Dialogue with Solana Co-founder: Execution is the only moat, commercialization is the key to victory

Original Title: "The Next Chapter Of Solana Mobile | Emmett Hollyer"

Source: Lightspeed

Compiled by: Deep Tide TechFlow

Guest: Anatoly Yakovenko, Co-founder of Solana

Host: Mert Mumtaz, CEO of Helius

Background Information

This week, we invited Anatoly Yakovenko, co-founder of Solana Labs. We will delve into various topics including Solana's transaction fees, how to remain competitive in the crypto space, the inflation issue of SOL, competition with Apple and Google, and whether Solana has a moat. We hope you enjoy!

Solana's Transaction Front Running

Mert had an in-depth conversation with Anatoly Yakovenko, co-founder of Solana Labs, discussing the challenges of transaction processing on the Solana network, particularly regarding the issue of front running. Anatoly explained the original intent of Solana and the current realities it faces.

The Original Intent of Solana and Current Challenges

Anatoly mentioned that one of the reasons he founded Solana was due to frequent encounters with front running in traditional markets. He hoped to achieve global information synchronization through Solana, maximizing competition and minimizing arbitrage. However, in reality, front running remains prevalent, and in many cases, the priority fees paid by users exceed Solana's priority fees.

Solutions and Future Outlook

Anatoly believes that users can set their own validators and submit transactions, which is not possible in traditional markets. He pointed out that while this feature exists, the difficulty of setting up validators and the immaturity of the market make it hard for users to fully leverage this advantage. He emphasized that future solutions lie in increasing bandwidth, reducing latency, and optimizing the network to eliminate unfair bottlenecks.

Market Dynamics and Competition

He further explained that the current market dynamics give users with more staked assets an advantage in transaction priority, leading to a "rich get richer" phenomenon. Anatoly believes that by enhancing performance and lowering the entry barriers for honest participants, market dynamics can be changed to promote fair competition and ultimately achieve an ideal market balance.

Anatoly emphasized that the key difference between Solana and Ethereum is that solving these issues is primarily an engineering challenge. He firmly believes that through continuous optimization of the network, increasing the number of leaders per second and block size, Solana will be able to realize its original vision of a fair and efficient trading environment.

Solana's Fee Market

Current State of the Fee Market

In this section, Mert raised questions about Solana's fee market, particularly why transaction tips (Jito tips) exceed priority fees.

Anatoly explained that this is mainly due to the current implementation of transaction processing not being ideal, especially under high load, where the performance of the fee market falls short of expectations.

Transaction Processing and Performance Bottlenecks

Anatoly pointed out that during low load periods, Solana's transaction processing is very smooth, with confirmation times even below one second. However, when transaction volume increases, queues become congested, making it difficult to effectively prioritize transactions, thus disrupting the normal operation of the local fee market. He emphasized that these issues are engineering challenges that require optimization of the processing pipeline.

Comparison with Other Solutions

Mert mentioned that some Layer 2 solutions do not seem to face the same issues.

Anatoly countered that even if Layer 2 uses centralized sorters, similar priority issues will still arise. He pointed out that while these platforms may iterate faster, the fundamental problems remain. Even in a Layer 2 environment, competition between multiple applications can lead to congestion in the fee market.

Future Solutions

Anatoly believes that solving these issues relies not only on different architectures but also on continuous optimization and improvement of existing systems. He stated that while Layer 2 may perform well in certain cases, similar challenges will still arise when multiple markets coexist. Therefore, Solana needs to invest further in engineering to optimize its transaction processing capabilities.

Large-Scale Composability

Mert posed a question about how Solana competes with specific-purpose chains like Atlas. Atlas is a chain focused on DeFi that can optimize its performance without worrying about the costs of consensus and shared block space.

Challenges of Simplified Optimization

Anatoly pointed out that chains like Atlas can be optimized more easily because they have fewer validators and a relatively concentrated processing load. However, he emphasized that the key question is whether "synchronous composability" remains important at scale. Atlas may only cover a specific area, but information still needs to be disseminated globally.

Complexity of Global Information Dissemination

Anatoly further explained that Solana's advantage lies in having multiple validators that can submit transactions globally at the same time, and it is a permissionless open network. He noted that solving the problem of rapid global information dissemination and achieving consensus is the more challenging task. This means that while Atlas may perform well in localized optimizations, it still faces the same consensus and consistency issues as Solana in broader application scenarios.

Competition and User Experience

He compared such single-purpose chains to larger applications (like ByteDance), emphasizing the importance of user experience. Ultimately, users will choose platforms that provide a better experience. Therefore, Solana needs to become the best version of a decentralized exchange to stand out in competition. Anatoly believes that only by adopting a decentralized multi-proposal architecture can this goal be achieved.

