CoinMarketCap Academy takes a look at Solana, the resurgence of the layer-1 blockchain post-FTX, and an overview of some of the most exciting protocols in the ecosystem.
After a tough year full of uncertainty and volatility, Solana rose from the ashes to be crowned Crypto of the Year at CoinMarketCap Crypto Awards 2024.
Note: This award, presented in partnership with leading crypto trading platform BingX, recognizes Solana's resilience and the incredible dedication of its builder community.
When FTX collapsed, things took a turn downhill for Solana too. With so many SOLs held up on FTX, FUD took over the market. Prices sank and investors got worried.
But the loyal Solana builders? Their dedication only grew stronger. While the headlines projected doom and gloom, developers kept their heads down building an awesome pipeline of new dApps with real-world use cases.
The stats speak volumes - Solana’s usage metrics skyrocketed in mere months. Sure, SOL charts took some bruises along the way - but that wasn't stopping this determined community from making a fierce comeback.
With Solana's incredible journey and well-deserved recognition, it's clear that this blockchain platform has captured the attention of the crypto world. But what exactly is Solana, and what sets it apart from other blockchains?
Today, we're taking a deep dive into the inner workings of Solana, exploring its unique features and the technology that powers its ecosystem. We'll uncover how Solana achieves its lightning-fast transaction speeds, low fees, and scalability, and discover the wide range of decentralized applications (dApps) and use cases that have flourished on its platform.
So let's start with the basics!
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What Is Solana?
Solana is a high-speed layer-1 blockchain created in 2017 that aims to scale throughput beyond what is commonly achieved by popular blockchains, like Ethereum and Bitcoin, while maintaining low costs.
It boasts a unique consensus mechanism called Proof-of-History that allows Solana to process transactions almost instantly. Solana can theoretically process more than 65,000 transactions per second without scaling solutions, thanks to this lightning-fast timing mechanism, which is a version of proof-of-stake.
Solana also has a vibrant non-fungible token (NFT) ecosystem after Ethereum. Thanks to its fast and cheap transactions, many NFT enthusiasts and creators have called Solana home for their NFT projects, therefore it is no surprise that numerous decentralized applications (DApps) in this list are NFT-related.
Although the layer-1 chain is a favorite when it comes to challenging Ethereum, Solana has faced an array of past problems. This includes the downtime suffered by the network and the impact of FTX’s collapse on its ecosystem projects. However, the strong community of builders and users on Solana saw through these setbacks during the bear market and turned out stronger. Now, the Solana ecosystem is a thriving one, with tons of exciting projects launching and building on the chain.
How Does Solana Work?
Solana targets the blockchain trilemma by designing a unique consensus mechanism that compromises on decentralization to maximize speed.
The more transactions per second (TPS) a blockchain can support, the more scalable it is. But in decentralized blockchains, higher throughput slows the blockchain down because of tiny discrepancies in time. With locally timestamped transactions, nodes verify timestamps to validate transactions. More nodes verifying transactions and timestamps takes more time.
Solana solves this by having one node as the leader sequencing messages between nodes, which is chosen based on a Proof-of-Stake mechanism.
Even without a centralized and exact source of time, nodes benefit from a reduced workload, leading to increased throughput.
By hashing one transaction output and using it as the following transaction’s input, the network creates a chain of transactions — in other words, a history of transactions, hence the name Proof-of-History.
The biggest benefit of Proof-of-History is the increased throughput, which allows Solana to process more than 50,000 transactions per second. In practice, the network has been mostly running at 1,000 - 2,000 TPS, which is still considerably more than many other blockchains. However, this increased throughput has come at a cost.
The FTX Collapse
The bear market of 2022 saw FTX, a major crypto exchange, collapse in November, sending shockwaves through the entire cryptocurrency industry.
No ecosystem felt the impact as deeply as Solana, which is tied closely to FTX, making it particularly vulnerable to the fallout.
FTX founder Sam Bankman-Fried was a vocal supporter of Solana, frequently investing in and promoting its ecosystem projects like Serum. This association, while initially seen as positive, tarnished Solana's image when Bankman-Fried faced accusations of fraud and mismanagement.
Furthermore, the collapse directly affected Solana's ecosystem. FTX, along with its trading firm Alameda Research, held significant amounts of SOL tokens, the native cryptocurrency of the Solana blockchain. When FTX went bankrupt, these holdings became inaccessible, further dampening investor confidence.
Additionally, many startups within the Solana ecosystem had received funding from FTX or Alameda, leaving them with depleted resources and uncertain futures.
This caused a dramatic decline in the value of SOL tokens, which fell to a low of just under $10 in January 2023.
The Resurgence of Solana and Its Ecosystem
With sentiments at all-time-lows in January 2023, one would be surprised to learn that merely one year later, the price of Solana has increased by an astounding ten-fold. What caused the resurgence in price, and the market’s sentiment, to the layer-1 chain?
Solana's resilience can be attributed in part to its dedicated developer community, which has grown significantly despite the collapse of FTX. According to RockwayX, a European VC firm, the number of developers on Solana has surged by 83%. This growth is a testament to the strength of Solana's ecosystem and the belief that developers have in its long-term potential.
The number of developers working on a layer-1 blockchain is a key indicator of its health and longevity. Unlike other industries, developers are not paid to build on a blockchain; they choose to do so based on their belief in the project's potential. The fact that Solana's developer community has grown despite the challenges it has faced is a strong sign of its resilience.
One of the most prolific catalysts has been the rise of its first leading memecoin, Bonk (BONK). Its meteoric rise has caught the attention of crypto traders, which flocked to the Solana chain to trade and speculate on BONK and other memecoins.
