Loader
logologo
Alpha Zone
Analysts
My Reading List
Log in
DeFiGaming & MetaverseInfrastructureMarketsNFTs
Solana, Past, Present, and Future: Executive Summary
Sandra Leow
main
Key Takeaways
4 min read
  • Solana’s Total Value Locked (TVL) has almost doubled since the start of the year, boasting a TVL of 30.95M SOL. Despite past challenges including network halts and the FTX/Alameda saga, Solana has achieved a 100% uptime year-to-date, showcasing significant improvements and resilience.
  • Solana introduced solutions like state compression and isolated fee markets to solve prominent issues in their tech stack. For illustration, state compression has divided the cost of NFT minting on Solana by 2k+ times(!).
  • The liquid staking landscape is quickly growing, with Marinade Finance, Lido, and Jito taking the lead. Only 3-4% of staked SOL locked in Solana’s liquid staking protocols, and the opportunity for growth is significant.
  • There is a growing interest for enterprise adoption and payment rails, especially with Visa’s settlement integration of USDC on Solana, the growth of liquid staking on Solana, and partnerships with entities like Shopify.
  • Other potential tailwinds for Solana include successfully implementing the Firedancer vision and growing consumer-facing applications leveraging Solana's advantages.
  • However, potential challenges like the uncertainty around FTX/ Alameda’s SOL holdings could pose temporary risks to its growth trajectory.

Executive Summary: Solana, Tailwinds, and Risks

Daily transactions on Solana
Source: Daily transactions on Solana

Tailwinds

More enterprise adoption for Solana Virtual Machine (SVM)

Solana’s reputation will continue to strengthen if more institutional players recognize Solana’s improving tech stack (TPS on the higher-end of blockchain peers, downtime issues addressed, cost-effective on-chain storage) and decide to openly partner and utilize Solana’s chain. A few illustrations of this adoption are: Visa introducing Solana as a settlement layer to boost cross-border USDC payments, and Solana Pay, a new payment system on Shopify (partnership with Mastercard). Solana’s key value proposition is its cost-effectiveness and speed vs the rest of the market (Transactions Per Second or TPS ~3,000, 30 times the TPS of Ethereum and L2s).

Solana developers are executing their Firedancer vision. Developers’ interest in SVM is increasing.

Firedancer is arguably one of the most exciting upgrades for Solana. It will likely promote significant optimizations to the validator client and should function much more effectively than the current Solana Labs client.

As of now, the crypto narrative is primarily 97% Ethereum Virtual Machine (EVM) and 3% SVM. If the SVM continues to take a cut of EVM’s market share, the Firedancer upgrade and improved hardware/bandwidth efficiencies could help expedite the adoption of SVM.

Growth of JitoSOL and other liquid staking tokens

Jito Labs is Solana’s latest “success story” in the liquid staking landscape. The growth of JitoSOL, with over 2.4M SOL staked over the course of the year, has been an impressive feat for the Solana ecosystem, benefitting many of the dApps within. Ethereum has over 40% of staked ETH deposited in liquid staking protocols, and in contrast, Solana only has about 3-4% of staked SOL. If Solana’s staked SOL manages to grow even a small fraction of their staked SOL in LSDs, this could help promote the total TVL of Solana’s ecosystem. Solana’s staking yield is currently double the yield of Ethereum, with close historical risk statistics (price drawdowns).

More consumer-facing applications recognizing Solana’s edge

Solana has proven to be the most usable chain when it comes to building consumer-facing applications. The blockchain offers a fully-fledged tech stack that is optimized for retail adoption. Solana’s cNFTs are suited for large-scale NFT mints that are optimized to offer the lowest possible costs, while the local fee markets aim to eliminate unnecessary congestion in the network, and the high TPS environment offers the speed needed to drive these applications.

Native Token launches for Solana-centric Protocols

The crypto community has often wondered why most Solana DeFi applications have not launched their respective native token. The answer is simple. Protocols would often want to hit a certain threshold in user base and activity before launching tokens. The tokenomic history of DeFi protocols has demonstrated that the native token can often be overinflated and based on pump-and-dump schemes. However, native token issuance for DeFi protocols tends to be a sine-qua-non step in a DeFi protocol lifecycle.

Risks

SOL price dumps to post-FTX levels if Galaxy chooses to liquidate their SOL holdings entirely and in a small time interval

If Galaxy offloads FTX/ Alameda’s entire SOL position in a small interval of time, the SOL price may react negatively as it is sold into the open market (also assuming that a % of SOL holdings may be OTC-ed). If SOL’s price retraces to post FTX’s level, this may cause a panic in the market,

Further network halts taint Solana’s reputation

Solana has maintained a 100% uptime year-to-date, which is a very positive record for the network. If the network experiences any network halts in the future, this would negatively impact Solana’s reputation and confidence in its recent tech upgrades.

A lack of bridging infrastructure and native assets

Despite the notable developments within the Solana ecosystem studied in this report, there is still a lack of liquidity on-chain, a lack of native asset support, and not enough bridging infrastructure in place. Furthermore, the ecosystem still has to break its track record of bridge “exploits”.

For more, check out our deep-dive into Solana: Past, Present, and Future here.

You might also like
Article cover
Nansen's Avalanche Quarterly Report - Q3 2024
Article cover
Nansen's Algorand Half-Year Report - H1 2024
Article cover
Babylon Chain: The New Era of Bitcoin Liquid and Restaking Solutions
The Bitcoin liquid staking and restaking sector is still in its early stages, with nearly 24,000 BTC staked through Babylon so far. Using Ethereum’s 2
Disclosure: The authors of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.