Author: Ryan Watkins, Wilson Withiam, Daniel Cheung

Compiled by: Block unicorn

Key Insights

Solana is a blockchain redesigned from first principles, with the potential to become a foundational technology on par with Bitcoin and Ethereum. Its technical architecture is inspired by cellular networks and includes several new technological components that work together to maximize hardware potential, unleashing unparalleled levels of performance, giving Solana the highest probability of leading the emergence of the next wave of breakthrough applications. Therefore, as Solana's on-chain economy accelerates, we believe SOL is most likely to accumulate monetary premium alongside BTC and ETH.

Despite the extreme power law dynamics in the smart contract platform space, the likelihood of a single ecosystem supporting every application is very low. There are trade-offs in blockchain - while many blockchains move toward similar technical ultimate goals, path dependence plays a key role in determining the product-market fit for different use cases. Solana has a tremendous opportunity to gradually weaken Ethereum's dominance by providing differentiated, integrated solutions and launching a sufficiently large developer ecosystem.

Solana's current trajectory is reminiscent of Ethereum's rebirth after the ICO boom and bust in 2018. Although the Solana ecosystem has hit rock bottom and is on the path to recovery after the FTX collapse, SOL has still been punished too harshly. As technological upgrades continue to propel Solana forward, the momentum between enterprises and crypto-native developers is accelerating, and the pricing discrepancy of SOL is widening, currently about 13% of Ethereum's valuation.

This is a rare opportunity; we seldom find a project that can scale to rival Bitcoin and Ethereum while unlocking new possibilities. We know this because we specifically created Syncracy to support such era winners and are acutely aware of how rare it is for a project to meet this standard. However, after years of research and monitoring, and months of patiently waiting for an attractive entry opportunity, we believe we have found one of those rare opportunities in the Solana project -- the first blockchain we have discovered with foundational platform potential comparable to Bitcoin and Ethereum. Therefore, in the second quarter of 2023, Syncracy established a large SOL position.

After the FTX collapse, Solana faced an existential crisis, clearing out the ecosystem of all the less loyal participants. Sentiment dropped to extreme lows, leaving behind a generational opportunity that formed in the subsequent quarters. Although the Solana ecosystem needed some time to stabilize in hindsight, it has now found a new foundation, and activity has begun to recover. The shadow of FTX is fading, and today the Solana ecosystem is becoming stronger than ever, with momentum from developers and enterprises accelerating. It is increasingly clear that Solana's industry-leading scalability and unit economics are becoming hard to ignore.

In fact, the opportunity for Solana today is undoubtedly the best. While many smart contract platforms are moving toward similar technical ultimate goals, it is becoming increasingly clear that the paths to get there involve meaningful trade-offs in functionality. These trade-offs are so significant that it is also becoming clear that a single technology stack cannot effectively support every application. Hence, Solana's setup. With "integration" and "modularity" being the two ends of the blockchain design trade-off spectrum, Solana is poised to become the industry-leading standard -- the preferred integrated system of the crypto economy to complement Ethereum as the latter further advances down the modularity path.

There are only boundless possibilities ahead. Below we share our views.

Solana Vision

The Genesis of Solana

The story of Solana began in 2017 when Solana's co-founder Anatoly Yakovenko set out to build a blockchain designed to rival the performance of a single machine and overcome the scalability constraints of existing solutions. His insight was that if software does not hinder hardware operations, it is possible to build a blockchain where the overall performance of the network scales linearly with hardware advancements. He believed that the key to realizing this vision was to design an efficient way for nodes to communicate, eliminating bandwidth as a bottleneck.

In October 2017, Anatoly had an epiphany when he realized that blockchain networks share many similarities with the cellular networks he was familiar with from his time at Qualcomm. He recalled how telecom companies overcame the bandwidth limitations of radio towers by introducing "multiple access technology," enabling multiple phone calls to occur on the same frequency. The core of this solution was the concept of globally available clocks, allowing towers to effectively support multiple simultaneous data channels by dividing each radio frequency into time slots and allocating those time slots to each phone communication.

