Short-term benefits vs signs of recovery, has Solana Summer arrived?

Author: Mia, ChainCatcher

Since the FTX collapse, Solana's TVL has remained between $200 million and $300 million, and its token price has stabilized around $20 after a significant drop in the first half of this year. In early June, the U.S. Securities and Exchange Commission (SEC) named SOL as an "unregistered security" in its lawsuit against Binance and Coinbase, causing SOL to drop again, falling below $13 at its lowest.

Source: CoinMarketCap

However, this time, Solana's dark days did not last long.

Last week, after three years of legal battles, Ripple finally achieved a milestone victory when a U.S. judge ruled that XRP is not a security, leading to widespread celebration in the crypto community. The Ripple case is a landmark development that undoubtedly sets a precedent for future token classification cases. The XRP token surged nearly 80% to $0.81 on the same day, reaching a new high in over a year.

The token Solana (SOL), which was previously viewed as a security by the SEC, also saw a significant increase after the news broke, rising over 30% to as high as $32. Although it has since retreated, SOL's price is still well above the stable levels of the first half of the year. Solana's TVL finally broke the $300 million mark, with DefiLlama data showing that the total value locked in Solana's liquid staking protocols has reached $312.5 million.

Additionally, recent discussions and news about the relaunch of FTX 2.0 seem to have rekindled interest in the Solana ecosystem.

The recovery of on-chain data for Solana has ignited optimism within the community, with calls of "SOL GOOD," and some even suggesting that this marks the reopening of "Solana Summer." But is the continuous growth of Solana's TVL driven by short-term regulatory FOMO, or is Solana truly on the path to resurgence? Is this a promising start?

This article reviews the developments in the Solana ecosystem over the past six months to explore whether Solana's recovery is indeed traceable.

1. Solana's Ecosystem Progress in the First Half of the Year

1. Active Developer Count Remains Relatively Stable

Historically, Solana's core advantage over other networks has been its relatively thriving community and developer ecosystem.

Although some Solana developers chose to leave after the FTX collapse, overall, Solana has not been abandoned by developers. Just when Solana was in trouble, Vitalik stepped up to defend Solana, stating on social media, "Some smart people tell me that Solana has a sincere and smart developer community, and now those terrible opportunistic funds have been washed away. This chain has a bright future. It's hard for me to judge from the outside, but I hope the community gets a fair chance to develop." This brought confidence to the Solana developer community.

The Solana ecosystem community has maintained a relatively stable number of developers.

According to the latest data from Electric Capitaldeveloper report, as of April 2023, Solana had 1,234 active developers; although the number of active developers decreased by 12% year-on-year, it has increased by 339% compared to two years ago. Additionally, a recent report from Messari indicated that as of June 1, the total number of developers on the Solana network decreased from over 2,000 in 2022 to 1,475. However, Solana ranked fourth in terms of monthly active developers on June 1, reaching 363, which still shows a certain advantage compared to other public chains. Furthermore, the most followed repositories on GitHub for Solana have 455 contributors, while the most followed repositories for Polkadot, Polygon, and Avalanche have 261, 51, and 82 contributors, respectively.

The number of developers perfectly reflects the activity level of an ecosystem, and the Solana ecosystem has demonstrated remarkable vitality. Moreover, the Solana Foundation has established multiple grants and has been actively investing in the ecosystem to optimize it and incentivize developer innovation. It is reported that from August 1 to August 21, the Solana ecosystem will host the "Only Possible On Solana (OPOS)" hackathon, which includes incentive programs for projects in tracks such as DePIN, compression, and DeFi.

2. Helium Completes Migration to Solana

Decentralized IoT connectivity provider Helium completed its migration to the Solana blockchain in April this year. This transformation is expected to leverage Solana's fast and low-cost infrastructure to improve Helium's transaction processing speed and provide higher performance, scalability, and security for the Helium ecosystem. This not only recognizes the Solana network but also brings Helium's existing partners, developers, and users into the Solana ecosystem.

3. Solana Web3 Phone Saga Public Sale

The Solana Web3 phone Saga was publicly released on May 8, with each unit priced at $1,000. According to Solana Labs, Saga sales are expected to be around 25,000 to 50,000 units (specific sales figures have not yet been disclosed). Although this sales figure is not impressive compared to Web2 phones, Solana has undoubtedly established itself as a leader focused on non-native developers for mobile devices.

