Solana (SOL): Analysis of a project that is making a strong comeback

The Big Whale's opinion 🐳

In a world where modular blockchains are multiplying and adding more and more complexity, Solana defends simplicity and the idea that it is possible to rely on just one high-performing blockchain.

Despite its links to the FTX-Alameda ecosystem, Solana has seen a very significant resurgence in interest and is demonstrating its resilience. Its share price has risen 10-fold in the last six months.

Its blockchain still suffers from recurring failures that prevent it from representing a credible alternative to Ethereum in terms of security and stability.

Solana has been experiencing an explosion in memecoin projects for several weeks now and is recording record volumes.$

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Overview 🧬

Solana is a layer 1 blockchain launched in March 2020, with a white paper dating back to November 2017.

Solana's main promise is to enable very high transaction throughput. In part, this capability translates into high technical constraints to participate in the Solana network, which hinders its decentralisation.

One of Solana's feats is to have introduced transaction parallelization. Validators in the Solana network can process unrelated transactions in parallel, instead of having to execute them one after the other, as other chains do.

Thus, instead of having equal transaction fees for the entire network, each activity has its own local fee market. For example, if there is an explosion in NFT exchanges, users who exchange tokens will not have to pay high transaction fees because they are carrying out a different activity.

Solana uses the Rust programming language, which exists outside Web3. This is an asset because it attracts traditional developers, unlike Ethereum's (Solidity) which has no existence outside the crypto ecosystem.

Solana is the 4th largest blockchain in terms of value tied up (TVL) with $4.6 billion.

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Financing 💰

Like many similar projects, the project was funded via fundraising around a start-up. Solana Labs has raised a total of $348.39 million.

A pre-sale of $12.63 million took place in June 2018 from private investors whose identities are unknown.

A $20 million Series A took place in July 2019 from Multicoin Capital, NGC Ventures, Slow Ventures, Blocktower Capital and RockawayX, among others.

A $1.76 million Initial Coin Offering (ICO) took place in March 2020. The price of the token was 22 cents, almost 850 times cheaper than the current price.

A private fundraising round of $314 million took place in June 2021 with a16z, Polychain Capital, Multicoin Capital and Jump Trading, among others. Also of note was the participation of Alameda Research, the investment company linked to the now bankrupt FTX.

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Team and community 👾

Anatoly Yakovenko is the co-founder and CEO of Solana Labs. He worked for 12 years as an engineer at US semiconductor manufacturer Qualcomm, where he gained experience in distributed systems. He is the author of the Solana white paper. He is the central figure in the ecosystem.

Greg Fitzgerald is the co-founder and CTO of Solana Labs. He previously worked with Anatoly at Qualcomm.

Solana Labs is headquartered in San Francisco (USA) and the company states that it employs 219 people on its LinkedIn page.

This commercial structure differs from the non-profit Solana Foundation, which is based in Zug (Switzerland). The latter aims to develop the ecosystem via the distribution of grants. Solana Labs, meanwhile, is a protocol provider.

Solana has 2.5 million subscribers on X (formerly Twitter) and 130,000 members on Discord.

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Functioning and performance ⚙️

One of the major components of Solana's functioning is Proof-of-History (PoH). PoH is a mechanism that uses cryptographic evidence to establish a chronological order of transactions.

This allows each node in the network to maintain its own independently synchronised clock, which improves node synchronisation and therefore transaction throughput.

PoH is a component of Proof-of-Stake (PoS), which is Solana's main consensus mechanism.

Solana's major promise is to enable very high transaction throughput. The project claims to be able to handle more than 50,000 transactions per second (TPS), while Ethereum hovers around 15 TPS.

While the promise of 50,000 transactions is still theoretical, there is indeed a gap with Ethereum.

This can be seen via Chainspect, which allows the performance of several blockchains to be compared in real time.

An important concept is "Time to Finality", which measures the waiting time before a transaction is considered irreversible.