Shortly thereafter, in November 2017, Anatoly published a white paper introducing "Proof of History" (PoH) -- a mechanism for maintaining time between untrusted computers. While it may seem simple on the surface, having a global clock before consensus has profound implications. Unlike other blockchains that require validators to negotiate the time that has passed, each Solana validator maintains its own clock. This independently verifiable global clock simplifies network synchronization and enables Solana to process transactions almost as soon as they arrive. With PoH, Anatoly laid the groundwork for a novel blockchain that could more efficiently propagate data between nodes, bringing him closer to realizing his vision -- a blockchain that scales according to hardware speed.

Block unicorn note: Multiple access technology refers to multiple devices communicating on the same frequency, allocating different times and different communicators to avoid interference.

Proof of History (PoH): A mechanism that can be simply understood as a proof mechanism used to demonstrate the order and timing of events or data.

In the context of Solana, the innovation of Proof of History lies in that it is not just about recording timestamps but is an efficient way for nodes in the network to easily reach consensus without frequent communication. It is akin to each node having its own clock, operating in different time slots, avoiding confusion and conflicts, thereby enhancing the overall performance of the blockchain system.

Overview of Solana's Architecture

As mentioned above, Proof of History (PoH) is a key feature of Solana's architecture. At a technical level, PoH works by running a recursive SHA-256 algorithm, where each output hash marks the passage of time, as it requires validators to spend a certain amount of time generating results. Validators continuously run Solana's PoH algorithm on one of their CPU cores, allowing each validator to independently track the passage of time and execute almost immediately upon each transaction's arrival.

The timestamping process within the block plays a crucial role in Solana's throughput scalability.

PoH allows block producers to execute and propagate transactions as if they were being streamed. Unlike other blockchains, block producers do not need to wait to create and forward complete blocks, as PoH timestamps provide a normative order. With a predefined order of propagation, downstream nodes can receive transactions in the correct order, even if they are received out of order; they can begin executing and approving transactions without needing to receive complete block data. The benefit to users is that they can receive soft confirmations of their transactions faster (about 400 milliseconds) compared to blockchains that combine time and state simultaneously.

The lifecycle of a transaction begins with Gulfstream -- a transaction forwarding protocol that enables RPC nodes to directly forward incoming transactions to block producers, eliminating the need for a memory pool. Once block producers receive transactions, they use a multithreaded scheduling algorithm to arrange the execution of transactions. At this point, Solana's Sealevel runtime (Solana Virtual Machine) comes into play. In Solana, programs are stateless, and state is stored in separate accounts. This separation allows Solana to achieve remarkable parallelism, as transactions do not need to be processed sequentially when touching the same contract; they only need to be executed in order when writing to the same account. The multithreaded scheduling algorithm enables block producers to detect which transactions write to the same account. Those transactions that do not write to the same account can be processed in parallel, while those that do write to the same account are executed sequentially. After execution, block producers use PoH ticks (referred to as an "entry," Solana's unit of time) to timestamp all concurrently processed transactions, then split these entries into "shreds" to send to downstream consensus validators.

Block unicorn note: RPC is a remote procedure call technology. For example, if you forget to do laundry before going to work, you can call your mom to throw your clothes in the washing machine or ask her to cook for you, solving the problem without needing to handle it yourself.

Once block producers execute these transactions, they use a mechanism called "Turbine" to propagate transactions downstream -- a data propagation protocol inspired by BitTorrent, designed to maximize throughput per unit of bandwidth. At a high level, Turbine organizes downstream validators into subgroups called "neighborhoods." The topology resembles a tree. Upstream neighborhoods provide data to downstream ones, and adjacent neighborhoods share data. Solana assigns validators to these neighborhoods based on their weight, with the highest-weight validators occupying the upper neighborhoods (closer to the leader) and the lowest-weight validators occupying the lower neighborhoods. The result is a significant reduction in validator overhead -- minimizing the number of direct peer connections and reducing the need to transmit duplicate packets, thereby achieving more efficient bandwidth utilization and higher transaction throughput.

Once block producers execute these transactions, they use a mechanism called "Turbine" to propagate transactions downstream -- a data propagation protocol inspired by BitTorrent, designed to maximize throughput per unit of bandwidth. At a high level, Turbine organizes downstream validators into subgroups called "neighborhoods." The topology resembles a tree. Upstream neighborhoods provide data to downstream ones, and adjacent neighborhoods share data. Solana assigns validators to these neighborhoods based on their weight, with the highest-weight validators occupying the upper neighborhoods (closer to the leader) and the lowest-weight validators occupying the lower neighborhoods. The result is a significant reduction in validator overhead -- minimizing the number of direct peer connections and reducing the need to transmit duplicate packets, thereby achieving more efficient bandwidth utilization and higher transaction throughput.