The Solana Saga meets the needs of ordinary smartphones while integrating Web3 features. Through the seed vault security custody protocol, it binds the rear fingerprint sensor to your biometric features, thus protecting your wallet's mnemonic phrase in a secure environment on the phone. Additionally, using cryptocurrency and NFTs for transactions feels more intuitive than using web-based wallets.

The launch of Solana Saga undoubtedly provides a broader platform for its ecosystem development, offering developers a starting point to create mobile dApps, enriching the entire ecosystem, and helping Solana transition from virtual to reality.

4. Artificial Intelligence

With the surge of artificial intelligence, developers are increasingly seeking ideal ecosystems to build upon, and Solana has become an ideal home for developers due to its scalability, low transaction fees, and fast confirmation times. The popular AI project Render (RNDR) migrated its BME model (Burn and Mint Equilibrium) from Polygon to Solana in May. According to estimates, the Solana network has higher transaction throughput and lower transaction fees than Polygon, significantly improving rendering efficiency and speed, which also aids in the smooth implementation of the BME model.

Following the explosive popularity of ChatGPT, Solana has also kept pace, with Solana Labs launching a ChatGPT plugin to enhance user interaction. Users can check wallet balances, transfer funds, and purchase NFTs through the plugin. Additionally, the Solana Foundation has created a $10 million AI grant program to encourage the development of blockchain and AI intersection fields on Solana.

5. Solana EVM Compatibility Solution Neon Launches on Solana Mainnet

Neon launched on the Solana mainnet on July 18, aiming to deploy an EVM-compatible layer on Solana to leverage Solana's low fee advantages and introduce a mature EVM developer ecosystem and established dApps.

Neon is the essential tool for Ethereum developers transitioning their projects to Solana, allowing anyone to run Ethereum smart contracts on Solana without reconfiguring the smart contracts to deploy dApps, making it easier for dApp developers to enter Solana and increasing the activity of the ecosystem developer community.

It is reported that Neon will launch several active DEXs on Solana, such as Moraswap, Sobal (a Balancer fork for custom curves), Onomy, and Powerpool. Additionally, several LeverFi leveraged trading dApps, as well as lending solutions from Midas Capital and Yin Finance, will also be launched on the Neon mainnet.

6. BRC-20 and Meme Tokens Surge, Gas Fees Remain High, Users Turn to Solana for Transactions

The surge in BRC-20 tokens and the Ordinals protocol, along with skyrocketing transaction fees, have significantly impacted the entire Bitcoin ecosystem, leading to severe network congestion with pending transactions, prompting several exchanges, including Binance, to temporarily suspend BTC withdrawals. Moreover, influenced by BRC-20 tokens, meme coins on Ethereum have also become active. On May 5, Ethereum network gas fees soared to 136.39 gwei, reaching a new high in over a year.

Due to the high transaction fees, many developers and users have been forced to flock to Solana for transactions. According to The Block data, the number of new addresses on the Solana chain saw a significant increase in May, with over 300,000 new addresses at its peak. Additionally, the number of daily active addresses on Solana rose significantly in May. On May 17, the number of active addresses on Solana reached 493.1K, an increase of nearly 55% compared to the lowest daily active address count in the first half of the year.

2. The Community is Driving Solana DeFi Summer

Although Solana officials have not explicitly defined "Solana Summer," the DeFi projects and community within its ecosystem are indeed actively promoting DeFi Summer. In fact, after experiencing the boom of NFTs last year, the DeFi ecosystem in Solana is gradually rising.

In the first half of this year, alongside the surge in liquid staking, a number of "representative players" have emerged in the Solana ecosystem.

According to StakingRewards data from July 20, SOL is currently the second-largest staking asset, with a staking market value exceeding $10.2 billion and a staking rate of over 70%.

Moreover, according to a recent report from The Block Research, as of the end of June, the liquid staking protocols in the Solana ecosystem, including Marinade Finance, Lido, Jito, JPool, and Socean, have collectively held $187 million worth of staked Solana (SOL) tokens, a significant increase from $98 million at the beginning of the year. Currently, these protocols account for 69% of Solana's total TVL, valued at approximately $270 million.

