Solana — Latest Developments
Introduction
In this article, we will examine the most recent events on the Solana blockchain, how recent network crashes and hacks have affected it, and assess its future potential.
Background
Solana was created in 2017 by Anatoly Yakovenko and built by Solana Labs, with assistance from the Solana Foundation, a Swiss-based non-profit devoted to developing the community and financing development. The startup collected more than $20 million in a private Series A round before launching the Solana ‘beta’ mainnet in March 2020.
Solana devised the Tower BFT consensus mechanism, which incorporates delegated proof-of-stake. Solana’s network architecture incorporates Proof-of-History, a global decentralized ‘clock’ used to create a common schedule for all participants, which has scaled the network to 400 millisecond block-time, making Solana the fastest cryptocurrency today, with approximately 50k — 65k transactions per second.
However, is Solana still capable of dominating the rapidly rising crypto sector? Let’s take a look at some key developments.
DeFi on Solana
Image source: defillama.com (05.05.22)
Solana has just over $5 Billion value locked on it DeFi ecosystem with 63 active protocols, making Solana the 5th largest blockchain in DeFi. Furthermore, Solana’s TVL had an astounding grown of 236% year over year.
Ethereum Virtual Machine NEON
Image source: neon-labs.org
To further expand and enhance Solana’s DeFi ecosystem, the team is now working on Neon, the first Ethereum-compatible environment on Solana, which is anticipated to debut in Q2 2022. Neon Labs raised $40 million in a private token sale round with Jump Capital leading the round in Nov 2021.
Neon would enable Ethereum developers to deploy Ethereum dApps on Solana without the need for smart contract modifications, all while utilizing familiar programming languages and Ethereum tools. Since Ethereum boasts millions of users, over $100 billion in TVL, and over 630 dApps, the Neon EVM will be extremely beneficial to further grow Solana’s DeFi ecosystem.
Neon intends to provide 4,500 TPS with ultra-low transaction costs on its Ethereum virtual machine.
According to Neon CEO Marina Guryeva, some of the prominent DeFi projects, such as SushiSwap ($9.8B in TVL of which $8.9B is on Ethereum), Aave ($23.5B in TVL of which $16B is on Ethereum) and several others have confirmed their interest in deploying on Neon EVM.
To support the early adoption of Neon EVM, the team is creating a Grant Program.
NFT Market Share
The largest digital marketplace for crypto collectibles, OpenSea, officially started listing NFTs minted on the Solana blockchain.
Opensea NFT trading volume has recently hit $3.2 Billion in the second quarter of 2022, an almost 30% increase from March.
Image source: theblockcrypto.com
Solana has seen the second largest NFT volumes traded after Ethereum. According to JPMorgan’s analysts led by Nikolaos Panigirtzoglou, since August, the Solana blockchain has been capturing the most NFT volume share at the expense of Ethereum, with market share of NFTs on Ethereum dropping to around 80% from about 95% at the start of 2021.
Solana Gaming Funds
Image source: news.coincu.com
In November 2021, Solana Ventures teamed with FTX and Lightspeed on a separate $100 million Web3 gaming co-investment fund. Only a month later, Solana Ventures announced establishment of another $150 million investment fund for games to be built on Solana.
The funds will facilitate investments in video game developers, tech companies, and other projects at the intersection of blockchain and gaming.
One of the first investments was in the startup game developer, Faraway. Faraway has recently released a game called Mini Royale: Nations, which has over 2 million registered users and is claimed as the first live multiplayer game on Solana. The sky is the limit for Mini Royale, especially with the simplicity of use of browser-based design and the integration of NFTs and crypto tokens. The potential is enormous, since the leading free-to-play games on mobile, such as China’s Honor of Kings and PUBG Mobile, command as many as 100 million daily active users.
Along with Faraway’s web-based first-person shooter Mini Royale: Nations, the Solana blockchain will house a number of new crypto games, including the sci-fi simulation Star Atlas and the play-to-earn fantasy game Aurory.
Solana’s Phantom Wallet
Image source: phantom.app
Phantom is a non-custodial crypto wallet designed for Solana. After gaining more than 2 million monthly active users in just six months after launch, Phantom is the fastest growing crypto wallet and has a unique opportunity to become the mainstream, user-friendly gateway to Web3.
