Solana’s Past, Present, and Future.

Solana Past, Present, and Future.

Author: James Trautman, Bankless; Translator: LianGuai0xjs

In the past 21 months, the cryptocurrency market has experienced a turbulent journey. The bear market that started in early 2022 left marks on almost all projects, especially Solana.

Throughout 2022, Solana has been dealing with challenges such as network interruptions and the collapse of FTX. During this year, the market capitalization of SOL plummeted by about 93%, and TVL decreased by 96%. As this year comes to an end and enters 2023, the prospects for Solana are not optimistic, and people are speculating that it is about to enter a death spiral.

Despite facing many challenges in the past, the future of Solana seems bright.

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The narrative around network performance and failures has shifted. Solutions such as the local fee market have helped improve the normal operation of the network and also promoted the value accumulation of Solana’s native token, SOL. Advanced technologies such as state compression and compressed NFTs are welcoming new use cases, and growth catalysts including grant programs and the emergence of Solang, Neon EVM, and artificial intelligence are also on the horizon.

Now, let’s delve into the health status and development prospects of Solana.

Now

Network Status

By 2023, the narrative around “interruptions” has changed. Except for a brief network interruption caused by an exceptional consensus error in February, Solana has maintained 100% uptime so far this year, and the daily transaction volume has been consistently increasing.

The improvement in network performance is attributed to remedial measures taken to address the network spam issue originating from Gulfstream, an alternative to Solana’s Mempool for managing pending transactions. Network upgrades include QUIC, quality of service (QOS) with stake weighting, and the local fee market (priority charging).

The priority fees have raised the admission threshold for network spam. It has been proven that the integration of these fees helps eliminate historical downtime issues in Solana, which were mainly attributed to suboptimal transaction processing.

By 2023, approximately 42% of daily fees will be paid by users who choose to prioritize their transactions. As more wallets and applications adopt priority fees, this average will also increase, such as platforms like Jupiter, Solflare Wallet, and Phantom.

In addition, priority fees have only played a partial role in eliminating downtime. They have also served as a driving force for revenue generation, thus enhancing value capture. Compared to the previous year, protocol revenue (measured in SOL) has grown by about 42%.

Considering that Solana burns 50% of all transaction fees, priority fees have become an additional positive force for value accumulation. Despite the recent downward pressure on SOL due to the U.S. Securities and Exchange Commission (SEC) classifying SOL as a security, SOL’s market capitalization has recovered by about 111% so far, after a sharp decline of 92% throughout 2022.

Ecosystem Highlights

What is the current status of the Solana DeFi ecosystem after the FTX crash at the end of 2022?

The Total Value Locked (TVL) in USD has shown a recovery this year, with a growth of 41%. However, the TVL in SOL has decreased by about 26%, indicating that the growth in TVL is mainly driven by the appreciation of USD assets.

Nevertheless, it is worth noting that throughout 2023, Liquidity Staking Derivatives (LSD) have played an important role in supporting Solana and its DeFi landscape. Although they are not included in the above TVL statistics to avoid double counting, platforms such as Marinade Finance, Lido, and Jito have all achieved significant triple-digit growth in SOL TVL. As a result, Solana’s TVL now ranks in the top ten.

While the expansion of DeFi remains a core goal of the Solana ecosystem, there has also been a noticeable shift in user participation, moving from DeFi to broader applications. This includes NFTs, gaming, and various consumer-oriented domains.

Driving Factors?

In April of this year, the Solana Foundation introduced an economic approach for on-chain data storage called state compression. Metaplex, Solana Labs, and other major ecosystem contributors collaborated to achieve state compression for the first time in the NFT space. Compressed NFTs have lower fees compared to uncompressed counterparts.

Following this development, information platform Dialect and the application Access designed for content creators’ monetization also adopted state compression technology for NFTs. These applications quickly garnered user interest, resulting in monthly average transaction volumes reaching hundreds of thousands.

In addition, Tensor launched a compressed NFT marketplace, providing users with the ability to trade, list, and bid on compressed NFTs. This marketplace accounts for a significant portion of the trading volume, representing approximately 40% of the market share so far this year.

After the FTX controversy, Twitter became a breeding ground for various speculations that the momentum of Solana’s development had waned and that core Solana developers were about to leave.

However, despite a noticeable decline in August, existing data indicates that the number of developers in the GitHub software repository has remained relatively stable year-on-year, suggesting that rumors of a mass exodus of Solana developers in 2023 have been exaggerated.

Future

So, what factors will keep the Solana network and its ecosystem on a positive development trajectory? There are several factors worth considering for the future, including:

● Neon EVM: Solana’s Neon EVM launched in July. This development enables Ethereum-based applications to run on Solana without the need to modify their existing codebase.

● Solang: In July, Solana Labs released Solang, a new compiler that enables developers to build projects on the Solana network using Solidity, bridging the gap between EVM developers and the Solana ecosystem.

● Eclipse: Eclipse aims to combine the Ethereum ecosystem with the execution environment of Solana.

With the potential gateways mentioned above, Solana’s development and user activity may have room for growth through network effects.

● Move: Although still in its early stages, introducing Move as a smart contract language on Solana could stimulate more developers to participate in the Solana ecosystem.

The Solana ecosystem will also receive capital injections from recently launched growth initiatives, including:

● Convertible Grants: The Solana Foundation recently launched convertible grants to support projects within the Solana ecosystem. If the projects achieve specific milestones and growth targets, this mechanism will convert into investments.

● AI: The Solana Foundation recently launched a $10 million AI grant fund, potentially expanding the ecosystem into the field of artificial intelligence.

Finally, detailed information has emerged recently regarding the assets held on FTX’s balance sheet:

● FTX: A recent court ruling on FTX token sales will prevent excessive market sales of SOL, as liquidation will be subject to quantity limitations.

Conclusion

The Solana network has consistently maintained 100% uptime and promotes value accumulation through prioritized fees. With a constantly evolving ecosystem marked by breakthroughs such as state compression technology, past performance issues and the FTX crisis are no longer significant. The upcoming catalysts, including grant programs, Solang, Neon EVM, and the emergence of artificial intelligence, bring hope for the future.

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