Recovery State of Solana
Almost everybody has heard about Solana in one way or another: some still hold SOL, believing in this blockchain; some got upset because of the NFT market’s performance; some were disappointed due to Solana’s connections with SBF, while others were happy because of those connections with SBF, we never know.
However, Solana is truly a rollercoaster when it comes to people being fans and haters. Everything changes too fast, even if it doesn’t seem that way. Losing 95% of the token value and experiencing technical errors usually signifies that a protocol is dead, but not in Solana’s case, for some reasons. I’ll try to find out those reasons and see why Solana appears to be in a much better “recovery state.”
1. Reminding why Solana is unique
First of all, I want to remind you why Solana was truly unique at that time. Anatoly Yakovenko is the founder of Solana, and this man is remarkably intelligent. He had worked at Qualcomm for almost 13 years in the Software Engineering field. After quitting in 2016, he worked at companies like Mesosphere and Dropbox, but his stay at any of those companies didn’t even last a year. So, maybe it was time to found a company instead of working for one.
It doesn’t matter if you’re a degen flipping SOL or a software developer; you have probably heard of Solana’s Consensus Mechanism, called Proof-of-History, and its architecture a little bit. I won’t go into too much detail, as this is not a technical overview of Solana. There are millions of articles you could find on the Internet explaining the architecture and Proof-of-History; I’ll just provide a brief overview.
Proof-of-History is almost the same as Proof-of-Stake, but with a new “time” variable (imagine transitioning from a 2D world to a 3D world). Why is the “time” variable needed? To allow fast sequencing of validators, so they know their order without having to constantly communicate with each other. This allows you to simply throw a bunch of blocks without agreeing on a time for each of them; you just throw it, there’s a timestamp, and they become ordered according to their timestamp. That way, it created such opportunities for Solana, such as:
- Parallel way of running smart contracts (10 smart contracts can execute at once as fast as a single smart contract)
- 0.8 sec block time (vs. Ethereum 15 seconds block time, Bitcoin 10 minutes block time)
- 65,000 TPS on average (theoretically up to 710,000 TPS, but theory doesn’t always match with the reality)
Basically, Solana was one of the players that could be called “Ethereum Killers”. Other projects in this group included NEAR Protocol, Hedera, Algorand, and many more. However, Solana is probably the only L1 from the 2021 bull market whose token’s price and popularity not only increased but skyrocketed. Why?
2. How Solana became so popular
Well, you might have thought the simple answer to this question is the 2021 bull market. Well, yes, but actually no. Let’s compare the token performance of all hyped Layer 1 Blockchains during the 2021 bull market and see.
I’ve created a couple charts right here, so we can better understand how Solana outperformed other native L1 tokens during the bull market (obviously, i don’t include ETH and BTC, because they weren’t new for 2021 bull market):
I think there’s no debate that SOL was one of the top-performing tokens during the 2021 bull market. But there were also Layer 1 alternatives that were fast, scalable, and secure, with high transaction throughput. So what was the main reason? The answer is pretty simple — NFTs.
There’s no discussion that NFTs were the most hyped topic during the latest bull market. Everyone wanted to own a non-fungible token to represent that they “own” something. But a quick reminder is that it all started with NFT collections based on the Ethereum Blockchain, such as Bored Apes Yacht Club, CryptoPunks, Azuki, and more. However, the key problems there were high gas fees and minting costs.
Let’s see the average NFT Mint Cost on Ethereum (includes ethereum NFT collections with the highest volume, 2021 data):
I’ll explain this chart for those who are not very familiar with statistics and boxplots (feel free to skip, if you understand):
- 25th percentile is equal to 0.07 ETH, meaning 25% of the values are equal to 0.07 ETH or less
- Median is equal to 0.086 ETH, meaning 50% of the values are equal to 0.086 ETH or less
- 75th percentile is equal to 0.2 ETH, meaning 75% of the values are equal to 0.2 ETH or less
- Almost all values are in range from 0 ETH to 0.38 ETH with some outliers (little dots), that represent abnormal values.
