Messari Research Solana’s Development Status in the Third Quarter of 2023

Assessing Solana's Progress in Development A Third Quarter 2023 Report by Messari Research

Key points: 1) In the third quarter, nearly 45 million compressed NFTs (cNFTs) were minted, representing a 316% increase compared to the previous quarter. The free collectible distribution platform DRiP accounted for 87.5% of these mintings, followed by Dialect and Helium. 2) Solana’s virtual machine (SVM) and technical stack are attracting external attention and adoption. Examples in the third quarter include Rune’s post exploring Solana as a MakerDAO fork, the release of SVM-powered L2 Eclipse, and Visa’s payment integration on Solana. 3) Solana’s total value locked (TVL) in DeFi increased by 32% to reach $368 million. The growth was driven by incentive programs launched by DeFi and liquidity staking protocols, including projects like MarginFi, Jito, Cypher, and BlazeStake. 4) More than half of the staked tokens participated in the V1.16 upgrade at the end of the quarter. This upgrade reduced the memory requirements for validators, introduced features necessary for confidential transactions, and improved support for zk proofs. 5) Despite concerns over FTX liquidating its over 57 million SOL tokens, SOL’s market capitalization increased by 17% in the third quarter, reaching $8.4 billion. SOL was restricted by various unlocking schedules by FTX/Alameda, with an average unlock date set in the fourth quarter of 2025.

Solana Overview

Solana is an integrated open-source blockchain designed to synchronize global information at high efficiency and speed. Solana achieves this goal by optimizing latency and throughput through features such as its novel timestamp mechanism called Proof-of-History (PoH), the block propagation protocol Turbine, and parallel transaction processing. Since its mainnet launch in March 2020, Solana has further improved network performance and resilience through several network upgrades, including QUIC, stake-weighted Quality of Service (QoS), and a native fee market.

Solana Foundation, Solana Labs, and third-party teams like Helius and Superteam are driving the development and growth of the Solana network and ecosystem. Currently, Solana Labs has raised over $335 million through private and public token sales, and its ecosystem encompasses projects in various fields, including DeFi, consumer, DePIN, payments, and privacy.

Key Metrics

• Ethereum Staking From Hot to Not – What’s Behind the Drastic Drop in Demand?
• A lengthy article of 20,000 words, clarifying the debate on the security of Rollups
• OpenAI ChatGPT: Leaving the Past Behind (Literally!)

Financial Analysis

In early June, the SEC filed regulatory complaints against Coinbase and Binance, alleging that assets such as SOL are securities. These complaints led to a 34% drop in SOL’s price. However, compared to other tokens identified as securities at the end of the second quarter, SOL token showed stronger performance and continued this momentum into the third quarter. SOL briefly dropped due to potential liquidation risks by FTX/Alameda (which will be detailed later), but at the end of the third quarter, SOL’s market capitalization still reached $8.4 billion, representing a 17% increase. It’s worth noting that due to SOL’s strong performance among similar market-cap assets, its ranking rose from tenth place in Q2 to seventh place.

In terms of US dollars, Solana protocol fees have increased by 19%, reaching $4 million. If we calculate in SOL, the native currency of Solana, the increase is 10%, reaching 185,400 tokens. Within the Solana system, half of the protocol fees will be burned, while the other half will be distributed to block producers. Currently, the burned tokens have not significantly reduced inflation. When strictly measuring the new token issuance based on validator rewards, assuming no other unlockings, the inflation rate at the end of the quarter is 5.8%.

Currently, the inflation rate of Solana will continue to decrease by 15% each epoch until it stabilizes at 1.5%. At the time of writing this article, 71.6% of the staked SOL is in circulation to avoid dilution from newly unlocked tokens. It should be noted that both Solana Labs and the foundation hold SOL tokens in an unlocked state, but not all of them are included in the circulating supply. Considering the unstaked tokens and the nominal yield rate higher than the inflation rate, the actual annualized yield of SOL is slightly positive at the end of the quarter, at 1.1% with a 31% increase compared to the previous period.

Although initially unlocked SOL tokens are liquid, actions such as “re-locking” behavior through grants or token purchases can also create inflationary pressure. It is worth noting that FTX/Alameda previously purchased over 57 million SOL tokens from Solana Foundation and Solana Labs. These tokens are subject to various unlocking plans and can be traded over the counter, but the unlocking date is in Q4 of 2025. Currently, FTX has been granted clearance for its crypto assets in a pre-trial hearing on September 13th. Therefore, SOL experienced negative price fluctuations prior to the hearing, especially in the derivatives market, where the open interest of bearish options positions increased significantly, and the funding rate approached the year’s high.