Block unicorn note: You can think of neighborhoods as "communities," where neighborhoods can be organized based on the weight of validators, similar to how members in a community might be grouped or organized based on certain criteria. In Solana, this organizational structure helps improve network efficiency and optimize data propagation.

Overall, these technological components pioneered by Solana work together to realize Anatoly's vision of a blockchain that can scale according to hardware speed. By better utilizing available hardware, Solana achieves significantly higher scalability compared to previous blockchain designs without being constrained by hardware requirements. The result is a truly innovative system that expands the design space of the crypto economy.

Solana Paper

1)

With its exceptional scalability and unit economics, Solana is poised to become a long-term share winner in on-chain economic activity over the next few years, as competitors remain constrained by performance while Solana continues to solidify its lead through a series of upcoming upgrades.

As discussed in the architecture overview section, Solana has several new technological components that work together to maximize the potential of available hardware in nodes, achieving extremely high levels of performance. Through recent upgrades, such as state compression -- a mechanism that greatly reduces application storage costs -- Solana now boasts the best unit economics for a range of on-chain transactions in the industry, with impressive data results. Today, Solana offers the highest transaction throughput of 5,500 TPS and will soon reach 55,000 TPS with the upcoming Firedancer client. Meanwhile, state compression has reduced the cost of minting NFTs on Solana by 1,000 times, and many teams are trying to apply these advantages to other use cases. As Solana leverages further hardware advancements, these performance metrics will compound over time -- a unique feature that allows Solana's performance to double every two years without further upgrades. Most importantly, Solana achieves this performance not by simply increasing hardware requirements but through genuine innovation in software design. The result is that Solana achieves 1-2 orders of magnitude of throughput (1~2 times improvement) for every dollar spent on hardware.

All of this occurs against the backdrop of competitors being constrained by performance in the foreseeable future. Although Ethereum's Rollup ecosystem has begun to demonstrate its strength, often processing more transactions than Ethereum itself, its recent reality remains unsatisfactory. The challenge is that Rollups are still constrained by the Ethereum main chain, and upgrades will not provide substantial help in the short term. The highly anticipated EIP-4844 upgrade (expected in Q1 2024) will only provide about 0.375 MB of data availability capacity per block, translating to approximately 275 transactions per second (using basic DEX swaps) for the entire Ethereum Rollup ecosystem. Danksharding, which may not enter the mainnet until 2025 or later, will only provide about 1.3 MB of data availability capacity per block, equivalent to approximately 3,250 transactions per second for the entire Ethereum Rollup ecosystem. These numbers are not only far below Solana's current levels but may also fail to meet mainstream activity levels.

While there are some Rollup options that can bypass Ethereum's limitations, they all involve significant trade-offs around security. The most popular methods for achieving higher throughput involve third-party data availability providers, such as Celestia and EigenDA, which offer Rollup data availability capacity that is one to two orders of magnitude greater than existing solutions. However, introducing these solutions in specific Rollup setups introduces new counterparty risks for applications and users. Rather than relying solely on Ethereum's security, Rollups outsource much of their security to newly launched and unproven networks.

While the theoretically final Rollups provide strong security guarantees, most Rollups today remain in what Vitalik calls "Stage 0" -- the full support stage. Currently, the leading Rollups on Ethereum are effectively run by their operators. Optimistic Rollups lack permissionless fraud proofs, and even with fraud proofs, they may not function correctly. ZK Rollups typically rely on off-chain data availability committees to scale throughput beyond base levels. Almost all Rollups have upgradable contracts, usually done through multi-signature setups, and without time delays. Many Rollups have a single sequencer and lack escape routes for users to withdraw their assets in the event of operator malfeasance. All of these issues may be resolved in the coming years, and we certainly believe they will, but at some point, it is worth questioning: Is this tech stack as secure and decentralized as Rollup proponents claim compared to Solana, or is this a classic case of double standards?