The key value we can look at is the median (which is similar to the average but more stable with variables that have outliers). So the median is 0.086 ETH. Assuming the price of ETH in the 2021 bull market is approximately $3000, it turns out that the average price to mint an NFT is $258. It seems really high, doesn’t it? Adding the fact that some NFTs are worth even less than $258, but you have to pay just to mint them.
So obviously, people, as well as developers, in 2021 were crazy about owning a digital piece of information on the blockchain. They started to look for alternatives, and the most popular one turned out to be Solana. That blockchain is really cheap and fast in comparison to Ethereum, so most developers chose the Metaplex Token Standard on Solana as an alternative to ERC-721 and ERC-1155 on Ethereum (used for collections and single NFTs respectively). It takes 3 transactions to mint an NFT: 2 approvals and 1 for pricing (if you want to list an NFT).
Now, let’s see the NFT mint costs on Solana (2021 data):
Similar to Ethereum’s chart, the median cost of minting an NFT on Solana is approximately 0.006 SOL. Let’s assume SOL’s price is $220 (ATH is $260). If we perform some 2nd-grade calculations, it turns out that the median cost of minting an NFT on Solana is $1.32. This cost is significantly cheaper than Ethereum’s minting costs and simultaneously more affordable for people wanting to own some item on the blockchain. That was one of the main features that allowed the enormous growth of SOL token, as seen in the charts above. Now let’s move to the part where the drama of the whole Solana Ecosystem began.
3. Where the Drama Began
The price of SOL had decreased by 95% since the beginning of 2022 till the end of 2022. Let’s see what 95% means.
- SOL Price on January, 1st, 2022 — $170
- SOL Price on January, 1st, 2023 — $10
Obviously, there are a lot of reasons, including the most obvious ones like a bear market, but Solana was too big to lose 95% of its value only because of a bear market, wasn’t it? So let’s start from the beginning.
SBF & Alameda
I don’t think it’s necessary to explain how FTX collapsed and who Sam Bankman-Fried is, but it’s worth explaining that he had pretty deep connections with Solana.
First of all, SBF’s hedge fund, Alameda Research, invested in Solana in June 2021. Well, there are a lot of good projects that received investments from Alameda, but they didn’t have direct connections to SBF, so why did Solana? And why was Alameda interested in Solana?
Solana is one of the few currently existing public blockchains that has a really plausible road map to scale millions of transactions per second at, you know, fractions of a penny per transaction, which is a scale that you need for this — SBF
The assumption that can be made here is that Alameda was an HFT firm (high-frequency trading). Obviously, to engage in HFT, you need to have high throughput and transaction speed, and that’s exactly what Solana offers. Potential scaling to millions of transactions could have brought some benefits for Alameda, but, fortunately, we will never know.
However, the question here is how Solana would be able to achieve millions of transactions, being a decentralized system, while all of the other blockchains struggle with it? Well, that’s the next topic.
Decentralization
When most people hear that an application is built on Solana, they think, “Oh, Solana Blockchain serves as a platform for processing data and operating with it.” In reality, it wasn’t like this. Solana only served as a layer to transfer the tokens, while all the operations were hosted by corporate cloud services, such as Amazon Web Services.
Why? Actually, I think that’s not exactly Solana’s fault. Solana was a very young blockchain and, at the same time, the most hyped blockchain during the 2021 bull market.
This attracted a lot of developers from the traditional IT sector to “build on Solana”. But the issue is, developers weren’t web3 native, so they developed apps “using” Solana, but not “building” on Solana.
Past prizes have exceeded $10,000,000 and have been distributed to projects in DeFi, Web3, and NFT — Solana Website
If Solana is not exactly decentralized, that might lead to other technical issues, right? Right.
