- Solana is a public blockchain, launched as a faster version of Ethereum.
- Having been VC-funded, Solana is one of the most centralized networks, prone to outages.
- Compared to other L1 blockchains like Avalanche, SOL is lagging in TVL.
- Solana is integrated into OpenSea, unlike Avalanche and similar L1 alternatives.
Five years after Bitcoin legitimized the concept of digital money. Ethereum came out in 2015 to expand the blockchain scene into a flexible ecosystem of smart contracts.
They recreate all aspects of traditional finance. From marketplaces and prediction markets to lending and play-to-earn gaming.
In the same way, Solana came along five years after Ethereum as a competing smart contract blockchain to push the space forward.
Solana’s main goal was to scale up smart contracts for global adoption. Offering lightning transaction speed at very low fees.
Who Created and Funded Solana?
In 2017, Anatoly Yakovenko started the project with:
- Raj Gokal (present Chief Operations Officer)
- Greg Fitzgerald
- Stephen Akridge
Yakovenko is an accomplished software engineer who graduated in Computer Science from the University of Illinois.
He worked at Qualcomm, co-founded VoIP startup Alescere, and briefly worked at Dropbox (cloud storage service). After founding Solana Labs, it took three years to launch its mainnet, in March 2020, which is the public blockchain ready for mainstream use.
On the financial side, the blockchain is backed by some major venture capital (VC) funding. Through 16 investments, Solana Labs, headquartered in San Francisco, received $335.8 million in total funding.
The bulk of that funding came from the prolific:
- VC Andreessen Horowitz
- Polychain Capital
- CoinFund
- Multicoin Capital
- Jump Trading
- Alameda Research, and others.
As of May 2022, these VC investors held around a 30% stake in the project, gained through the initial coin offering (ICO). This makes Solana on the higher end of the decentralization spectrum, as one of the most centralized. Nonetheless, it has become more decentralized since last May.
Initial token allocations: Messari
Solana: Ethereum’s Layer 1 Alternative
Why do we even need another blockchain network for DApps (decentralized applications)? When we already have Ethereum?
The problem is, Ethereum (ETH) has been using proof-of-work consensus to verify transactions. Making its transfers costly when the network traffic is up. It was not uncommon to see ETH gas fees go up to $200 for simple cryptocurrency transfers.
Not only that, but Ethereum’s main chain (layer 1) transaction throughput is very slow, at 14–17 tps. In the same way, proof-of-work uses a lot of energy because cryptographic puzzles have to be solved by “work” that uses electricity. In September 2022, Ethereum will undergo its transition to proof-of-stake, cutting out its energy usage by ~99.95%.
In the meantime, Ethereum relies heavily on layer 2 (L2) scalability solutions, such as Polygon, Arbitrum, or Optimism, to provide a fast and cheap blockchain experience. Solana launched with all of those advantages from the get-go.
Theoretically, Solana network can process over 2,000 tps without relying on L2 scalability networks, while still offering negligible fees at $0.00025 per transaction.
How Does Solana Work?
Solana stands out from PoS blockchains by using a combination of consensus protocols: proof-of-stake (PoS) and proof-of-history (PoH). Instead of relying on miners who run expensive energy-siphoning rigs to serve as network nodes, PoS networks rely on validators.
In other words, these validators have a monetary stake in the network, instead of a physical one (work). In technical terms, validator just means a computer in a network running validation software.
When someone uses a PoS network, validators add those transactions as the next block to the blockchain based on the size of their stake, the stake’s longevity, track record, and other factors.
Some PoS networks, like Ethereum, have a slashing mechanism to punish validator misbehavior. This means that if the node shows to be unreliable, such as unable to process transactions, the stake is reduced.
It doesn’t have this automatic slashing, but the validator could be punished in another epoch (two-day staking period).
In addition to PoS, as the staple of smart contract platforms, Solana uses proof-of-history (PoH). It is a process of assigning the correct chronological sequence to all transactions. It works like this:
- When a validator is assigned slot one, it takes 5s to find the next block to add.
- Another validator is assigned slot two, taking 5s to find the preceding block, accounting for 10s.
The next validator, assigned to slot three, would then take 15s to find a block. Because each validator takes 5s to find a block, and slot leaders are picked ahead of time, it is known when validators are allowed to proceed.
Such a system allows Solana to be fast because validators are stamping blockchain transactions in real-time instead of waiting for the next validator node to complete.
In turn, this lowers network latency without sacrificing security. After all, even if transactions are not processed chronologically, nodes can order them correctly based on these time stamps.
In technical terms, Solana’s PoH is essentially a high-frequency Verifiable Delay Function (VDF), consisting of setup, evaluation, and verification functions. It uses a 256-bit (SHA-256) hash algorithm.
Solana vs. Avalanche (AVAX)
So far, we have compared Solana to Ethereum. But, how does it stack up to another PoS network that also contends to be an Ethereum competitor without relying on L2 scalability solutions.
Avalanche (AVAX) is a good reference because it has outperformed Solana (SOL) in terms of TVL (total value locked). At the end of July 2022, SOL has $2.06 billion TVL, while Avalanche has $3.23 billion. Of course, given that Ethereum has the first mover advantage, it outshines them both, at $47.11 billion TVL.
Both Solana and Avalanche offer negligible transaction fees and blazing fast speeds. However, investors noted Solana’s multiple outages over the last two years. In fact, the network went out at least seven times. When it comes to the selection of DApps, both are well covered with dozens of key DApps imported from Ethereum.