Network Analysis

Using Data

In terms of ecosystem activity, measured by the number of non-voting transactions and payers, the Solana ecosystem declined and reached its lowest level at the end of the year (excluding the network outage on February 25th, 2023). The average daily non-voting transaction volume decreased by 25% to 24.7 million, while the average daily number of payers decreased by 37% to 94,100. The number of users is underestimated considering that the ecosystem projects subsidize users’ gas fees. In fact, the average daily number of signers also decreased to 235,500, a 23% decrease compared to the previous period.

The average daily increase in paid users has seen a significant month-on-month decline, with a decrease of 76%, reaching 11,400 people. The sudden increase in Q2 numbers was due to abnormal activity from an unknown project, which created many new addresses in mid-May. However, by June, these new addresses were no longer active, resulting in a retention rate of only 2.5% for new users in May, far below the average monthly retention rate of 17.9% in Q3.

Solana’s transaction fees continue to be one of the most stable and affordable ecosystems. The average transaction fee for non-voting transactions in the third quarter of this year was $0.0002. Priority fees can reduce network spam and stay in sync with the local fee market, preventing network congestion. However, since the integration of this feature by many wallets and applications in the first quarter of 2023, the proportion of non-voting transactions with priority fees has gradually declined.

Security and Decentralization

The total collateral amount of SOL continued to rise in this quarter, with a growth of 2% to reach 404.9 million, returning to the level before the FTX collapse. With a market value of $82 billion (current price of SOL is $23.68), Solana ranks second in terms of total token collateral value, second only to ETH.

Solana’s Nakamoto coefficient (a statistical measure of the degree of decentralization of various blockchains) has decreased by 12% month-on-month to 29, still leading the industry. The number of validators has slightly increased, rising by 5.5% to 1,984. In Solana’s October validator report, the Solana Foundation plans to change the validator delegation scheme to encourage higher node quality rather than quantity. The current delegation plan has over 73 million SOL tokens.

The Nakamoto coefficient represents the minimum number of nodes required to stop network/interruption activity. In addition to checking on all nodes, it can also be measured by other dimensions vital to the elasticity of the validator network, including equity distribution by location, hosting providers, and client distribution.

Currently, Solana has validators in 34 countries, with a 10% month-on-month increase and a 27% year-on-year increase. The United States holds a 29% share of all equity, leading the Solana ecosystem. This gives Solana a geographical Nakamoto coefficient of 2, nearing the 33.3% threshold. The Solana Foundation noted in its recent validator report that it plans to address the issue of increased US share in the past year due to nearing the 1/3 threshold.

The validators of Solana are hosted in 312 unique data centers, with a 10% increase compared to the previous period and a 34% increase compared to the previous year. Solana’s Nakamoto coefficient for data centers is 6.

As mentioned in the validators’ report, Solana’s hosting providers have a Nakamoto coefficient of 3, consisting of TeraSwitch, AWS, and OVH.

Currently, Solana has two clients: the original Solana Labs client and Jito Labs’ MEV optimization branch. Shortly after the end of the quarter, Jito’s client exceeded a 1/3 share. However, it does not have the same client diversity as the client written from scratch. Therefore, there are currently two clients being written from scratch: Firedancer and Sig.

Jump Crypto is developing Firedancer using C++. Given the engineers’ schedule, Toly recently estimated that Firedancer will be launched on the testnet by the end of this year and on the mainnet about six months later. Besides client diversity, Firedancer may also bring performance improvements. It has maintained throughput of over 1 million tps in a testing environment, while the Solana Labs client has throughput of around 55,000 tps in a similar environment.

Sig is a new client announced at the end of July this year, and Syndica is leading the development of Sig, which will be written in Zig. Sig optimizes RPC reading to reduce Solana’s slot lag. It also focuses on readability and simplicity, aiming to be more developer-friendly.

The lightweight client, TinyDancer, is also actively being developed. TinyDancer aims to improve the network’s trustworthiness by allowing users to verify the state without running a full node themselves.

Lastly, although it is difficult to measure, the Solana Foundation has noticed a significant increase in participation in the validators’ network. Examples of its expenditures include community-led validators’ dialogues starting in March 2023 and the Block Zero conference held for Solana validators during the fourth quarter Breakpoint.