Technical Issues
Solana experienced multiple downtimes, during which users weren’t able to send transactions or use the network at all. When I say multiple times, I’m not referring to just 2 or 3 instances; it’s 10. Here’s a list of all of them:
- Sep 14th, 2021: down for 17 hours
- Jan 5–8th, 2022: down for multiple days
- Jan 10th, 2022: down again
- Jan 22th, 2022: down for 29 hours
- Mar 28th, 2022: RPC nodes forked off when upgrade to v1.9 happened
- Apr 30th, 2022: down for 7 hours, due to NFT minting
- May 27th, 2022: Block times delayed up to 30 minutes
- Jun 1st, 2022: down for 5 hours
- Oct 1st, 2022: a misconfigured node resulted in lost data and needs to restart from a previous point
- Feb 28th, 2023: down for 20 hours
Is it acceptable for a blockchain in top10 market cap? I’m not here to make conclusions, so let’s move on. The most interesting thing is how the network was restarted. Solana Labs basically sent the instructions for validators to restart the network stating “the highest optimistic slot”, it was honestly pretty weird for the blockchain as a “decentralized system” to have instrusctions sent by the one and only Solana Labs.
Fading away
All of the issues above and some others triggered the following events:
- DeGods bridging to Ethereum, and y00ts bridging to Polygon
- Phantom (the most popular Solana wallet) adding Ethereum and Polygon
- Tether moving 1M USDT to Ethereum
- OKX Exchange delisting USDC-Solana & USDT-Solana tokens
- Solana users fall to lowest level in more than 2 years
- and many others.
How can Solana Labs recover from all the technical difficulties, adverse events, negative opinions, developers leaving the blockchain, FTX connections, and so on? Let’s see.
4. Recovery State
I want to start with a less popular aspect, which involves events organized by Solana for the community, by the community. Unlike the inactive communities in other L1s, Solana continues to attract developers from other blockchains to work on Solana. One key event in the ecosystem is called Solana Hacker House.
Solana Hacker Houses
Solana regularly hosts these events, almost monthly, even during the darkest times of the bear market, to incentivize builders to “build.” Hacker Houses usually last 4–6 days, so during that time, valuable connections can be made, all while creating something new. Over the past 1.5 years, they have held 30+ Hacker Houses in different cities all around the world, from New York to Melbourne. I doubt there’s any other community (besides Ethereum) that hosts such hackathons on a constant basis.
So there are educational DeFi and NFT programming on Solana, partner presentations, project time, networking, core Solana Lab support, job opportunities, and evening events (get drunk to network better).
Web2 x Web3
I’m gonna be talking about digital payments integrations of course. Here we have 2 the most popular payment systems which are Mastercard and Visa.
Mastercard teamed with Solana Foundation to establish a set of common standards and infrastructure that will help attest trusted interactions among consumers and businesses using blockchain networks. No surprise that one of the chosen partners was Solana, possible due to high scalability and transaction throughput.
Visa expanded its USDC stablecoin settlement capabilities to Solana to settle fiat-denominated payments authorized over VisaNet.
Both Mastercard and Visa are interested in blockchain technology, and Solana in particular. This interest stems from their desire to make clients’ lives easier by providing a more secure and efficient way for cross-border payments. We can only observe whether it’ll progress further or not.
Shopify
Fortunately, this is not a dropshipping article, so I won’t explain how to use Shopify to generate millions. However, this company recently partnered with Solana to integrate Solana Pay as a payments channel. I want to remind you that Shopify has facilitated over $444 billion in economic activity and is available in 170 countries. There can be a really high volume going through Solana Pay. After this news, SOL token reacted by growing by 4%.
Gaming
Solana Labs has introduced GameShift, a unified API for developing web3-based games. It provides access to various web components that can be easily modified, combined, and integrated into projects. Solana clearly sees the future of web3 gaming; however, the gaming community is currently not very active on the platform. Maybe with this new approach, we will be able to see something new coming.
5. Conclusion
From Solana’s current path, it is clear that Solana Labs’ goal is to focus on business development by integrating various partnerships. But will it help the token grow, and will Solana be the first platform to perform in the 2nd bull market? We never know.
It’s important to notice that the token’s growth is not always correlated with the number of partnerships, integrations, developed technologies, etc. Let’s take Chainlink as an example: everything’s growing, realizing new features, basically a key player in the blockchain industry (especially with the CCIP technology), but the token price doesn’t react at all.
The same could happen to SOL, and we might not see growth over time. Conversely, the opposite thing can happen, and essentially, we might all become Solana Maxis. I’m not here to give financial advice or make decisions, but we can clearly identify Solana’s past path and current path. However, we can only make assumptions about the future of this technology.
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