Among them, Marinade holds the highest share in Solana's liquid staking, followed by Lido and Jito.

Source: DefiLlama

Major LST projects on Solana:

Marinade

Marinade Finance is the main player in liquid staking on Solana, with its non-custodial liquid staking protocol allowing users to stake their SOL tokens using an automatic staking strategy and receive "marinated SOL" tokens (mSOL) without the waiting time required by traditional staking methods. Users can use mSOL tokens to participate in various DeFi activities, and the price of mSOL relative to SOL increases with each period, with rewards accumulating to the underlying staked SOL.

Currently, Marinade is the largest DeFi application on Solana. According to CoinGecko data, its token mSOL has over 70,000 holders and a market value of approximately $160 million.

Marinade has recently launched mSOL directional staking, allowing users to flexibly choose supported validators without sacrificing liquidity. Additionally, it has introduced a leveraged staking vault for Super Stake SOL, which can automatically execute "re-staking" or "leveraged staking" of mSOL and SOL through Drift, amplifying mSOL staking rewards, with staking reward yields as high as 15%, while the basic staking annualized yield is around 6.5%.

Jito

For a long time, Maximum Extractable Value (MEV) has been a significant issue for Solana. Solana validators have been overwhelmed when processing these MEV transactions, leading to network congestion and reduced user availability. Jito has developed a solution for the MEV problem on Solana through its Jito-Solana validator client (a branch of the main Solana Labs client) to mitigate the negative impact of MEV on the Solana blockchain. Jito aims to enable Solana validators and stakers to capture MEV instead of it being taken by trading bots. The Jito staking pool allows users to stake Solana tokens in exchange for liquidity pool tokens (JitoSOL). JitoSOL tokens provide liquidity while earning staking rewards and MEV rewards.

The staking pool enhances network performance and offers one of the highest liquid staking yields on Solana. JitoSOL was launched in early November last year and has now become the third-largest staking pool on Solana, with over 1 million SOL. According to DefiLlama data, Jito's TVL is currently $27.53 million, having increased nearly 40% in the past week.

JPool

Another rapidly growing liquid staking alternative worth mentioning is JPool, which has now become the fourth-largest staking pool on Solana. According to DefiLlama data, JPool's TVL is currently $11.35 million, having increased over 20% in the past week.

JPool is a staking pool on the Solana blockchain network that provides secure, reliable, and high-yield rewards for users' staked SOL. JPool's approach is to delegate to validators with the lowest fees/APY under certain conditions (must be outside the top 20, must have a website/logo, and must be active for at least 10 epochs). This aggressive strategy gives JPool the highest APY among all staking pools.

Currently, JPool's development focus is on launching dApps in the Solana ecosystem, and it also plans to expand by building dApps on other blockchains in the near future.

In addition to the LST track, the growth of lending protocols in the Solana DeFi ecosystem is also rapid, with Solend and Marginfi protocols showing significant growth, especially Marginfi, which has seen a TVL growth rate of up to 576% in the past month, becoming the fastest-growing protocol in the Solana ecosystem:

Marginfi

Decentralized lending provides users with a way to access capital without intermediaries, and the recent launch of loyalty points by Marginfi has led to its TVL increasing over 100% in just seven days, making it another dark horse in the rapidly growing decentralized lending protocols in the Solana ecosystem.

Marginfi is a decentralized margin protocol for trading on Solana. The protocol provides traders with a unified account to access margin, portfolio investments, and improve capital efficiency in the underlying trading protocols.

Recently, the project's points-based reward program has convinced users that points will convert into potentially lucrative tokens, thus facilitating lending interactions. This has also led to Marginfi experiencing its strongest growth ever. According to Hello Moon data, MarginFi has more than doubled its user base in less than two weeks, with its total locked value (TVL) surpassing $10 million. It is reported that the points reward program offers borrowers 4 points for every dollar deposited, while lenders receive a one-to-one reward. The longer the term, the more points are earned.

Hello Moon data shows that Solana ecosystem users are depositing more liquid staking tokens into MarginFi to achieve a 7% interest rate. As a result, since MarginFi launched its points program on July 3, the two largest LSTs on Solana, "jitoSOL" and "mSOL," have grown by 47% and 18%, respectively. MarginFi's jitoSOL pool is the second-largest holder of this LST token, accounting for nearly 15% of the total supply.