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A centralised blockchain? 🧐

In crypto, a complete node is an actor connected to a blockchain that stores the entire transaction history, thus helping to decentralise the network.

Solana's nodes require a lot of resources to operate, as well as very high bandwidth (almost impossible to have at home). So it's not really possible to run your own node at home, and you have to rely on hardware supplied by cloud computing specialists.

According to a study published by the Syncracy fund (invested in Solana), the cost of a complete node runs between $4,500 and $5,500 a year. By way of comparison, it is possible to run a full Ethereum node at home for a unit expense of around $550.

The Ethereum network has around 8,300 full nodes spread across 88 different countries, while the Solana network has around 2,900 full nodes in 31 different countries.

There are 2 different clients (software on which nodes depend) on Solana: the one developed by Solana Labs and the one from Jito, which is used by more than 60% of nodes. Two others are under development. The diversity of clients is very important as it allows a network to continue to function if one of the clients were to encounter a bug.

Most other blockchains have only one client, while Ethereum offers four.

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An unstable blockchain 😓

Solana's real problem is its instability. Since its launch, the blockchain has experienced around ten breakdowns for various reasons, the most recent dating back to February 2024.

These breakdowns tarnish the credibility of Solana, which cannot seem to eliminate them. It is not conceivable to build a global economic and financial system on a network that can shut down for several hours.

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Ecosystem 🤝

Activity on Solana has reached record volumes for several weeks (see chart below).

Here is a selection of the main applications:

Marinade is a liquid staking protocol, it is the equivalent of Lido on Solana. It is the project with the largest locked-in value on Solana ($2 billion).

Raydium is the largest decentralised interchange on Solana. It is the equivalent of Uniswap on Solana.

Kamino is the largest lending protocol. It is the equivalent of Aave on Solana.

Jupiter is by far the most important decentralised exchange aggregator on Solana. It also enables limit orders to be placed and dollar cost averaging (DCA) to be automated. The airdrop of its JUP token in February contributed to the very sharp rise in activity on Solana.

Several interesting protocols have not yet launched their token and distribute points that can later be transformed into an airdrop.

MarginFi is the 2nd lending protocol after Kamino and also offers liquid staking.

Parcl allows leveraged speculation in the US property market.

Grass is a browser extension that allows its users to earn passive income by selling their unused internet bandwidth to AI companies.

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The SOL token 🪙

The SOL is used to pay transaction fees on the Solana blockchain. It can also be staked for a return of around 7% a year. Currently, 65% of SOLs are staked.

The inflation rate of the token was initially 8% per year, today it is around 5.5% and should stabilise at 1.5% in 2030.

Solana has a "burn" mechanism that destroys half the fees spent on each transaction. Activity on the network therefore creates a scarcity on the token. However, the number of SOLs destroyed is currently less than those created by network inflation.

This differs from Ethereum, which has been a deflationary network since 2022 thanks to its significant activity.

Solana's largest staker is Coinbase Cloud, which currently manages 4.1% of SOLs staked on behalf of its customers. The 18 largest stakers own more than a third of staked SOLs and the 37 largest stakers own half.

Below is the initial SOL distribution:

77% of SOLs are in circulation. Some of those not in circulation belong to private investors, who are subject to a progressive vesting period until 2027.

Among these investors is Alameda, which owns around 2.7% of all SOLs.

These are set to be sold to settle the bankruptcy of its sister company FTX, which may put selling pressure on the token.

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Regulation ⚖️

The SOL token has been presented as illegal on several occasions by the US stock market regulator. These statements were made in June 2023 in the context of SEC complaints accusing the Coinbase and Binance platforms of listing unregistered financial securities (security), including the SOL.

The Solana Foundation defended itself in June 2023:

"The Solana Foundation firmly believes that the SOL is not a "security". SOL is the native token of the Solana blockchain, which is itself a robust, open source, community-based software project built on decentralised user and developer engagement."