In summary, given its current performance levels, the Solana ecosystem is a fertile ground for innovation. Over time, we have observed a strong correlation between the flexibility of blockchain design space and the potential for breakthrough applications -- given Solana's advantages in cost, speed, and composability, this is undoubtedly a hallmark of Solana. With Solana, a variety of high-traffic, consumer-facing applications can now be developed, which would be impossible to run in resource-constrained environments like Ethereum. This is a gain for the crypto economy, increasing the likelihood of mainstream adoption across the industry.

Ultimately, Ethereum is not a panacea, and considering this reality, the crypto economy is better off. A world with several blockchain infrastructures is more resilient than a single point of failure.

2)

While many smart contract platforms are moving toward similar technical endpoints, path dependence plays a key role in determining the product-market fit for different use cases -- Solana's integrated design offers a simpler and more cost-effective development environment compared to modular stacks, making it more likely to win over the growing developer base of the crypto economy in the coming years.

In Vitalik's visionary "endgame" article, he discussed potential pathways to scaling blockchains while maintaining decentralization. He proposed that while there are many such pathways, the ultimate goals begin to look very similar: centralized block production, decentralized validation, and strong anti-censorship protections. It does not matter whether a blockchain starts from integration or modularity. The key issue is that scaling a blockchain with low validator hardware requirements is impossible, thus ensuring cheap verifiability is necessary. This way, even if validator requirements are high, users can still verify and maintain the chain's security.

Two years later, Vitalik's predictions seem increasingly likely to come true, with many projects emerging in the Ethereum and Solana ecosystems to realize this future. However, while many leading blockchains are moving toward similar endpoints, there are meaningful trade-offs in the paths they initially choose.

Ethereum

The origin of Ethereum can be traced back to Blizzard Entertainment's weakening of Vitalik's character in World of Warcraft (WoW). This experience was pivotal for Vitalik, as it was the first time he personally experienced "the horrors that centralized services can bring." This experience had a profound impact on Ethereum's design; thus, Ethereum's vision was to build a minimal trust world computer. Settlement guarantees became a crucial design goal -- a development stemming from Bitcoin's minimal trust currency argument. Trustworthy neutrality -- that Ethereum would not discriminate against or favor any particular individual -- became a guiding principle.

Given that settlement guarantees are critical to Ethereum, the developer community adopted an ideologically decentralized philosophy. The reasoning was that while ideological decentralization might lead to slower evolution, it would create greater stability and predictability. In a similar vein, the Ethereum community adopted a hardware philosophy centered around end-user verification. The rationale was that if more users could run full nodes and supervise the system, Ethereum would be more decentralized, thus providing stronger settlement guarantees.

The combination of Ethereum's ideological decentralization and hardware philosophy led to a modular ecosystem to address the scalability trilemma. Today, execution is gradually being pushed toward Rollups, which have higher hardware requirements and utilize Ethereum for settlement and data availability. The idea is that Ethereum can maintain lower hardware requirements and focus on security, while Rollups can outsource security to Ethereum and optimize for higher performance. This division of roles creates a simultaneous benefit, as the underlying infrastructure of Ethereum supporting its minimal trust computation begins to stabilize.

Ethereum's commitment to trustworthy neutrality from day one has been crucial for launching mission-critical currency and financial applications -- one of the most challenging yet vital characteristics for any smart contract platform's development. Monetary premium (the utility of an asset as a unit of account, medium of exchange, and store of value) not only provides the highest valuation multiples for the blockchain's native assets but may also be the only way for a blockchain to ensure its own security while maintaining overall sovereignty in the long term. Blockchains like Ethereum have circular security arrangements, where validators are paid in assets issued by the blockchain. Since, by definition, sovereign blockchains cannot rely on currencies outside of validators (like the dollar) for payment, it is crucial that their underlying assets have intrinsic value. Ensuring that this underlying asset is valuable enough to protect the blockchain from any perceivable threats globally is best achieved by making it one of the most valuable assets in the world: currency.