Without having PoH protocol, Avalanche solves its scalability through subnets. These are mini-blockchains tied to Avalanche’s main chain, which could be made public or private. This makes Avalanche extremely flexible, as it provides blockchain solutions to both enterprises and the public.
Compared to Ethereum’s 7–14 tps, Avalanche offers up to 4,500 tps, over double that of Solana. Moreover, thanks to its bridge to Ethereum, Avalanche Bridge (AB), it is easy to connect funds via MetaMask wallet and execute cheap transactions. SOL has its own bridge to Ethereum, called Wormhole.
Unfortunately, Wormhole seems to suffer from serious vulnerabilities. This February, 120k ETH ($320 million at the time) were hacked, making it one of the largest crypto heists after Poly Network and Axie Infinity. However, SOL has a major advantage for NFT traders, as OpenSea supports Solana, but not Avalanche.
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What Does Solana Ecosystem Look Like?
For NFT investors, lightning speed and avoiding transaction fees is critical to quickly nab NFTs at the right moment. With a few extra steps, this could be done on Ethereum’s side chain — Polygon. However, Solana has its own exclusive NFT ecosystem worth considering.
First of all, Solana has no shortage of NFT marketplaces. They range from exclusive curators to open for all. Here are the top five SOL NFT marketplaces one should take into account.
1. Magic Eden
Magic Eden became the largest Solana marketplace. Having market share dominance at 97%, it even overshadowed OpenSea’s monopoly for Ethereum. Last month, Electric Capital and Greylock Partners helped it raise its valuation to $1.6 billion, after $130 million in a Series B funding round.
Magic Eden has below-average fees, at 2%, and over 7,000 NFT collections. The platform is so popular that it has its own exclusive collection, Magic Ticket.
2. Solanart
As one of the first and largest Solana marketplaces, Solanart offers a wide range of NFT collections. It gained popularity when Degenerate Ape Academy launched, which is Solana’s take on Apes. Likewise, Aurory launched as a Solana version of Axie Infinity.
Although it recommends Solflare wallet, it has the widest support for other wallets as well. Unfortunately, Solanart has a relatively higher fee than other marketplaces, at 3%. Of course, NFT creators can further burden buyers with additional fees.
3. SolSea
Another marketplace with high 3% fees, SolSea justifies it with useful tools for either developing or managing existing NFT collections. Moreover, these tools can be used to place licenses during the minting process.
SolSea also has its own NFT calendar, so traders can keep track of upcoming drops.
4. Metaplex
Only usable with the Phantom wallet, Metaplex allows NFT traders to create and customize their own storefronts. This way, one can mix and match multiple NFTs from different collections on a single page, instead of just displaying single collections.
Unfortunately, it doesn’t have as many offerings as Magic Eden or Solanart.
5. Artz.ai
Standing out from the centralized crowd, Artz.ai is a decentralized Solana NFT marketplace. This is great for those who are worried about delistings and unfair curations. As a cherry on top, Artz.ai also offers a below-average fee of 2% per transaction, with free listing.
Naturally, because it is decentralized, once transactions are set in, there is nothing one can do if a mistake is made.
What About Solana NFT Collections?
There is little originality one could find on Solana vs. other blockchains. All expected themes are present as the dominant types: apes, pixelated PFPs, play-to-earn(P2E) NFTs, and abstract ones. For each category, here are the top five most popular NFT collections on Solana.
1. Solana Monkey Business (SMB)
These have become blue-chip pixelated PFPs, equivalent to CryptoPunks on Ethereum. The collection consists of 5,000 monkeys with classic rarity tier distribution. SMB launched on August 3, 2021, at a minting price of 2 SOL, which was around $69 at the time.
Out of every SMB resale, 6% is deducted as royalties. SMB’s current price floor is 200 SOL.
2. Degen Ape Academy
What would any blockchain alternative be without more apes? Degen Ape Academy aped BAYC, but in a 3D twist. At over half a billion market valuation, DAA is definitely the most valuable blue-chip NFT collection on Solana, with the largest social media footprint on Twitter (over 112k).
DAA consists of 10,000 apes with a floor price of 60 SOL. This makes sense, given it has twice as low item count as Solana Monkey Business. However, it is telling that a pixelated SMB would have a much higher floor price, at 200 SOL, than 3D sleek and detailed DAA.
3. Aurory (AURY)
Aurory is a pokemon-like JRPG blockchain game, allowing players to earn money through 3D tactical battles. The P2E game is continually updated and patched, always adding new features and game balances.
Just like with Axie Infinity, players can earn either AURY tokens or NFTs through PvE and PvP gaming modes. Most Aurory NFTs are hosted on Magic Eden at a floor price of 32 SOL across 3,202 owners. The total supply of the collections sits at the usual 10,000.
4. SolPunks
Another pixelated Solana collection, aping the success of CryptoPunks. SolPunks have no affiliation with the original team from Larva Labs. Consisting of typical 10,000 items, the collection offers little new to the table, except to offer an alternative for those who missed the blue-chip CryptoPunk train.
On Solanart, SolPunks’ floor price is 6.2 SOL, making it one of the less successful aping attempts.
5. Frakt
Similar to Art Blocks, but more abstract, Frakt is a randomly generated fractal art, the first one on Solana. Its variation is based on four color pallets and five forms, making up for 10,000 fractals.
However, Frakt was envisioned more as a utility project. Through its Frakt DAO, FRKT token holders gain voting rights to decide how the treasury is used.
FRKT holders can also stake their tokens for yield on NFTs. If you are interested in FRKT-based loans, the yield deposits are commonly in the double-digit range. At only 2 SOL floor price, Frakt is still a new ecosystem, but FRKT staking can be used for other NFT projects as well.
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