Performance, Upgrades, and Roadmap

Validators started transitioning to the V1.16 upgrade from the end of August this year. Despite some minor errors, they were resolved with the help of the community. Starting from Epoch 510 on September 28th, the majority of validators began operating the new software. Validators noticed a significant decrease in memory usage after the upgrade. Additionally, besides RAM optimization, other new features in V1.16 include:

• Support for SPL Token confidential transfers. Confidential transfers use zero-knowledge (zk) proofs to encrypt the balances and transaction amounts of SPL transfers. Users can provide read access to other accounts, ensuring confidentiality while maintaining auditability. Confidential transfers will be enabled on the mainnet test version by the end of 2023.

• Improved efficiency of verifying zk proofs and support for 128 elliptic curve operations (equivalent to EIPs 196-198).

For more information on the V1.16 upgrade process and features, please refer to this Helius article.

It is expected that V1.17 will be launched in the first quarter of 2024, bringing more zk support and possibly including Poseidon System (a log retrieval tool) invocation.

The Solana ecosystem is nearing its longest continuous uptime since the outage on February 25th of this year. This achievement is the result of improvement in the upgrade process and new technological features over the past year, such as QUIC, stake-weighted QoS, and the native fee market.

The strong performance of SVM and the overall Solana technology stack have attracted attention from the industry. Adoption of SVM outside of Solana includes:

• MakerDAO: In the third quarter, MakerDAO founder Rune posted a forum proposal exploring the use of SVM forks as the backend power for the Maker protocol and its sub-DAOs. Rune pointed out that after extensive research, he identified Solana as the most promising codebase, for reasons including:

• Technical quality (optimized integrated blockchain)

• Multiple client implementations

• A strong ecosystem and a thriving developer community

• Used in fork history of applications such as Pyth

No measure is anywhere near completion. Therefore, even though MakerDAO decided to adopt a different solution, Rune’s post also proves the technical quality of Solana and its open source nature.

• Eclipse: Eclipse was initially a Rollup that provided SVM as the execution environment. In mid-September, it announced the transition to a general-purpose Layer 2 powered by SVM. While some people try to see this as Ethereum’s victory at the expense of Solana, many Solana community members celebrated this announcement.

• Rome: Rome Protocol is a shared sequencer built on Solana that was launched at the end of the quarter. The shared sequencer network is deployed as smart contracts on Solana, with each Rollup deploying its own Neon EVM.

Neon EVM is an EVM engine deployed on Solana. Its mainnet went live in mid-July. The network averages about 22,000 transactions per day, and it is worth noting that Neon has seen a surge in activity, with over 80% of total transactions coming from its surge program. Additionally, at launch, Neon received some criticisms from Solana community members due to its tokenomics model.

Two days after Neon’s launch, Solana Labs released the Hyperledger Solang compiler, enabling developers to write Solana programs in Solidity. Unlike Neon, which allows developers to write EVM contracts that run in the Solana ecosystem, Hyperledger Solang does not support Rust or C languages.

Ecological Analysis

DeFi

In the past few quarters, the emerging Solana DeFi protocols have shown impressive growth and have been classified as “Solana DeFi 2.0”. This label represents the paradigm shift of these new protocols, which have avoided the predatory and low liquidity token economic models that were prevalent in the previous cycle. In addition, most of these new protocols have not yet launched their native tokens.

One of the leaders in this trend is the lending protocol MarginFi. On July 3rd of this year, MarginFi launched a scoring system that rewards users with points for deposits, loans, and referring other users. Its Total Value Locked (TVL) grew by 743% quarter-over-quarter, reaching $22 million, making it the sixth-largest protocol on Solana. Following this, MarginFi launched its own native token for liquidity staking, LST, which will be discussed in the “Liquidity Staking” section below.

Perps Exchange Cypher also introduced its scoring system in mid-July. Prior to suffering a $1 million attack in early August, Cypher was one of the fastest-growing DeFi protocols on Solana. To help users recover their losses, Cypher announced an accelerated process for its CYPH token Initial DEX Offering (IDO). Over 50% of the CYPH tokens will be allocated to the community through the IDO and airdrops.

The leading lending protocol on Solana, Solend, launched its scoring program in early August. Solend did not use the scoring system for potential airdrops but linked it to its already launched token, SLND. The first season of Solend’s scoring program will last approximately three months, with a minimum reward pool of 100,000 SLND tokens (equivalent to $54,000 as of September 30, 2023). Driven by the scoring system, Solend’s TVL grew by 43% quarter-over-quarter, reaching $57 million.