Competing with L2

Challenges for Solana and Advantages of L2

Mert mentioned that Solana must solve a series of problems, while L2 can address some of these issues more quickly.

Anatoly responded that while single-purpose chains have advantages in localized optimization, it does not mean they can easily solve all engineering challenges. He emphasized that deploying a single chain does not automatically resolve all issues, especially when facing complex engineering challenges.

Similarity of Engineering Challenges

Anatoly further pointed out that while L2 may be faster in some aspects, they still face the same engineering challenges as Solana, particularly in transaction submission pipelines. Even a single chain like Jito may encounter bottlenecks when processing a large number of transactions, thus potentially limiting data transmission rates.

The Dilemma of Shared Block Space

Mert raised the issue of shared block space, noting that Solana may face the challenge of a "tragedy of the commons," especially when multiple applications share the same chain. Anatoly emphasized that such sharing can only be effective in a permissioned environment. However, once permissionless validators are introduced, competition between multiple applications can lead to interference, affecting overall performance.

Importance of Isolation Issues

Anatoly emphasized that even in a permissioned environment, isolation issues need to be addressed to ensure that a single market or application does not affect the performance of other markets. This isolation issue is similar to the challenges faced in solving problems within Solana. He noted that if these issues cannot be effectively resolved, there may be more specialized payment chains or single-market L2s in the future.

Diversity of Application Scenarios

Mert asked whether this market analogy applies to other types of applications.

Anatoly responded that certain applications (like peer-to-peer payments) may not face congestion issues, making scheduling relatively simple. However, if it cannot be guaranteed that a single market will not cause global congestion, companies like Visa may launch their own payment-specific L2s.

Anatoly believes that if isolation cannot be correctly implemented, the concept of a massive composable state machine will become ineffective. He is confident that if these engineering issues can be resolved, composability within a single environment will have significant advantages, as it will reduce friction in moving funds between different states and liquidity. He concluded that Solana's survival in the bear market is partly due to its composability and higher capital efficiency.

Synchronous Composability

Mert quoted Vitalik's view that synchronous composability is overestimated and mentioned the lack of empirical evidence supporting this claim. He expressed skepticism about this viewpoint and asked Anatoly for his thoughts.

Anatoly's Rebuttal

Anatoly countered Vitalik's viewpoint, pointing out that Jupiter is a typical example of synchronous composability. He emphasized that Jupiter occupies a significant market share within the Solana ecosystem, proving the importance of synchronous composability in practical applications. He believes that Jupiter's success could not have been achieved without synchronous composability.

Using Ethereum as an Example

Anatoly further mentioned that the competitor 1inch performs poorly on Ethereum, partly due to the high and slow transaction costs between cross-L2s. He believes this situation indicates that the lack of effective synchronous composability limits the scalability of DeFi applications.

Comparison of Asynchronous and Synchronous

Anatoly acknowledged the existence of asynchronous finance, noting that most financial systems operate asynchronously, which does not mean these systems will disappear. However, he firmly believes that if Solana continues to address the current issues and maintains continuous improvement, synchronous composability will ultimately be the winner.

Future Outlook

Anatoly holds an optimistic view of Solana's future, believing that as the ecosystem continues to develop and problems are resolved, synchronous composability will gain greater advantages in the crypto space. He believes that in the long run, systems that can achieve more efficient and faster transactions will lead the market.

Validators

Mert's Question about Validators

Mert posed a question, assuming that other chains could overcome engineering issues and achieve synchronous composability, how would the role and number of validators affect the success of the network in such a scenario? He asked Anatoly what the moat would be if engineering is not it.

Anatoly's View on the Number of Validators

Anatoly stated that Solana does not have a specific target for the number of validators. He hopes to have as many validators as possible to prepare for the network's future. He believes that having more validators can increase the chances of block production and allow more people to participate in the network without permission.

Scalability of the Network

Anatoly emphasized that the cost of solving these issues is relatively low, so Solana does not need to reduce the number of validators for performance. He believes that if Solana can attract more users, more users will want to run their own nodes, thus increasing the network's security and decentralization.

Changes in the Number of Validators

Mert mentioned that although the goal is to increase the number of validators, data shows that the number of validators has decreased over a period. He asked Anatoly if this is related to a lack of product-market fit (PMF), leading to insufficient incentives for users to run their own nodes.

Self-Sustaining Validators

Anatoly agreed and expressed interest in the number of self-sustaining validators. He mentioned that while the total number of validators may be large, the number of truly self-sustaining validators may be small. He believes the network must be able to scale to support all users who wish to run nodes.