However, Ethereum's approach is not without trade-offs. While Ethereum has launched these critical currency and financial applications by emphasizing security, it has done so at the cost of being unable to launch higher throughput, cost-sensitive applications. Additionally, while modularity increases developer flexibility, promotes greater security, and creates new monetization opportunities for applications, the associated costs arising from such a multi-chain economy are worth examining. Once again, while it is likely that Ethereum will address these performance issues in the future, it will take years, providing ample opportunity for another system moving along a different path to gain market share.

Solana

The origin story of Solana began with Anatoly's day trading, where he realized that his trades were being jumped by high-frequency trading firms. This experience was pivotal for Anatoly, as it made him realize that blockchains could ensure a fairer flow of information between users and exchanges. This experience was so crucial that equitable and inexpensive access to global state became a key design goal for Solana; thus, Solana envisioned a globally programmable order book that synchronizes at light speed. Performance would be paramount, and Solana would first position itself as a technology platform -- differing from the monetary arguments that guided previous blockchain designs. Software should not hinder hardware -- Solana would fully leverage all computational and bandwidth capabilities available in today's multi-core computers to maximize system performance -- this became the guiding principle.

Because performance is critical to Solana, the developer community adopted a pragmatic philosophy. An engineering-oriented culture took root. While more radical than Ethereum, the idea is that while this "move fast and break things" mentality may lead to greater instability, it fosters faster product evolution. Similarly, the Solana community adopted a hardware philosophy centered around practical decentralization -- the core idea being that not all nodes are equal, and the number of nodes is a lagging indicator of product-market fit.

There are two aspects to this reasoning. First, an increase in the number of complex node operators actively monitoring the network enhances security, rather than simply counting the number of passive participants. Second, the reasons for the increase in node numbers over time depend more on the demand for running nodes than on how low the costs of running nodes are -- the more activities hosted by Solana, the more individuals, companies, and other organizations will be incentivized to run nodes as part of their operations. Today, this philosophy seems to have had a positive impact on Solana.

In extreme cases, Solana's pragmatic philosophy is based on the argument that while Solana may not achieve nuclear-level decentralization, it may cover 99% of the functionality that users ultimately need while maintaining a single stack architecture. This approach, referred to as "integration," is crucial for launching Solana as the preferred platform for speed and cost-focused mainstream applications, even at the expense of critical currency and financial applications at present. However, Anatoly believes this may not be an issue -- settlement is merely a function, a byproduct of maintaining state synchronization. If Vitalik's ultimate goal is correct, then in the long run, Solana will achieve sufficient anti-censorship in any case, at which point the scale of economic activity will be the key differentiator for the foundational assets of smart contract platforms to accumulate the greatest monetary premium.

In this regard, Solana has some levers to operate. In addition to being used as a medium of exchange (Gas payments) and unit of account (NFT pricing), SOL is the primary store of value within the Solana economy. As a proof-of-stake asset, SOL directly earns fee revenue and MEV generated by on-chain activity. While Solana aims to keep user fees low for each transaction, it can make up the difference by increasing transaction volume and expanding the dimensions of its fee market (more sources of revenue). Furthermore, SOL serves not only as the fee rate for the Solana economy but also as the lowest-risk asset on Solana, making SOL the purest collateral within its financial system.

Moreover, while Ethereum is often praised for its sound monetary policy, Solana may not be far behind in credibility. Although Solana must grow transaction activity by several orders of magnitude to make SOL deflationary, just like ETH, Solana's supply schedule may be more predictable than Ethereum's -- Solana has never changed its issuance schedule, while Ethereum has changed its issuance schedule three times. In any case, it is important to remember that these attributes are largely products and lagging indicators of product-market fit; is it not possible for competitors to achieve similar levels of adoption?

Zooming out, Solana's integrated design may be key to accelerating its economic growth. Compared to modular stacks, integrated systems provide a simpler structure and more cost-effective development environment. First, integrated systems will abstract all the low-level infrastructure and economic complexity needed for trust-minimized computation, allowing developers to focus on their core products. In contrast, modular stacks almost exponentially increase the complexity for developers, as they force developers to consider a broader range of critical technical components and spend resources on often unrewarded work, such as cross-chain deployments. Additionally, modularity not only increases developer complexity but also incurs immeasurable costs in user experience due to incompatibilities between different layers and the immaturity of abstraction mechanisms. In practice, this means that application developers on Solana can spend more time and resources refining their applications and user adoption pathways compared to their modular counterparts, who need to spend relatively more time on infrastructure.

