Distributed at the discretion of the Neon DAO, ensuring flexibility for strategic initiatives.
Early Purchases, Key Partners, Ecosystem Development, Founders & Team: Subject to a one-year lockup period, followed by linear distribution over the next year, promoting long-term commitment.

Early Contributors: Locked for a minimum of one year, followed by linear distribution over the next year.
Public Sale: Unlocked entirely on July 17, 2023, enabling immediate participation in the ecosystem.

Neon Ecosystem Roadmap

The Neon Ecosystem roadmap is divided into four phases: Pre-alpha, Alpha, Beta, and Post-Beta.

The Pre-alpha phase focused on developing the Neon EVM proof-of-concept and Neon EVM stabilization. The Alpha phase focused on key dApps testing and security audit passed. The Beta phase focused on production-ready Neon EVM, ERC-20 support, early dApps deployment, and integration with The Graph, Pyth, and Chainlink.

The Post-Beta phase focuses on Neon ecosystem growth, interoperability with Solana smart contracts, top industry ecosystem tools and services, grants program launch, decentralized operators’ network, and Neon DAO governance roll-out.

Team and Investors

As I said earlier, in November 2021, Neon Labs secured a significant $40 million investment, demonstrating the project’s potential and attracting the attention of prominent players in the blockchain space. This impressive funding round saw participation from…

The leadership team at Neon Labs boasts a unique blend of experience, bridging the gap between traditional business acumen and cutting-edge blockchain expertise.

Marina Guryeva, CEO: Marina leveraged her MBA from INSEAD to dive into the blockchain space early on, holding positions like Blockchain Assets Analyst and Investment Relations before leading Neon Labs as CEO.
Konstantin Goldstein, COO: Combining a Master’s degree in Psychoanalysis and Business Consulting with 9 years at Microsoft as a Technical Business Development Manager and Program Manager, Konstantin brings a strategic and analytical approach to his role as COO.
Andrey Falaleev, CTO: Andrey’s extensive programming experience, honed through leadership roles at TomskSoft, Odin, and Plesk, coupled with his CTO experience at GolosChain Core, CyberWay Core, and CyberCoreDev, makes him a valuable asset as CTO.
Yuriy Yurchenko, CPO: Yuriy’s Master’s degree in System Integration and Management, combined with 6 years as CPO at a Fintech startup, equips him to lead Neon Labs’ product development efforts.

Pros of Neon EVM:

Leverages Solana’s high-throughput network to address Ethereum’s scalability limitations, offering faster transaction speeds and lower fees.
Enables developers to migrate existing Ethereum dApps to Solana with minimal code modifications, unlocking the benefits of Solana’s performance for a wider audience.
Faster transactions, lower fees, and a smoother experience for users interacting with dApps built on Neon EVM.
Fosters collaboration and knowledge sharing between the Ethereum and Solana communities, potentially leading to advancements in both ecosystems.
Paves the way for future interoperability solutions, potentially reducing fragmentation within the blockchain space.
Lowers the barrier to entry for developers to build high-performance dApps without needing to rewrite code or invest heavily in infrastructure.

Cons of Neon EVM:

Neon EVM itself is a single point of failure, raising concerns about centralization compared to fully decentralized solutions.
As a relatively new project, Neon EVM may be susceptible to security vulnerabilities that haven’t been thoroughly tested yet.
Currently, Neon EVM doesn’t support all functionalities of the Ethereum Virtual Machine, potentially limiting the capabilities of migrated dApps.
The success of Neon EVM is tied to the success and adoption of the Solana blockchain itself.
While promoting interoperability, Neon EVM could also contribute to the creation of separate ecosystems within the blockchain space.

Conclusion:

While researching about Neon EVM, there were two key elements that I found particularly intriguing:

1. The concept of Democratizing Scalability:

Traditionally, building scalable dApps has been a complex and resource-intensive endeavour, often requiring specialized knowledge and significant infrastructure investment. Neon EVM, by enabling the deployment of existing Ethereum dApps on Solana, lowers the barrier to entry for scalability.

I’m very happy with the fact that it found ways to empower a wider range of developers to create high-performance dApps without the need to completely rewrite their code or invest in expensive infrastructure. This democratization of scalability has the potential to accelerate the development and adoption of innovative dApps from Ethereum over to Solana.

2. Interoperability Bridge, Not Silo:

While Neon EVM facilitates the migration of dApps from Ethereum to Solana, I think it’s crucial to recognize that it’s not merely creating a siloed environment. Instead, it acts as a bridge that strengthens communication and collaboration between the two blockchain ecosystems. This interoperability has the potential to unlock a wealth of opportunities:

Developers from both communities can learn from each other, accelerating innovation and problem-solving across the blockchain landscape.
DApps built on either Ethereum or Solana can potentially interact with each other, creating novel use cases and unlocking the combined potential of both ecosystems.
The success of Neon EVM could pave the way for similar interoperability solutions, ultimately leading to a more connected and interoperable blockchain landscape.

Well, while I think the technical aspects of Neon EVM are impressive, it’s the potential democratization of scalability and the facilitation of interoperability that truly excites me, and hence the reason for this article.

I think if the team keeps up with the good work, these aspects hold the power to transform the way we interact with and utilize blockchain technology…especially the Ethereum blockchain.

As the project matures and gains wider adoption, its true impact will become clearer. One thing remains certain: Neon has the potential to be a game-changer for Solana.

Community references:

Website: https://neon-labs.org/
Twitter: http://twitter.com/neonlabsorg
Discord: https://discord.gg/wj7EUCJv7V
Telegram: https://t.me/Neonlabsorg
Reddit: https://www.reddit.com/r/neonlabsorg/
Github: https://github.com/neonlabsorg/
Youtube: https://www.youtube.com/c/NeonLabs