Delegation and Stress Testing

Anatoly explained the purpose of the delegation program, which is to involve as many people as possible in the network for stress testing. He believes that while testnets cannot fully replicate the characteristics of the mainnet, the growth of self-sustaining validators is a positive trend.

The Theory and Practice of Validators

Mert pointed out that delegation can help stress test the network, but Anatoly emphasized that the most important aspect is self-sustaining validators. Even theoretically, a single validator may still be helpful in catastrophic failures, but fundamentally, whether the network is growing and succeeding is key.

Solana Inflation

Mert's Questions about Inflation

Mert raised concerns about Solana's inflation plan, arguing that this inflation might subsidize validators by providing more rewards, which could harm pure investors. He asked Anatoly for his views on excessive inflation.

Anatoly's Response

Anatoly suggested referring to John Carbono's article, arguing that discussions about inflation are somewhat pointless. He stated that moving digits does not truly create or destroy value; it only affects accounting numbers. The existence of inflation is because it was copied from Cosmos, where most of the original validators came from.

Impact of Inflation

Anatoly further explained that the impact of inflation on individuals depends on their specific tax regimes, but from the perspective of the entire network, inflation represents a cost for non-stakers and a corresponding benefit for stakers, which sums to zero. Therefore, from an accounting perspective, inflation is not significant in the overall performance of the network.

Views on Reducing Inflation

Mert mentioned that some believe if inflation is arbitrary, why not reduce it. Anatoly responded that anyone can attempt to change the inflation rate, but ultimately, it requires convincing validators to adopt this change. He pointed out that the main constraint when choosing these numbers is ensuring that it does not lead to catastrophic consequences, and Cosmos's model is effective in this regard.

How Does Solana Compete?

Mert's Questions about Competition

Mert asked why people should choose Solana in an environment where everyone can run systems quickly, cheaply, and without permission.

Anatoly's Views on Competition

Anatoly believes that the future winner will either be Solana, as its ecosystem performs well in execution and can lead over other issues, or other projects that are very similar to Solana but execute faster. He pointed out that the only reason they would not be Solana is that they execute faster, overcoming network effects that Solana may not yet possess.

Importance of Execution

Anatoly emphasized that execution is the only moat. If there is no advantage in execution, other projects are likely to surpass Solana. He mentioned that shifts in user behavior (i.e., product-market fit, PMF) are key. For example, if transaction fees are ten times cheaper, will users switch? If the fees users pay are already low (like half a cent), then even if other platforms have lower fees, they may not switch.

Changes in User Behavior

Anatoly illustrated that the difference between Solana and Ethereum is that users see fees as high as $30 when transacting on Ethereum, and this price difference is enough to drive changes in user behavior. Additionally, confirmation time is also a significant factor; Ethereum's confirmation time may take two minutes, while Solana's confirmation time is around 2 seconds, sometimes even reaching 8 seconds.

Potential for Performance Optimization

He pointed out that whether the improvement from 8 seconds to 400 milliseconds is enough to prompt users to switch products remains unknown. However, Solana's engineering design does not hinder the network from optimizing to improve latency and throughput.

Challenges of Competition

Anatoly summarized that while Solana's growth rate may exceed Ethereum's, the marginal differences among other competitors are relatively small, making it difficult to achieve significant changes in user behavior. This is the main challenge Solana faces.

Execution as a Moat

Mert on the Challenges of Execution and Organization

Mert mentioned that if execution is the most important moat, then it becomes a challenge of organization and coordination to some extent. He used Solana and modularization (though this term is not entirely accurate) as an example, pointing out that when developers build applications on Solana (like Drip), they need to wait for L1 (Layer 1) to make certain changes, such as handling congestion or fixing bugs. In contrast, on application chains (ML2), developers can make these changes themselves, potentially achieving faster execution on other chains.

Anatoly's Views on Execution Speed

Anatoly believes that over time, the gap in execution speed will narrow. He cited Ethereum as an example, noting that if application fees rise to $50, developers may need to ask Vitalik when the issue will be resolved, to which he might respond with a six-year roadmap, indicating that solving the problem will take time. However, on Solana, the team responds quickly and works to resolve issues in the next version.

Cultural and Response Speed Differences

Anatoly emphasized that in Solana's ecosystem, the entire infrastructure for submitting transactions understands that when slow or global congestion occurs, it is an emergency issue with zero priority that must be addressed immediately. He stated that as network usage grows, significant design changes (such as changes to the fee market) become increasingly unlikely.