Most importantly, housing all logic and data within a single layer also minimizes the time and cost involved in cross-contract (or composable) transactions, which are foundational to financial transactions in the crypto economy. Economies built on multiple chains will inevitably incur hidden costs such as latency, slippage, cognitive burden, and additional fees. Over time, as the number of participants in the modular stack increases, these costs may become more apparent. Today, modular stacks have involved Rollup chains, settlement layers, third-party bridges, external data availability providers, cross-domain MEV solutions, decentralized sequencer generators, and monitoring towers/proof networks, each demanding a share of the pie. At some point, it is worth asking whether a multi-Rollup economy is worthwhile, considering that the most common reason for launching a specific application Rollup is "dedicated block space," while Solana's parallel execution environment and native fee market clearly address this issue without additional costs.

In summary, when faced with the choice of where to build, where will developers choose to construct? Remember, there is no absolute best solution, only trade-offs.

3)

The smart contract market offers the largest total addressable market (TAM) in the crypto economy. It follows a power law distribution (where a few things account for most of the share, while most things concentrate on a few shares), where the combination of ecosystem attributes and blockchain attributes consolidates top leaders and enables them to continue winning the majority of attention and economic activity -- by providing highly differentiated, integrated solutions and guiding a sufficiently large developer ecosystem, Solana has a tremendous opportunity to become one of these entrenched participants.

Smart contract platforms are critical to the crypto economy. At their core, smart contract platforms are block space markets on the blockchain -- space on the blockchain used to store information and run code. Users pay fees to access this block space, where all economic activity on the blockchain is settled. This block space will one day support global currency, finance, and commerce. Indeed, as smart contract platforms continue to grow their "GDP," their economies may eventually surpass dominant sovereign nations. In this regard, considering that the foundational assets of these smart contract platforms are the most deeply integrated and widely held assets within their economies, they are likely to become the world's reserve currency in the long run.

While the smart contract platform market is currently highly concentrated around Ethereum, this market structure may continue to evolve toward a more oligopolistic direction as Ethereum's limitations restrict the number of use cases it can support. To be clear, we are not suggesting that Ethereum will not continue to play a dominant role in the market; however, competitors have the opportunity to erode Ethereum's share and expand the market by providing highly differentiated solutions and guiding a sufficiently large developer ecosystem. While many still lack the development tools and middleware to support application layer innovation and experimentation, the momentum to solve their remaining development challenges will increase as incentives to build on these chains grow.

From a technical perspective, the smart contract platform market is perfectly competitive, with all code being open source. However, while competitors can fork code, they cannot replicate the emergent properties of smart contract platforms. Ecosystem attributes, including developer talent, applications, liquidity, and integration (bridges, exchanges, wallets, etc.), as well as blockchain attributes such as monetary premium, security, resources, and records, make smart contract platforms nearly impossible to fork. Once a protocol becomes a standard, powerful network effects emerge -- thriving ecosystems rapidly accumulate, allowing winners to maintain their victories. Code can be copied, but communities cannot be replicated.

These attributes are worth delving into. Ecosystem attributes such as developer talent, applications, integration (bridges, exchanges, wallets, etc.), and on-chain liquidity are key factors supporting the economic potential of smart contract platforms. Each smart contract platform faces a daunting cold start problem, needing to launch these attributes and do so sustainably. Once a chain reaches critical mass in developer adoption and on-chain activity, it is likely to experience powerful flywheel effects, creating conditions for sustained economic growth for years to come. A deep developer talent pool leads to more useful applications, which leads to greater economic activity, in turn leading to higher network revenues, sparking greater investor interest, and providing more capital for developers to build within the ecosystem.

Blockchain attributes such as security, records, resources, and monetary premium may even be more powerful. For example, despite Ethereum's scalability constraints, it remains the far-leading smart contract platform primarily because it was the first to launch in the market -- this has allowed Ethereum to develop optimal security, achieve a long record of overcoming adversity, and create a monetary premium for its foundational asset, ETH, which is one of the most important attributes that a blockchain finds difficult to achieve. Overall, these blockchain attributes reinforce the flywheel effect of ecosystem attributes -- most developers will always choose the platform that offers them the greatest financial opportunity and strongest sustainability guarantees, making the most economically meaningful blockchain the most logical choice.

