Tracing the growth of the Solana ecosystem

Key points to remember

  • Solana is a high-speed Layer 1 blockchain offering fast, low-cost transactions.
  • The project has been described as one of Ethereum’s strongest competitors.
  • Solana had a great year, with an increase in the value of SOL and rapid development of its DeFi ecosystem.

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We explain how Solana and its rapidly growing ecosystem have established a place at the forefront of the cryptocurrency space.

A new competitor of Ethereum

In early June, Solana made headlines after closing a $ 314 million private sales round led by Andreessen Horowitz and Polychain.

Funding has come thanks to the rapidly growing ecosystem that is developing on Solana and the growing status of one of the main competitors of Ethereum, the most widely used public blockchain.

In the past, the huge demand for Ethereum block space has caused network congestion, resulting in very high transaction fees.

This congestion has created opportunities for Layer 2 solutions, side chains and new Layer 1 networks that aim to create scalable dApps beyond Ethereum. Solana is one of those Layer 1 networks.

The project was founded in 2017 amid the ICO mania when its team raised more than $ 25 million in private and public rounds. The mainnet beta was finally released in March 2020.

Solana has been recognized for its 400ms block time and high throughput of 50,000 transactions per second, thousands of times greater than Bitcoin and the current version of Ethereum, both of which rely on Proof-of-Work consensus. (Ethereum plans to switch to Proof-of-Stake in the future).

With a focus on scalability for consumer adoption, Solana can theoretically scale up to 700,000 transactions per second, as noted in the white paper.

How does Solana achieve scalability?

Solana’s architecture explains how the network achieves such high scalability. Blockchain The sea level runtime enables horizontal parallel processing of transactions. This means that Solana can continue to scale with improvements to the Validator’s GPU, which keeps fees low as transactions scale.

According to the founder and CEO of Solana, Anatoly Yakovenko, the level of scalability promised by Solana is proportionately linked to the computer hardware. Essentially, the network can run tens of thousands of smart contract transactions in parallel, using as many GPU cores as are available to validators.

The main disadvantage of Solana is that specialized hardware that can cost thousands of dollars is required to run a validator.

Along with other features such as proof of history and the Tower BFT consensus algorithm, an optimized version for proof of history of BFT, the goal of the project is to have a distributed system capable of scaling transactions in proportion to network bandwidth.

In addition, Solana allows transactions to scale alongside network bandwidth. This means that it can scale as network usage increases without relying on partitioning or Layer 2 solutions.

There are over 900 validators on Solana today. While Ethereum is still the most decentralized smart contract network, Solana is more decentralized than many other Layer 1 chains, including Avalanche, Binance Smart Chain, and Fantom.

The Solana ecosystem

Many new projects have chosen to rely on Solana to benefit from its high speed and ultra-low transaction fees.

Taking advantage of Solana’s low-cost and instantaneous block purpose, high-efficiency blockchain, the growing DeFi ecosystem now consists of dozens of dApps.

The ecosystem includes decentralized exchanges (HydraSwap, Orca), automated market makers (Raydium, Popsicle Finance), yield aggregators (SolFarm, Solyard), stable coin exchange platforms (Mercurial Finance, Saber), portfolios (Solflare, Phantom, Solong), NFT marketplaces (Solanart, Sollectify), derivatives (Parrot, Mango Markets) and games (SOLife, Sollamas, SolPunks).

Numerous infrastructure-based projects such as data analysis tools, block explorers, oracles, and launch pads have also been built in the past six months.

Like Ethereum, Solana’s biggest area of ​​growth has been decentralized finance. Solana’s fast block times and low transaction fees have proven to be attractive for on0chain trading protocols. For DeFi traders, the real-time block finality enables accurate account margin values ​​and real-time profit and loss calculations.

Another big contributor to Solana’s DeFi boom was Sam Bankman-Fried, the CEO of FTX exchange and one of the network’s biggest supporters. In August 2020, Bankman-Fried announced the launch of Serum, a fast decentralized, non-custodial exchange. The serum has become a great catalyst for Solana’s rapid growth.

Bankman-Fried’s confidence in Solana was enough to bring massive levels of liquidity to Serum by integrating some of the top market makers, including Alameda Research (which he founded) and Jump Trading. Alameda Research has also invested in many emerging projects in the ecosystem.

While functioning as a decentralized exchange native to Solana, Serum offers a trading experience similar to centralized exchanges using a limited order book executed on the network.

An order book allows features such as limit orders and instant profit and loss updates for more control and precision in trading. In addition, any other project on Solana can be linked to the liquidity of Serum’s on-chain order book. Traders can place limited buy and sell orders, which can be matched through Serum. Various types of commercial and financial projects are now integrated into Serum’s order book.

Over the past year, Serum has become the core infrastructure that powers several Solana projects, including Radium, an automated market maker that has some similarities to projects like Uniswap. In return, these projects help to increase the volume of Serum trade.

Solana’s fast blocking time enables high fidelity Oracle data through projects like Pyth Network. This makes it possible to share precise information between the various stakeholders and to adjust it on the chain in real time.

Solana hosts many popular stablecoins to provide significant liquidity and scalability to support orderbook-based DEXs. Stablecoins are considered to be one of the fundamental building blocks of DeFi. Most recently, USDC’s supply to Solana exceeded $ 1 billion.

Besides stablecoins, there are many Ethereum native DeFi projects that have deployed their code to the network or are looking for ways to expand in the future. Aave, Ethereum’s main lending market, hinted that it would launch into Solana through Neon Labs earlier this month.

With the infrastructure in place, new projects built on Solana also benefit from what is known as the “Solana summer”. A new derivatives trading app on Solana, Mango Markets, recently raised over $ 60 million in a fundraising round. Over $ 500 million has been deposited on Mango Markets for a chance to qualify for the public sale, showing the extent of interest in Solana’s nascent DeFi ecosystem.

The NFT mania is also making its way into the Solana ecosystem.

Just a few days ago, a collection of 10,000 Degenerate Ape Academy NFT avatars sold out within eight minutes of launching on Solanart. The NFT sale came as Solana’s SOL token climbed to a historic price of $ 63. It has since hit $ 81, now ranking among the top 10 cryptocurrencies by market cap.

Smart contracts and interoperability

Solana does not support Solidity, the programming language used in Ethereum. This means that it lacks EVM compatibility, which could make it difficult to compete with Ethereum’s network effect.

Instead, Solana uses Rust for development. Rust is one of the most popular languages ​​in the developer community.

Projects like Neon Labs are also working to offer EVM compatibility on Solana by porting Solidity smart contracts to run on the network.

Additionally, an inter-chain bridge called a Wormhole allows the transit of assets from Ethereum, although such solutions come with compromises in security. Millions of dollars have been lost in bridge attacks this year.

Solana’s most promising value proposition is to deliver low latency blocking times and the highest bandwidth of any blockchain. With web-scale performance, Solana offers one of the best user experiences of any Layer 1 blockchain, which can lead to wider adoption. With over $ 300 million in freshly raised capital, Solana is also in a good position to accelerate the development of many other native projects.

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