However, it's not just memecoins on the layer-1 chain. Notable developments on the infrastructure side include Solana Mobile's Saga smartphone, while DePIN projects are also choosing Solana, as seen in the migration of the Helium Network.
In addition, the Solana ecosystem has seen the emergence of new DeFi tools and projects, as well as the advancement of community-led validator infrastructure. The introduction of state compression has reduced network costs, while AI integration has opened up new possibilities for blockchain applications.
Solana has also forged partnerships with large enterprises like Mastercard and Visa, and Solana Pay has been integrated with Shopify for fast, feeless web3 native payments. Google Cloud and Amazon Web Services now support the Solana blockchain, providing further validation and infrastructure for the ecosystem.
So, what are some of the most exciting DApps on Solana currently? Let’s dive in!
Marinade: Leading Liquid Staking Protocol by TVL
With over $1.35 billion in total value locked, Marinade is the leading protocol on Solana by TVL. The liquid staking platform screens over 100 validators on the Solana network and routing staked assets to the best-yielding validators. Marinade Finance also offers instant unstaking, allowing users to claim their rewards without having to wait.
Liquid-staked Solana on Marinade Finance is known as marinated Solana (mSol). mSol can be used as collateral in lending protocols and can also be committed to restaking protocols to earn additional yield.
Marinade Finance's staking protocol is integrated into several other projects and exchanges, including Solfare, Phantom, Coinbase and Kraken. This allows users to access Marinade Finance's services from a variety of platforms and protocols. MNDE is the native token of the protocol and holders can contribute to the governance of the project. It is currently trading at a valuation of $62.5 million.
Jupiter: The Leading DEX Aggregator
With over $1.5 billion in daily trading volume, Jupiter is the leading decentralized exchange (DEX) aggregator platform on the Solana network. It routes orders through multiple of the top Solana DEXes, such as Raydium and Orca, and claims to provide the best price, token selection and UX for users.
However, it has also released a suite of other services for users, including limit order trading, an asset bridge, a dollar-cost averaging (DCA) feature, a launchpad and a decentralized perpetuals trading platform with up to 100x leverage.
The limit order trading feature allows users to set a desired purchase or sale price, similar to centralized exchanges. The asset bridge enables users to move assets between the Solana network and other supported blockchain networks. The DCA feature helps users automate their purchases or sales by splitting them into smaller, regular transactions.
Jupiter’s JUP token airdrop at the end of January 2024 was the largest in the Solana ecosystem, and was highly anticipated. Some early users were allocated up to a hefty sum of five figures in JUP tokens. The team plans to conduct four more rounds of airdrop to decentralize the governance of the protocol.
Jito: Liquid Staking on SOL
Jito is a liquid staking protocol with over $1 billion in SOL locked on the platform. The protocol aims to enhance yield earned by stakers through Maximum Extractable Value (MEV) rewards. MEV is a measure of profitability that represents the highest extra charge a validator can apply to transactions or a user can extract from a DeFi protocol. Jito claims to extract more value from DeFi protocols on the Solana blockchain and distribute these rewards among stakers on its platform.
Liquid-staked Solana on the Jito protocol is known as JitoSOL. Jito uses the staked assets to secure the Solana blockchain and generate real yield for stakers. Unlike normal staking in a proof-of-stake network, stakers can use the JitoSOL across various DeFi protocols.
The Jito protocol is governed by the Jito DAO, where holders of the Jito token (JTO) can vote on improvement proposals. JTO is also used as an incentive for liquidity providers on Jito and jitoSOL pairs. JTO was airdropped to early stakers of the platforms, and caught the attention of the market for the size of the airdrop.
Marginfi: Decentralized Lending Protocol
Marginfi is a decentralized money market on the Solana blockchain that allows users to borrow crypto assets against collateral. It is overcollateralized, meaning that users must deposit more collateral than the value of the loan they borrow. The current total value locked (TVL) on Marginfi is at $659 million, making it the largest lending protocol on Solana.
In addition to its lending services, Marginfi also offers a suite of utility applications, including Marginfi Swap powered by Jupiter, a bridge to other blockchain networks powered by Mayan and more. Marginfi also offers its own liquid staking service, which provides users with increased rewards, zero staking fees, and improved staking yield.
Marginfi recently announced a points system which takes into account the users’ involvement in the protocol, which could potentially qualify them for a possible future airdrop.
Kamino Finance: Concentrated Liquidity Layer
With over $550 million in TVL, Kamino is one of the leading automated liquidity solutions on the Solana blockchain that provides lending, liquidity, and leverage on one platform.
Users can supply and borrow major assets like SOL, USDC and JitoSOL in the lending market. Users can also deposit their tokens into yield-bearing liquidity vaults and receive Ktokens, which represent their share of the pool. Ktokens can also be used as collateral in Kamino's lending protocol, which allows users to borrow crypto assets against their collateral. The lending protocol uses a Concentrated Liquidity Market Maker (CLMM) to control the availability of assets in the lending vault, which helps to reduce the risk of liquidations. Furthermore, Kamino also offers long/short vaults for users who wish to use leverage.
Conclusion
The protocols mentioned above are just some of many exciting projects building and advancing the Solana ecosystem. Besides decentralized applications, many other projects are also leveraging Solana, such as exciting DePIN projects like Helium, Hivemapper, Render and io.net, to Web3 gaming projects from Aurory, MixMob and more. With so many exciting developments ahead, it’s no wonder that the Solana community is one of the most engaged in the space.
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