According to Phantom’s CEO, Brandon Millman, the Phantom wallet reached 3 million users by the end of April 2022, with an expectation of reaching 10 to 50 million users by the end of 2022.
Phantom wallet is now available for download for iOS and Android, allowing users to store, send, and receive Solana’s tokens and NFTs, as well as stake Solana’s native token, SOL, to earn incentives.
Phantom secured $109 million in Series B funding led by Paradigm in January 2022. The funds will be utilized to expedite user and developer onboarding to Web3, as well as to innovate the multi-chain wallet user experience and increase the Phantom team.
Solana Pay
Image source: solana.com
Solana Pay was introduced by Solana Labs on February 1. Using blockchain technology, customers will be able to deposit stablecoins such as USDC straight from their crypto wallets into a merchant’s account, without the intermediary.
Solana Pay has collaborated with Circle, the firm behind USDC, the second biggest stablecoin in crypto, which is entirely backed by US dollars and dollar-denominated assets, and the reserves of which are routinely attested by Grant Thornton LLP. Monthly attestations are available on the Centre Consortium’s website. Solana is USDC’s official blockchain.
However, Solana Pay is entering a crowded market of existing payments applications dominated by tech titans, such as Apple and Google, so what gives them an advantage?
- Near-instant USDC settlement at near-zero cost to merchants, as opposed to 2–3 days it takes for money to clear with standard payment gateways.
- Merchants have access to Circle Yield, which offers high yield interest rates on deposited cash without the hassle. When compared to standard bank rates, merchants may earn up to 4.6% per year.
- Building blocks for merchant-to-consumer relationship: personalized offers, on-chain loyalty programs, and unique virtual goods to accompany physical purchases. For example, a new customer walks into the store to buy sneakers. On leaving the store they will have NFT version of the new sneakers, usable in any game or virtual world they choose. When the store releases new sneakers, customer’s digital wallet will have a new offer reminding them of the availability of new sneakers at the merchant’s store, along with a personalized offer.
It has to be said, however, that the above advantages are not exclusive to Solana. This technology is possible with any stablecoin on any other smart contract blockchain. However, what gives Solana an edge, is the institutional support via partnership with Circle.
Why Does the Circle Partnership Matter?
Circle’s USDC is the second largest stablecoin in the market and has regulatory approval. Circle was granted virtual currency licences by the governments of the United States and the United Kingdom in 2015 and 2016, respectively. Furthermore, VISA have officially partnered with Circle in 2021. This partnership outlines that Visa can now enable USDC as a settlement currency with Circle’s partners.
Cuy Sheffield, Head of Crypto at VISA, laid out how even with improved back-end performance and the ability to draw on USDC balances, consumer-facing aspects of the familiar Visa experience won’t be impacted.
Solana Foundation
Image source: solana.foundation
In April 2020 the Solana Foundation was founded with a mission to advance the adoption of decentralized technologies as a public good. Solana Labs transferred all IP related to the protocol and 167m SOLs to the Solana Foundation with plans to transfer more.
Grants
Solana Foundation has started awarding grants to promising teams building projects ranging from protocol infrastructure to end-user applications.
Education and Advancement
General support for the education and adoption of decentralized technology. Solana Foundation launched a $20 million fund to further the ecosystem’s expansion in South Korea with blockchain fund ROK Capital.
Development
To initiate these efforts, the Solana Foundation will be supporting the development of the Solana Protocol.
Research
The Solana Foundation will collaborate with teams who are undertaking research that is critical to the development of decentralized technologies.
Centralization, Hacks, Network Crashes — What Does This All Mean for Solana?
Network crashes
Solana’s network has a history of frequent and severe disruptions. The most recent interruption, which brought Solana to a standstill, was the seventh. Six of the seven outages this year occurred in January alone, between January 6 and 12, according to Solana’s own tracking. These outages lasted between eight and eighteen hours.
Image source: status.solana.com
During these periods of network instability, crypto traders are often left unable to sell off their positions as transactions fail to complete on Solana’s network, yet another sign of how unreliable this emerging technology can be during times of stress.