Other notable DeFi developments include:

• Phoenix Launch: The fully on-chain central limit order book Phoenix officially launched at the end of August, following a test version release in March. The August release came just a week after Phoenix’s development team, Ellipsis Labs, announced a seed funding of $3.3 million (led by Electric Capital). Since its launch, the most popular trading pair on Phoenix, SOL/USDC, has had a daily average trading volume exceeding $3.4 million. Although its end-of-quarter TVL of $378,000 is relatively low compared to other exchanges, Phoenix still has the highest trading volume in that trading pair.

• Drift Growth: Among the top protocols on Solana, the perpetual contract exchange Drift was one of the fastest-growing protocols in Q3. At the end of the quarter, Drift’s TVL reached $17.3 million, growing by 87% quarter-over-quarter and 976% year-to-date. Throughout the quarter, Drift underwent several notable upgrades, including Drift Liquidity Providers, Market Maker Incentives, and MetaMask Snap CONNECT. The CONNECT upgrade allows users to trade on Drift and perform cross-chain transactions from MetaMask to Solana’s EVM. It has been downloaded over 1,000 times.

• Solflare Snap: Wallet Solflare introduced MetaMask Snap, which has been downloaded nearly 19,000 times. Snap allows users to store Solana tokens and NFTs, bridge between the EVM and Solana through deBridge, and access Solana applications supported by Solflare. Solflare also launched the incentive program SolScout, offering a total bonus pool of $100,000 to users who complete daily ecosystem-related tasks through Solflare or its MetaMask Snap.

• Jupiter V3: The swap aggregator Jupiter released its V3 version at the end of July. It implemented a new routing algorithm called Metis, providing better price discovery functionality. Jupiter also introduced limit orders, dollar-cost averaging, and a bridge comparator. Jupiter ranks among the top DeFi protocols on Solana in terms of active addresses and trading volume in Q3.

• Maple’s Return: After halting development on Solana following FTX’s crash, Maple Finance returned to Solana in early September with its cash management solution. The product provides returns on US Treasury bonds for DAOs and high-net-worth individuals, with a reduced management fee of 0.5% (in USDC). At the end of the quarter, Maple’s TVL on Solana reached $4.2 million.

• Circuit Launch and Funding: In August, Circuit launched the private beta of Circuit Vaults and announced a funding round with participation from companies like Multicoin. Circuit collaborates with Drift, allowing users to deposit funds into supercharges vaults to access unbiased automated market-making strategies deployed on Drift.

• And there are more developments, including tBTC integration, Credix’s USDC accounts receivable pool, Kamino Creator Vaults (Kamino recently launched Kamino Lend shortly after the end of the quarter), Zeta V2, and the release of the EUROe stablecoin.

Liquid Staking

Due to a large amount of SOL locked or in a liquid staking state, a significant portion of SOL in the Solana ecosystem is not participating. Liquid staking protocols have been working to incentivize more SOL participation through reward programs, similar to the trend seen in the DeFi ecosystem.

The liquid staking protocol Blaze has been hinting at an airdrop for bSOL holders since last year. In early August, it launched a point system that provides points to holders of bSOL and bonus rewards to users who use bSOL in DeFi protocols. Shortly after, Blaze launched its token BLZE and conducted an airdrop based on user points. As a representative of Solana DeFi 2.0, 64.5% of the supply of BLZE will be distributed to users through initial airdrops and ongoing rewards. As of September 30, 2023, Blaze’s Total Value Locked (TVL) on SOL has grown by 1234% quarter over quarter, reaching 452,000 SOL (worth $9.2 million).

Jito introduced a referral program in late August and its point system in mid-September. Similar to Blaze, Jito rewards JitoSOL holders and increases their points in DeFi activities. Jito’s TVL on SOL has grown by 227% quarter over quarter, reaching 2.4 million SOL (worth $48.8 million) as of September 30, 2023. At the end of the quarter, about 35% of JitoSOL was locked in the application rather than held in wallets, compared to 13% at the beginning of the quarter.