Given the discussion of trade-offs between integration and modularity in the previous section, an integrated blockchain is likely to substantially weaken Ethereum's market share, and as the undisputed leader in the integrated blockchain space, Solana is likely to become a player in the smart contract platform landscape. This market structure has not been uncommon in history -- a recent example in the computing space is the competition between Android and iOS in the mobile domain over the past decade. In fact, the question is not whether there will be more than one winner -- it is clear that a single technology stack will not effectively support every application. The question is whether the current participants adequately reflect this opportunity at reasonable prices and whether new winners will emerge.

4)

Solana's current trajectory is reminiscent of Ethereum's rise after the ICO boom and bust in 2018. Although the Solana ecosystem has hit rock bottom and is on the path to recovery after the FTX collapse, SOL has still been punished too harshly. As technological upgrades continue to propel Solana forward, the momentum between enterprises and crypto-native developers is accelerating, and SOL is undervalued in market capitalization, currently about 13% of Ethereum's market cap.

While it may have been forgotten today, Ethereum's dominance was not achieved without challenges. It first went through a massive speculative phase known as the "ICO craze" in 2017, where over 90% of projects failed to generate any meaningful economic value, with many projects failing to deliver at all. This led many to lose faith in Ethereum and the potential of smart contract applications.

In hindsight, this speculative frenzy was crucial for Ethereum's success, as it brought the network into the spotlight, attracting the attention of Ethereum developers and investors. This was vital for attracting mission-driven contributors, and despite the sentiment around Ethereum declining in 2018 and 2019, these contributors continued to innovate on Ethereum. Their work ultimately paid off. After years of building critical financial infrastructure, the innovation of "liquidity mining" in 2020 sparked renewed interest in Ethereum among institutions and developers, as users discovered a rich economy of practically useful applications -- this DeFi revolution helped solidify Ethereum as the leading smart contract platform in the crypto economy.

Today, Solana finds itself in a similar position to Ethereum after the ICO boom. The recent bull market has seen Solana experience a wave of massive speculation, pushing its market cap to an all-diluted valuation of about $140 billion. This boom was primarily driven by FTX's involvement in guiding the application ecosystem and providing liquidity for the Solana token. However, over 90% of the applications built on Solana are almost copies of their counterparts on Ethereum, with little organic usage, a lot of hired capital, and terrible token supply plans, leading to a collapse in activity, prices, and committed developers, further exacerbated by the FTX collapse.

In the quarters following the elimination of FTX's influence, the ecosystem has successfully shed the impact of FTX. Today, with new developer optimism and the rise of new community leaders with stronger moral values, and as all mercenaries in the ecosystem have been cleared out, the missionaries have once again taken hold of Solana. With new use cases emerging, the issues of system uptime may have become a thing of the past, along with unique DeFi primitives being built, significantly increasing Solana's chances of success in the coming years.

Similar to how Ethereum took six years to reach escape velocity, we believe Solana is moving in the same direction, albeit at a faster pace. Despite Solana's relatively short history of three and a half years, its recent enterprise and ecosystem momentum positions it well to produce breakthrough use cases in the next cycle. On the enterprise front, Solana recently integrated with Visa and Shopify, indicating that it still has attention in institutional circles despite last year's events. The ongoing support and validation from Visa and Shopify could create significant downstream network effects when other enterprises wish to collaborate with Visa or Shopify while exploring crypto initiatives.

In the crypto economy, sentiment around Solana continues to improve, with many important product announcements in recent quarters. Eclipse recently announced its SVM Rollup mainnet, which, while not directly benefiting Solana itself, reduces the risk for developers launching applications on Solana and increases the number of contributors to the Solana ecosystem. In the same vein, Maker's founder Rune proposed forking Solana's codebase to launch Maker's upcoming chain. This proposal is not only a significant validation of Solana's tech stack but also a sign of an expanding contributor ecosystem from one of the most respected builders in Ethereum.