Hack
Solana has suffered one of the largest De-Fi hacks. Its wormhole, one of the most popular bridges linking the Ethereum and Solana blockchains, lost about $320 million in an apparent hack in Feb 2022.
Centralization concerns
Anatoly Yakovenko, founder of Solana, has admitted in an interview that SOL has a single service provider, used by all of its node validators and raised concerns over the network security.
Another critical aspect of validation on Solana is the ability to operate a validator node. Solana can currently process up to 65,000 transactions per second, but the high throughput means that the hardware requirements for running a validator node can be prohibitively expensive. Solana Labs now advises that validators to utilize a 12 core CPU and 128GB of RAM, which can cost thousands of dollars.
The main question is, with all of these flaws, why hasn’t Solana faded into obscurity?
Simply put, Solana has huge financial and institutional firepower, which provides them an advantage over their competitors.
Solana’s Institutional Support
Solana competes in a crowded field of smart contract blockchains. It’s vital to highlight that the blockchain sector is still in its early stages, and it’s anyone’s guess who will thrive and who will collapse. Institutional and financial firepower, akin to that of the early internet startups during the dot-com boom, is not everything, but it certainly helps.
Bailouts
Let us return to Solana’s wormhole exploit. It was the second largest hack in DeFi, but the lost funds were quickly replenished by Jump Crypto, cryptocurrency arm of the decades-old trading firm Jump Trading Group. The replenished $320 million worth of lost funds from the wormhole hack, made it the biggest DeFi bailout to date.
ETPs & Futures
Next, we have Solana ETPs (Exchange traded products).
Image source: 21shares.com
Starting with 21shares Solana ETP (ticker: ASOL) available on Swiss, German, French and Dutch exchanges with $55 Million AUM. Then FTX and CoinShares launching physical staked Solana ETP with 1 million SOL in seed capital, which will be listed on Germany’s major digital market Xetra.
In March 2022, WisdomTree, one of the largest exchange-traded product sponsors and asset managers in the world, listed Solana (SOLW) ETP on Börse Xetra and SIX, the Swiss Stock Exchange, as well as Euronext exchanges in Amsterdam and Paris.
Grayscale, the largest digital currency asset manager, entered the SOL race with Grayscale® Solana Trust.
CME group, the world’s largest financial derivatives exchange has stated they are considering to launch Solana Futures.
Circle & Solana
Image source: centre.io
Centre Consortium announced that Solana is the official blockchain for USDC, even though almost 80% of USDC’s circulation is being currently utilized on Ethereum.
This is especially relevant, if CBDC of the US government will decide to partner with Centre Consortium to issue their own digital dollar.
FTX Backing
Image source: solana twitter
FTX’s Sam Bankman-Fried, crypto billionaire who also recently purchased 7.6% stake in a popular trading app Robinhood, has been backing Solana and even stated that he believes that Solana has a real shot at becoming the “next Bitcoin”.
As both critics and supporters share their opinions on the Solana network issue, Bankman-Fried tweeted, noting that despite the network’s recent shortcomings, it is still superior to other chains. According to the FTX boss, Solana has been able to process more transactions than all other major networks combined.
Back in July 2020, FTX and Alameda Research (also founded by Sam B-F) created the Serum Foundation and announced Serum, a new high-speed, non-custodial DEX (decentralized exchange) to be built on Solana. Following that FTX has been involved in Solana setting up $100M gaming fund and launching the earlier mentioned Solana ETP.
Summary
Solana has potential, owing to a talented team, a blockchain that is exceptionally fast, cost efficient, and environmentally friendly, and, on top of that, significant institutional support. Furthermore, Proof-of-Stake blockchains like Solana enjoy widespread political and governmental backing.
It should also be noted that Solana is currently in beta status. The Solana mainnet beta initially went live in February 2020, and since then, it has yet to officially leave this beta period.
All of Solana’s network faults up to this point are fixable, and this is expected to be the case by the time mainnet is completely released.
It should be noted that Solana isn’t particularly decentralized, with VCs and insiders owning half of the tokens. However, in the era of regulatory constraints put on cryptocurrencies, this may be advantageous.
One thing is certain: institutions and regulators want it to succeed, and it has the potential to do so.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