Similar to the DeFi ecosystem, Marinade, a pioneer in tokenized staking, launched an incentive program in mid-September to match the growth of new protocols. Throughout the quarter, Marinade’s TVL on SOL gradually declined but then reversed and started increasing after September 20. Marinade also launched Marinade Native at the end of July, which is a native liquid staking product to complement Marinade’s liquid staking. Marinade Native is an automated staking platform that routes staking to over 100 reputable validators without users having to pay performance fees or bear any smart contract risks.

As mentioned above, MarginFi launched its own LST token called LST at the end of the quarter. LST routes staking to three validators operated by the MarginFi team. Unlike other liquid staking providers, MarginFi sacrifices a certain degree of decentralization for higher staking yields. These three validators use the JitoLabs client to pass on MEV-enhanced rewards to LST holders and offer a 0% commission rate. The MarginFi team has also hinted at the launch of stablecoins supported by LST.

After the end of the quarter, due to the proposal by Lido, which holds a market share of nearly 24% in TVL, to terminate funding for Solana, this provides a significant opportunity for other protocols to absorb its share.

The liquidity staking ecosystem has been further enhanced through protocols such as Super Stake and Sanctum. Super Stake was launched in the end of Q2 and has increased the yield of LST through a recursive lending strategy on Drift. It added support for JitoSOL in Q3, joining mSOL. Currently, both insurance pools of Super Stake are full. Sanctum (formerly unstake.it) provides liquidity and stability for Solana’s liquidity staking and DeFi ecosystem. It offers instant liquidity for locked SOL (bypassing the unlocking period) and a “safe harbor” SOL pool for lending against LST as collateral.

Consumers

NFTs

On the last day of Q2, the Solana Monkey Business lottery resulted in a surge in NFT trading volume, but the daily average transaction volume of NFTs decreased by 57% compared to the previous period, amounting to $1.1 million. Sales and the number of unique buyers also decreased compared to the same period.

Important NFT developments in this quarter include:

• Mints of Tensorians, Meegos, Reavers, Gates of BroHalla, VTOPIANS, and more.

• On September 23rd, the NFT series of the virtual horse racing game Photo Finish LIVE became the highest circulating market value series on the Solana market. This was likely due to the anticipation of its fourth virtual Kentucky Derby race (officially licensed), which took place on September 23rd. However, at the end of the quarter, Mad Lads regained the position of the highest market value.

• Magic Eden regained the majority of the market share at the end of the quarter, surpassing Tensor, whose market share was 1.2% at the beginning of the year and reached a peak of over 74% in early August.

In the early Q2, Solana introduced the State Compressed Upgrade. This upgrade provided an economically efficient way to store data on-chain by hashing the data into Merkle trees and publishing their root hashes on the chain. Its first significant use case was the compressed NFT (cNFTs) standard created by Metaplex: 1 million cNFTs were minted and stored in a compressed state, with a cost ranging from 5.3 to 63.7 SOL. Without state compression, the cost would have been 24,000 SOL.

In Q3, nearly 45 million cNFTs were minted, a 316% increase compared to the previous period. DRiP occupies the majority of the market share, accounting for 87.5%. DRiP collaborates with artists for free NFT art minting, with a collection size much larger than the usual 10,000. In mid-August, DRiP announced the completion of a $3 million seed funding round led by Placeholder.

Dialect is another major cNFT use case. Dialect is a Web3 messaging application that uses cNFTs as Dialect stickers. In early September, Dialect launched a web application.

As mentioned earlier, Tensor launched its Tensorian cNFT series in August. Users need to mint Tensorians through the Tensorian Shards mechanism, and these Shards will be distributed as airdrop rewards for the second season. Currently, the total trading volume of Tensorians and Tensorian Shards in Q3 is approximately $7 million.

Since its launch in May 2023, Tensor has been the main marketplace for cNFT transactions. However, Magic Eden hopes to change this situation by adding cNFT support in mid-September. However, since the integration of cNFTs on Magic Eden, Tensor has retained 97.2% of the market share in terms of trading volume.

In early September, another new use case for cNFTs emerged as developer kiryl launched a cNFT burn tool. The “Burning Man” mission in September incentivized users to burn specific cNFTs for a chance to win prizes.

Games

In addition to Photo Finish LIVE, other notable game developments include:

• Star Atlas SAGE Labs: Star Atlas introduced the early access of its SAGE Labs open-world game in late September, giving users a chance to compete for a $1.2 million prize pool. As every action happens on-chain, SAGE has become an integral part of Solana’s overall transaction volume.