Possibility of Design Changes

He noted that there are currently no significant design changes imminent, meaning the network will not face the need for major design fixes that take six months to a year. While there may be some unexpected release bugs that require the team to work overtime to resolve, this is considered normal.

Advantages and Costs of Application-Specific L2s

Anatoly further mentioned that if developers have their own application-specific L2s rather than shared infrastructure, they may move faster, but the costs of doing so are high. Therefore, for most use cases, using a shared, composable infrastructure layer may be cheaper and faster, and as the software layer improves and bugs are fixed, this gap will gradually narrow.

Firedancer

Mert on Firedancer's Discussion

Mert mentioned the recent buzz around Firedancer, quoting Jerry's viewpoint that the project may be overhyped and noting that it will indeed slow progress initially, as ANSA engineers and others need to reach consensus on certain matters and develop from there. He asked Anatoly if faster iterations could be achieved once specifications and interfaces are clear.

Anatoly on Design and Implementation Steps

Anatoly explained the three steps: design, implementation, and testing validation. He believes the design phase may take longer, but implementation can proceed in parallel, and the testing and auditing phase should be faster because the probability of two independent teams making the same mistake is low. He pointed out that Ethereum tends to concentrate all target features during major version releases, while Solana sets a release date, and if a feature is not completed, it gets dropped, allowing for faster version releases.

Accelerating Iteration Cycles

Anatoly believes that theoretically, the iteration cycles of two teams can be accelerated as long as the core engineers are willing to release quickly. He emphasized that cultural background is also important; both teams work under high-pressure environments and can respond and execute quickly.

Coordination and Execution Challenges

Mert then raised a third point about coordination and execution, questioning whether it is correct to assume that without execution capability, development work would be ineffective.

Anatoly stated that one of the significant changes he was involved in was moving the account database index out of RAM. He could design and propose solutions, but successful implementation required a full-time engineer to focus on this task.

Individual Roles and Influence

Anatoly believes that as an individual contributor (IC), he wishes to focus on the development of Firedancer, but in reality, his time is spread across many different projects. He finds that his most significant influence lies in defining problem states, such as the multiple concurrent leader issue or MEV competition issue, proposing solutions, and discussing them with the team to reach consensus.

Cohesion in Design and Implementation

Anatoly emphasized that once a design is recognized, it gradually solidifies as discussions deepen. When the urgency he anticipates begins to rise, the team already has a design foundation, and the next steps are implementation and testing. His role is similar to that of a chief engineer in a large company, primarily responsible for coordinating various teams, helping them solve problems, and reaching consensus.

Solana Phone

Mert asked Anatoly if this means he believes successful individuals like Jack Dorsey and Elon Musk can coordinate and execute simultaneously while launching a phone.

Anatoly's Trust in the Team

Anatoly stated that he does not bear all the responsibility alone; rather, he has an excellent engineer and a great general manager who are jointly responsible for executing the phone project. He emphasized that his role is to set the vision, believing that building a trusted phone platform is possible. He mentioned that the firmware for Android and iOS is encrypted and signed, providing a trust foundation for the entire platform.

Importance of Encrypted Signatures

Anatoly further explained that firmware updates verify signatures, which is key to the overall security. He envisions a scenario where a company like Apple could control encrypted signature certificates through a DAO (Decentralized Autonomous Organization), which would disrupt the existing software platform concept.

Setting Vision and Team Execution

Anatoly pointed out that his job is to set the vision and motivate the team to sell more phones to make the project meaningful and ultimately achieve the goal of the entire ecosystem controlling its firmware. He does not get involved in daily execution work. He mentioned that Elon Musk's approach is to set a big goal and then find an engineer who can complete that goal from start to finish. He believes that if this engineer is given enough funding and time, they can complete the entire project.

Mert's Discussion on Business and Ideals

Mert further explored whether the success of this phone project and its disruption of the existing market would lead Apple to lower its fees. Anatoly believes that this change is aimed at preventing small and medium-sized software companies from paying 30% fees to Apple as if paying a ransom, thus promoting more productivity and software development.

Combining Ideals and Business

Anatoly emphasized that the ideal goals can only be achieved if the project is commercially successful. He pointed out that Apple must see competitive pressure from a growing and commercially viable ecosystem to change its fee structure. Therefore, this project must find product-market fit and maintain self-sustainability. He believes this does not hinder its potential to change the world, as lowering fees will change the market economy, benefiting consumers.

Competing with Apple and Google

Mert asked Anatoly if he believes they have the capability to compete with the world's largest companies—Apple and Google—and what gives him such confidence.