Solend

With the recovery of TVL on the Solana chain, the largest decentralized lending platform, Solend, has also seen rapid growth in its TVL recently. According to Defillama data, Solend's TVL has surpassed $50 million, with an increase of over 20% in the past week.

Although Solend faced a bad debt crisis last year due to a lack of liquidity, it has since taken measures to reduce liquidity risks. In April of this year, the Solana lending protocol launched the first phase of Solend V2, updating the smart contract with three new features: borrowing weight, TWAP oracles, and outflow rate limits. The new parameters took effect on April 17, and borrowing from the main pool will be re-enabled. Insurance for the main pool will be suspended until the third phase is completed, including an audit by a second auditing firm.

According to the V2 white paper, Solend V2 will include: protected collateral, TWAP oracles, borrowing weight, outflow rate limits, collateral limits, isolation layer assets, dynamic liquidation bonuses, three-linear interest rate models, risk authorities, on-chain metadata, deprecated asset handling, on-chain permissionless liquidity mining, account delegation, and loss socializing, aimed at reducing liquidity risks and improving decentralization.

Undoubtedly, the introduction of Solend V2 provides a potential solution for liquidity risks and lays a more solid liquidity foundation for Solend's lending services, enhancing overall risk control capabilities and instilling confidence in users. As the Solana ecosystem develops, more users are expected to choose to return to embrace the ecosystem, and Solend's TVL will likely experience a new wave of growth.

Jet Protocol

Today, the Solana ecosystem lending protocol Jet Protocol also announced that it will launch a liquidity incentive program for the Jet token tomorrow, totaling 137,700,946 JET tokens (native SPL tokens). Liquidity providers will have the opportunity to earn incentives over four years. Jet Protocol has been focused on innovative lending products and cross-chain interest rate arbitrage, allowing users to deposit SOL tokens and earn interest or borrow SOL tokens against collateral. Jet Protocol launched the V2 test version last August, introducing a margin system, Jet Margin, fixed-rate markets, Jet Bond, and fixed-term markets. With the recent surge in activity on the Solana chain, Jet Protocol has issued over $38 million in loans since February of this year.

Of course, compared to the EVM DeFi ecosystem, Solana is younger and smaller in scale, but its development speed is rapid, as many products that cannot be built on the Ethereum blockchain can find new designs on Solana. From trading and investment platforms, as well as a central limit order book (CLOB) comparable to Nasdaq, to derivatives, DEXs, and DEX aggregators, there is greater freedom for innovation within the Solana ecosystem.

For example, Serum was one of the earliest on-chain CLOBs and once drove the growth of Solana DeFi. Traders can experience a decentralized order book version familiar to them from TradFi. After the FTX collapse, the DeFi community forked the Serum code into a public product named OpenBook. Currently, in addition to OpenBook, the Solana ecosystem has recently launched Phoenix, which supports atomic transaction settlement and composable trading, allowing market makers to provide the best prices for on-chain processes.

Additionally, with the recent surge in real-world assets (RWA), the Solana ecosystem's Credix Finance project is also worth noting. Credix Finance is building a credit ecosystem aimed at bridging the gap between institutional borrowers and investors by providing liquidity and creating attractive risk-adjusted investment opportunities. Credix uses consumer loans such as auto loans and invoices, as well as accounts receivable, as collateral in its loan pool. Additionally, some of these loans are insured by established companies such as Munich Re.

Conclusion

As former Multicoin Capital partner Mable stated, Solana is unlikely to die, but it will not survive in its original form. The new way of survival may be to leverage its on-chain advantages (high-performance public chain, active and stable developer community, complete DeFi ecosystem) to help Solana emerge from the shadow of the FTX collapse and break through the public chain encirclement.

With the launch of Solana DeFi Summer, how to increase liquidity has become the number one challenge facing Solana DeFi, and it is also a significant obstacle that needs to be removed on the path of Solana's ecosystem development. Hopefully, with this wave of positive news and the active promotion of the community, Solana can seize this opportunity to gain stronger liquidity, leading to an inevitable explosion of the ecosystem. Regardless, Solana's future is worth watching.