This evidence is also reflected in the data, as the latest generation of Solana DeFi protocols, aptly dubbed "DeFi 2.0," is driving on-chain financial activity on Solana to heights not seen since the bull market. Solana's decentralized exchange (DEX) trading volume is growing at the highest monthly rate ever, surpassing the peaks of the 2021 bull market. Total locked value -- the best proxy for users trusting the core financial infrastructure of the chain to store wealth -- has nearly quintupled since the beginning of the year, currently reaching $1.5 billion. Most importantly, Solana's DeFi efficiency, measured by trading volume divided by total locked value, is growing at about four times the rate, nearly an order of magnitude higher than Ethereum's DeFi efficiency. As major projects launch their tokens, these numbers may further increase, providing more high-quality assets for the Solana ecosystem.

Solana's non-financial sector is also thriving. Despite an 80% decline in Solana's NFT trading volume since January 2023, the introduction of compressed NFTs (cNFTs) has reignited growth in the sector, positioning Solana as a sustained share gainer in the NFT market. On Solana, the cost of minting and distributing cNFTs is about 1,000 times cheaper than in any Ethereum environment -- meaning cNFTs can be distributed to 10 million users on Solana for a few hundred dollars, while it would require hundreds of thousands of dollars on Ethereum L2 and hundreds of millions on Ethereum L1. Since Metaplex launched its cNFT standard in April 2023, the number of NFTs issued on Solana has exceeded the total from its first three years -- the cost reductions provided by cNFTs are so significant that large brands can reasonably attempt to use on-chain assets at scale, greatly increasing Solana's appeal to enterprises and enhancing its chances of becoming the home for the next breakthrough application in the industry.

In addition to Solana's NFT resurgence, Solana has also become a popular choice for decentralized physical infrastructure networks (DePIN) due to its low latency and low fees. Notably, the decentralized wireless network Helium migrated to Solana in April 2023, indicating that Solana enables it to achieve greater scale, and Render recently completed a similar migration, indicating that Solana's unparalleled performance and state compression capabilities will improve node operators' profit margins and expand their market potential.

At some point, investors need to ask themselves: Is Solana's probability of success really as low as the market suggests? Solana's current valuation is about 13% of Ethereum's, indicating that the market believes Solana has about a 13% chance of becoming a top smart contract platform. Despite the Solana ecosystem accelerating its development after the FTX low, gaining momentum from enterprises and crypto-native developers, the Solana blockchain is preparing for the Firedancer upgrade, which can be viewed as "Solana 2.0" from all perspectives. Considering all the factors mentioned above, we believe Solana's risk/reward ratio is excellent. As the market realizes that Solana is a foundational platform beyond Bitcoin and Ethereum, we believe its market cap could reach at least 25% of Ethereum's -- comparable to the peak market cap ratio with Ethereum in the last cycle. Moreover, if the market begins to view Solana as a long-term contender surpassing Ethereum, this ratio could be even higher.

Rising from the Ashes, Building Heaven in Hell

"If heaven rises now in hell, it is because in the pause of order and the failure of most systems, we have the freedom to live and act differently." -- "Building Heaven in Hell"

In the crypto economy, the greatest projects repeatedly overcome the greatest adversities. Bitcoin survived the infamous Mt. Gox hack, despite Mt. Gox handling 70% of Bitcoin's trading volume and losing 6% of all Bitcoins at the time. Ethereum survived the notorious DAO hack, despite the DAO raising $150 million and ironically losing 6% of all Ether at the time. In both cases, recovery was a testament to their resilience -- the lasting impact was the fortification of their souls and the crystallization of their fundamental propositions. Decentralized money and autonomous programs will endure.

Today, Solana is writing its own history. Although FTX was one of the largest contributors to the Solana ecosystem, holding about 8% of Solana's supply through its fraudulent and now-bankrupt Alameda entity, the Solana ecosystem is rising from its worst nightmare. Just as Bitcoin and Ethereum reached new heights based on their increased resilience and identity, we believe Solana is poised to become the next successful ecosystem. After all, in the crypto economy, legends often emerge from dire straits. In a permissionless world, only those projects that can survive disaster can reach the promised land.

As mentioned earlier, we do not often encounter a project that can unlock new possibilities at a scale comparable to Bitcoin and Ethereum. Finding such a project at a special moment like Solana is even rarer. And projects like Solana that are so liquid are a rare sight indeed.

We are very excited about Solana rising from the ashes, with a steady pace leading the way once again.