• Bonk SVB: On August 1st, meme coin Bonk launched Silicon Valley BONK (SVB), an on-chain lottery game where users compete to buy keys and the last person to purchase a key gets a share of the key purchase funds if they win.

• The Heist Season 2: The popular idle game The Heist returned with Season 2 in mid-August, introducing new in-game currency and NFT series. In mid-September, the game added mobile support. Currently, The Heist leads all NFT series in terms of trading volume in Q3.

Social

One of the most significant events in the cryptocurrency space in Q3 was friend.tech, which showcased the potential of social apps becoming breakthrough applications in the crypto world. Solana’s social apps include:

• Access Protocol: Access is a creator revenue platform. Q3 saw the addition of 21 creators, bringing the total to 38. The number of subscribers doubled, reaching 227,000.

• Solarplex: Web3 social media platform Solarplex launched its V2 version in mid-August, receiving initial attention.

• SolLinked: In mid-August, Anatoly Yakovenko, co-founder of Solana Labs, introduced “LinkedIn for friend.tech.” The developer darksoulsfanlol then built this platform in the following week. SolLinked allows users to set email and calendar accounts and charge a price for email replies or calendar bookings, using TipLink and USDC for payment.

• Friendzy: Friendzy is a more traditional branch of friend.tech, where the keys can be traded before the account activation. After its launch in mid-September, Friendzy reached a peak total locked value of $190,000 on September 26 but dropped to $76,600 by the end of the quarter.

• Hub 3: Hub 3 is another derivative of friend.tech, adding features such as group chats, discovery tools, and NFT whitelisting services. It launched on September 24, and activity gradually increased after the end of the quarter.

DePIN

Solana is becoming the center for DePIN applications, including Helium, Hivemapper, Teleport, Render (planned migration to Solana), and GenesysGo, among others.

Notable events in Q3 include:

• Helium: Helium is a decentralized wireless network that migrated to Solana in April 2023. In mid-August, Helium Mobile, utilizing the network, launched a $5 monthly unlimited phone plan, initially available only to Miami residents.

• Hivemapper: Hivemapper aims to create a decentralized global map. In late August, they introduced Hivemapper Bursts, which provide additional HONEY rewards for mapping hotspots on-demand. In Q3, Hivemapper mapped over 1 million unique miles, totaling over 3.3 million miles.

Payments

Payments are another emerging use case on Solana, and this quarter has seen some significant achievements, especially the integration with Visa and Shopify.

In early September, Visa announced the expansion of its USDC settlement pilot program to Solana. Visa’s cryptocurrency team published a deep-dive analysis on Solana, emphasizing how they believe Solana can help drive mainstream payment processes. Reasons include Solana’s low and predictable fees achieved through a native fee market, parallel transaction processing, fast transaction confirmation, a large number of validators and multiple validator clients.

In late August, Solana LianGuaiy integrated with Shopify, allowing Shopify merchants to accept Solana native USDC. Shopify occupies approximately 10% of the total US e-commerce market, and with Solana LianGuaiy’s entry, merchants now have an almost fee-free alternative to the standard rates of 1.5%-2.5% (credit cards).

Other notable payment developments include:

• TipLink Gift Cards: TipLink allows users to send Solana tokens through links. In mid-September, they added the feature to purchase gift cards using cryptocurrencies, providing a withdrawal option for users receiving cryptocurrencies through links.

• Beam: Offramp Beam launched in mid-August, supporting Solana and several other networks. They subsequently released an SDK at the end of the month, enabling developers to easily integrate the solution into their applications.

• CandyLianGuaiy Mobile SDK: CandyLianGuaiy enables applications to enable Solana tokens at checkout. In mid-August, they introduced the mobile SDK.

• Meso SDK Early Access: Meso provided early access to its SDK, allowing developers to integrate their flagship product into their applications.

• Helio WooCommerce Partnership and Wallet: Multi-chain payment platform Helio partnered with WooCommerce in early September, empowering cryptocurrency payments on WordPress. A week later, they launched their self-hosted Solana wallet, allowing users to log in using email or Web2 social accounts.

Privacy

Solana has quietly developed more privacy protocols. In addition to the core zero-knowledge (ZK) upgrade in V1.16, developments in the third quarter include:

• Light Protocol: Light Protocol is a zero-knowledge layer for building private Solana programs (PSPs) on Solana. Light Protocol uses UTXO methods to achieve privacy. It also employs private state compression, so the cost of private transactions is identical to regular Solana transactions. In early August, it released its first reference implementation based on PSPs.

