Solana is the world’s fastest smart contract platform with unique scalability solutions. While Solana competes directly with Ethereum, it is targeting much bigger dragons in the traditional world.
Key takeaways on Solana
- Solana is a developer platform like Ethereum which promises the fastest transactional efficiency
- 21 Shares now offers a Solana ETP on the SIX.
- Founder Anatoly Yakovenko founded the project in 2017 after discovering a Proof of History protocol
- SOL is Solana's native token and will see its value increase if and when more developers switch from Ethereum to their platform.
- Swiss-based Digital Assets AG joined Solana to build a DEX offering tokenized stocks like FANGs.
- Risks ahead are; Ethereum 2.0, developer adoption risk, competition Cardano and Polkadot, and Binance ban in the UK
What is Solana?
Anatoly Yakovenko, formerly a Qualcomm and Dropbox engineer, came to the realization that time is a physical measure that can be traced on a blockchain using timestamps and immutable hashes based on a trustless state. This is something called a cryptographic clock, or a Proof of History protocol in blockchain. This is currently changing the game.
Throughput problem solution, and scalable...Simply put, Solana offers a way of dealing with throughput problems, problems around the amount of data that can be transmitted at a defined period of time. Such problems are present in Bitcoin, and Ethereum protocols, and hold those two back from scaling. In fact, Ethereum is plagued with congestion and high transaction fees, it struggles to meet the demand for defi products, and is only able to handle 14 transactions per second. While Ethereum is working on developing a proof of stake backend to alleviate some of these pressures, it won’t be able to fully deploy before 2022--good news for Solana.
A fresh infrastructure...You see, Solana does not have a ten-year-old technology like Bitcoin because it started operating in 2017. Its platform enables developers to code decentralized applications with huge processing capabilities, and it is interoperable with other blockchains i.e. Solana can feed code from chain to chain easily. Enabling 65,000 transactions per second is also no joke which also means Solana has the most competitive fees in the space to date, something increasingly commanding the attention of developers.
Money side...Solana has raised over $300M through a private token sale led by Andreessen Horowitz and Polychain. It differentiated itself by solving scalability issues others still struggle to overcome, and as proof of concept, its main decentralized application ‘’Serum’’, a decentralized exchange (DEX) has already processed $4B in trading volume since its launch and has a token of its own called SRM.
SOL, is Solana’s token, the token fueling the platform's backend. SOL uses a delegated proof of stake protocol averaging a blocktime of 2.34 seconds where BTC takes 10 minutes. This type of combination of speed and volume is something that could enable the disintermediation of the Nasdaq in what could be the next big protocol running central limit order books on-chain. This is why Visa and Nasdaq are under threat by Solana today.
Solana onboards Swiss-based Digital Asset AG
Solana has grown, and built relationships since its launch in 2017. Now, Swiss-based Digital Asset AG, which focuses on digitizing stocks, has launched a Solana-based tokenization stock offering. They will begin trading 55 popular stocks which would be available for trading every single hour of each day.
This is conducive to the democratization of trading as so far, such types of stocks have only been available on specific blockchains and private exchanges. The tokenized stocks will allow centralized and decentralized exchanges that are built on Solana to add the trading of these stocks to their platform. This is still quite new, and so, trading will be restricted to specific regions only.
Value proposition for SOL
The biggest value proposition to invest in SOL is the protocol’s ability to scale transactions more quickly than others. Solana can facilitate 65,000 transactions per second at a fee rate of $10 for every million transaction which is tiny compared to Ethereum fees. This fee structure and speed is useful in the context of developing a decentralized application, or decentralized exchanges. Solana is also a bit of a visa-killer in terms of transaction processing power.
Solana has an oracle partnership with Chainlink, which as we have covered here is a way for a network to connect to outside data (say prices). Solana has already developed a successful decentralized application called Serum, a decentralized exchange that updates every 400 milliseconds, which now sees a fully diluted valuation of $33B according to coingecko.com.
The SOL token will pick up in value as more developers build on the platform. If the number of diluted shares increases, the market cap will grow and one valuation done by Crypto Cartography suggests that a market cap of $25B could yield a price about twice the figure we know today to about $60. But again, this is not written in stone until developers flock towards Solana’s platform.
Solana risks to consider
Solana competes with players like Algorand, Cardano, Tezos, and Polkadot—all top players with high pedigreed teams, large financial backings, and already well known tokens in the crypto trading space.
Other risks include things like getting well-paid developers to join the project, or take an interest in what remains a risky entrepreneurial endeavor. After developer adoption risk, we have Ethereum 2.0 competition stabbing at Solana’s value proposition, and most recently we saw a Binance ban in the UK, one of the two exchanges offering SOL.
While also a success, Solana only has one major Dapp (Serum) which, while seeing a $33B fully diluted valuation, is not enough to justify a SOL valuation doubling. It will need to develop more Dapps to bring transaction traffic to it. This matters because as of right now, Ethereum continues to lead the way (see table below). If Ethereum delivers on its Ethereum 2.0 promises in 2022, the risks above could further weigh down the popularity of the token from a speculative investment standpoint.
While Solana spends no money on marketing according to the founders (because they don’t know who their target audience is yet), and boasts of seeing only organic traffic, it might be the time to start running some campaigns either to education users, or to get developers on board ahead of an Ethereum 2.0.