Anatoly's Views on the Market Situation

Anatoly stated that the 30% fee is clearly too high, and this issue has drawn attention from many, including Tim Sweeney's lawsuit against Apple and Google. He pointed out that the "rent-seeking" behavior of Apple and Google has troubled businesses that rely on these platforms for distribution. Consumers do not care about these hidden fees, as 30% of the amount they pay to applications is deducted by Apple.

Challenges of Solutions

Anatoly emphasized that the key to solving this problem lies in how to break the existing charging model, which is essentially a network creation issue. He believes that blockchain technology has advantages in financializing digital assets and scarcity, which differs from the traditional Web2 model. He acknowledged that while this idea has potential, it could also fail.

Reasons for Failure

Anatoly pointed out that the reason for failure is not that application developers do not want lower fees, but rather that effective methods to leverage the incentives provided by crypto technology to expand the network have not yet been found. He emphasized that this is not a product or business model issue, but rather the challenge of truly changing user behavior to make them willing to switch networks.

L1 Business Model

Mert began discussing ZK (Zero-Knowledge) technology, asking Anatoly about Solana's vision in this area. He mentioned that future blockchains may rely entirely on ZK technology, requiring only proof verification without executing all operations on full nodes. He questioned whether Solana has relevant plans.

Anatoly's Explanation of Asynchronous Execution

Anatoly responded that if one looks at his previous writings on asynchronous execution, they will understand his views on validators. He mentioned that multiple validators can share a common prover to verify the state. This means different trust models (like Te or ZK1) can be used, and once applications package the entire asynchronous execution and compute the snapshot hash, this goal can be achieved.

ZK Compatibility with Solana

Anatoly emphasized that fully verifiable ZK packaging is not something Solana lacks. He stated that asynchronous execution allows for computing snapshot hashes, regardless of the trust model used. He pointed out that if users run their own full nodes, the environment used does not affect their full nodes.

Solana's Business Model

Anatoly further elaborated on Solana's survival strategy, which must be commercially viable. He believes that the only business model for L1 is priority fees, which is the same as maximum extractable value (MAV). This means that it is necessary to build rollups that generate their own mathematics and perform external sorting on L1, and these rollups represent a parasitic relationship to L1.

Importance of Competitive Environment

Anatoly believes that these competitive environments are beneficial, allowing each other to improve. He mentioned that like LeBron, excellent athletes want to compete with the best opponents rather than participate in high school leagues. He noted that while other technologies (like SVMs) are also accelerating development, this differs from the core philosophy of the Solana ecosystem.

Differences Between ZK Technology and Solana

Anatoly concluded by summarizing that there are fundamental differences in the application of ZK technology between Solana and Ethereum. He mentioned that Solana's lightweight protocol is excellent because its sorting is done by Solana validators on the Solana mainnet. This mechanism gives Solana a unique advantage in processing transactions and executing smart contracts.

Bandwidth

Mert's Theoretical Exploration of Bandwidth

Mert posed a theoretical example, assuming bandwidth is maximized, latency is reduced, and some extra hardware is added when channels are saturated. If it is assumed that cryptocurrency will indeed increase adoption, what would happen?

Anatoly's Views on Network Saturation

Anatoly stated that even with increased bandwidth, another network cannot be launched because Solana's full nodes have already saturated the bandwidth of every Internet Service Provider (ISP), and others have no more capacity. He emphasized that Solana has "eaten" all available bandwidth.

Relationship Between Bandwidth and TPS

Anatoly further explained that almost every mobile phone globally can achieve 1 Gbps bandwidth, which means that under current low efficiency, Solana's Turbine mechanism can handle 250,000 transactions per second (TPS). He believes this is an astronomical figure, and the bandwidth must be saturated before discussing other issues. He pointed out that Solana is currently lagging 250 times in load and must achieve a 250-fold improvement before considering other issues.

Current Level of Technology

Anatoly emphasized that the 1 Gbps technical standard has existed for 25 years, but Solana has not yet reached this saturation point. He mentioned that while the Fire Dancer team has demonstrated this capability in a lab environment, many other issues need to be resolved in a real commercial environment to effectively utilize this technology.

Mert's Questions about the Competitive Environment

Mert finally asked how Solana can compete in transaction volume, especially if the quality of assets or stablecoins is not high enough, given that Ethereum has higher quality assets due to its existing security effects.

Anatoly's Views on Assets

Anatoly responded that Ethereum's assets could be referred to as "traditional assets," and he believes that new assets need to be launched in large quantities. He stated that this narrative must change, emphasizing that Ethereum is the platform for "traditional assets" to attract new attention and usage.