The fate of SOL in the US is likely to become clearer in the coming months, when the US justice system issues its ruling in the Coinbase and Binance cases. If it loses, it could no longer be offered to US investors by exchange platforms.

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Competition ⚔️

Solana is currently the leader in very high-speed blockchains in terms of capitalisation and adoption, however there are many challengers.

Near is a blockchain launched in April 2020 that is based on the principle of sharding, which involves dividing the network infrastructure into segments. The project didn't really succeed in creating a DeFi ecosystem and so pivoted to the narrative of modular blockchains focusing on chain abstraction and data availability (such as Celestia).

Aptos launched in October 2022 and this blockchain also supports transaction parallelization. It is based on the Move programming language, which is not yet widely used, but is supposed to offer more protection against hacks.

Sui is also based on Move with a few modifications supposed to offer more flexibility. The team behind Sui previously worked on Meta's blockchain project.

Although both ecosystems have seen remarkable growth in recent months, they are still a long way from Solana in terms of usage and value locked in.

Sei, meanwhile, is a blockchain launched in August 2023 within the Cosmos ecosystem that also supports transaction parallelization. A new version is due to be released in the first half of 2024 and is expected to support the Ethereum Virtual Machine (EVM). This will enable applications from the Ethereum ecosystem to be deployed on a very high-speed blockchain.

Monad, a blockchain still in development, is also working on EVM parallelization.

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Roadmap 📅

Firedancer, a new network node management client should be available by the end of 2024. It should enable a significant increase in the number of transactions per second on the network while contributing to customer diversity.

Generally speaking, there are not really any major transformations planned, but rather recurring additions: "Solana benefits from constant improvements in terms of performance and is not waiting for upgrades that take several years to deploy," Austin Federa, Solana's Head of Strategy, tells The Big Whale.

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Market analysis by Chadi El Adnani, Head of Content & Research at SUN ZU Lab 📈

Solana, nicknamed "The Comeback Kid", was heavily impacted by FTX's bankruptcy in November 2022, due to its history and links with SBF. Blockchain suffered another blow at the end of 2022 when its two top NFT projects, DeGods and Yoots, decided to leave blockchain and build their infrastructure elsewhere. SOL closed 2022 below $10, returning to early 2021 levels.

In 2023, Solana achieved the impossible: SOL ended the year above $100, a 10x performance over the year (over 900%!). This success is mainly due to the strength of its community, which has never given up on blockchain, the exceptional leadership of its founders and the Solana Foundation, and the technical excellence of its developers.

In 2024, Solana is unstoppable, nearing $200 at the end of March. It dominates other "Layer 1" blockchains on almost every metric, from the number of transactions per day, to the volume of NFTs, stablecoin activity and the daily number of active users. The price of SOL has risen by 90% since the start of the year, compared with 70% for BTC and 60% for ETH. SOL's daily volume has exceeded $5 billion twice in the last two weeks, averaging $3 billion over the same period. These impressive volumes surpass those of Bitcoin and Ethereum on some days!

‍Where can you buy the SOL token? 🛒

The SOL is available on almost all exchange platforms.

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Conclusion 🧭

Solana is a relevant blockchain because it is simpler to use than the Ethereum ecosystem where you have to navigate its secondary layers to reduce the amount of transaction fees.

Solana is still a long way from achieving the 50,000 transactions per second it claims, but it is still quite a way ahead of other blockchains in terms of throughput.

Less decentralised than Ethereum, Solana nevertheless has a satisfactory level of decentralisation.

As long as Solana continues to have failures, it will not be able to represent a credible alternative to Ethereum, whose value is based above all on security.

The Solana ecosystem is experiencing real growth and has shown resilience despite the fall of FTX. If activity on the blockchain continues to grow, it is highly likely that eventually the amount of SOL in circulation will balance out or even reduce, which would make SOL very attractive from an investment point of view.