• Elusiv: Elusiv is another privacy layer that uses the shared pool approach. At the end of August, Elusiv introduced private token swaps, which use temporary keys to separate the link between users’ public keys and their transactions. Elusiv swaps utilize Jupiter liquidity.

Development

The resources and infrastructure established by Solana Labs, Helius, Ironforge, and other independent companies have driven the ecosystem’s development.

Key releases in the third quarter include:

• GameShift: Solana Labs released the GameShift API in mid-July, aimed at simplifying Web3 game development.

• Helius Pyre: In mid-July, Helius launched Helius Pyre, an open-source platform for learning Solana development through gamification. Helius also released Test Drive, an open-source tool similar to Postman for testing RPC and providing documentation and examples.

• Solana Curriculum: freeCodeCamp released a free developer course that helps developers become familiar with Solana development by building 15 projects.

• Synthetic Assets Platform Implementation: At the end of the quarter, Solana Labs released an open-source reference implementation of a synthetic assets platform.

• Other developments: The Graph integration, Ironforge’s Playground, four new Solana development courses, Ellipsis’ Verified Builds tool, and Magicblock’s fuel-free RPC API for game development.

Growth

The Solana Foundation, along with independent organizations such as Lamport DAO and Superteam, has initiated grants, hackathons, accelerators, and other initiatives to further promote ecosystem development.

Key events in the third quarter include:

• OPOS Hackathon: The Only Possible on Solana (OPOS) Hackathon, organized by Lamport DAO, took place in August. Over 600 participants competed for $100,000 in prizes provided by 40 sponsors across 25 domains. It was held offline in parallel with mtndao’s Hackerspace. The current top prize winners are Onda Protocol ($10,000, Compression track) and Ned Finance ($10,000, Jupiter track).

• Hyperdrive Hackathon: The Solana Foundation’s online Hackathon started in early September. Over 5,000 developers will compete for up to $1 million in prizes and seed funding across seven domains, with the competition running until October 15th.

• Hackerspace: The Solana 2023 Hackerspace Tour sponsored by Jump Crypto, Circle, and the Solana Foundation provided a place for developers to build, find partners, and learn from community members. The Hackerspace took place in Berlin, Bangalore, and Mumbai this quarter.

• PlayGG: The Solana Foundation hosted the PlayGG gaming festival in mid-July. The event featured demos, live streams, competitions, and workshops, with a focus on showcasing dozens of Solana-based games.

• Additional events and initiatives included the launch of the Quest platform’s Layer 3, Solana Summer Celebration, meetings on hosting Solana developer workshops, the Solana University Accelerator’s Demo Day, and the Monacode Hackathon.

Upcoming activities in the fourth quarter include Solana’s annual Breakpoint conference, Hong Kong Hacker House, Encode Club’s Solana accelerator, Berlin Demo Day, and more.

Summary

Especially considering the bear market, the Solana ecosystem has been active and rapidly developing in terms of DeFi, liquidity staking, consumers, DePIN, and privacy protocols. Compressed NFTs (cNFTs) are becoming a popular use case for state compression, with a growth of 316% in the number of cNFTs minted in the third quarter, reaching nearly 45 million. Free collectible distributor DRiP accounted for 87.5% of these minted cNFTs. Contrary to market trends, Solana’s DeFi TVL increased by 32% in the third quarter, reaching $368 million. This growth was mainly driven by incentive programs launched by DeFi and liquidity staking protocols, including MarginFi, Jito, Cypher, and BlazeStake.

Solana’s underlying technology has also gained attention and adoption from external parties. Examples in the third quarter include Rune exploring Solana as a fork of MakerDAO, the launch of L2 Eclipse, and Visa’s payment integration on Solana. Additionally, Solana’s technology continued to be improved throughout the quarter. The V1.16 upgrade reduced the memory requirements for validators, introduced features and capabilities required for confidential transfers, and improved support for zk proofs.

Finally, the market cap of SOL increased by 17% in the third quarter, reaching $8.4 billion. This growth occurred amidst concerns over FTX liquidating its 57 million tokens, which received approval during a pretrial hearing in mid-September, although SOL from FTX/Alameda is subject to various unlocking schedules with an average unlock date in the fourth quarter of 2025. However, these locked tokens can still be traded over-the-counter. Despite this, Solana’s network and ecosystem are expected to be stronger than when entering the bear market.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!