Dragonfly Partners: How I Missed the Opportunity to Invest in Solana's Seed Round?

Original author: @hosseeb

Compiled by: Deep Tide TechFlow

Note: On the occasion of Solana's fifth anniversary, Dragonfly Capital partner @hosseeb released a tweet today, reflecting on how he missed the opportunity to participate in Solana's seed round investment at a price of $0.04 in 2018, missing out on returns of over a thousand times. He also attached the original investment memo for nostalgia. Additionally, we have excerpted the discussion between Solana co-founder Toly and Hosseeb in the comments of this tweet.

Here are the original details:

I turned down the opportunity to invest in @solana's seed round at $0.04 in early 2018.

At the current price, that amounts to a missed return of 3250 times.

Solana was one of the first projects I evaluated as a junior VC. Back then, I was adorably naive and confident, writing memos for every project I passed on.

Re-reading this memo now is like "peak junior VC cringe." At that time, we were all obsessed with finding the "Ethereum killer," studying consensus protocols, and what technology would replace EVM/eWASM.

So, here is the completely unedited original memo ------ my worst investment MISS of my career.

Happy birthday, Solana! 🎂

Memo Content

1. My notes after reading the white paper:

• Their major innovation is Proof of History (PoH). Essentially, this is a verifiable delay function that uses continuous hashing, similar to sequential proof of work. In other words, a timekeeper is selected, who continuously iterates hashing a certain value and publishes all intermediate hash values. Since this process must be executed serially on a single core and cannot be parallelized, nodes should be able to predict the amount of time that has elapsed between consecutive hashes (probably based on their understanding of hardware performance?).

• PoH nodes will also mix any current state (such as transactions to be submitted) into these hashes. This allows for the creation of an event history that can be reliably timestamped.

• If a PoH node has issues or cannot guarantee being online, they proposed a solution where multiple PoH nodes periodically mix states with each other.

• A set of validator nodes will replay and verify the operations of the PoH nodes (the verification process can be made more efficient through a MapReduce architecture). These validators reach consensus using PoS through a protocol similar to Casper. If a PoH node is found to have Byzantine issues or misbehaves, the validator nodes can elect a new PoH node to replace it.

• It seems they will develop payment and smart contract functionalities.

• They claim to achieve 710,000 TPS and have reached 35,000 TPS on a single-node test network.

1. My thoughts:

• Their numbers are completely ridiculous. 710,000 TPS is laughable; even Google's search volume is less than 100,000 per second. This data is prominently displayed on their website, which makes me very cautious.

• I retract my earlier praise for the white paper's writing quality. The high-level content is fine, but the technical details are severely lacking and vague. As a description of a consensus protocol, the rigor is disappointing.

• The team is primarily composed of low-level engineers from Qualcomm. The CEO and CTO mainly work on operating systems, embedded systems, GPU optimization, and compilers. Their background in distributed systems and cryptography is clearly insufficient, which is evident in the paper. Their handling of Byzantine fault tolerance issues is poor. It reminds me of the Raiblocks/Nano white paper (which also came from low-level engineers).

• And the content in the white paper raises doubts for me:

[Original Solana white paper, Section 5.12]

"PoH allows network validators to observe past events and their timestamps with a degree of certainty. When the PoH generator produces a stream of messages, all validators need to submit their signatures on the state within 500ms. This value can be further reduced based on network conditions. Since each validation is input into the stream, everyone in the network can verify whether all validators submitted their votes within the specified timeout without directly observing the voting process."

• This is not a consensus protocol. Assuming a 500ms limit on message passing for consensus is quite problematic and does not meaningfully achieve Byzantine fault tolerance. Moreover, how do they measure 500ms? Considering they will estimate the passage of time based on the number of iterative hashes executed, how can other nodes in the system reach consensus on the passage of 500ms? Additionally, how will they address deviations in clock speed over time due to hardware improvements, failures, or noise? Time issues in distributed systems are very complex, and I don't think they realize how difficult it is.

• Besides, who cares about time? Is this a major issue in the blockchain space? Are people not satisfied with block time granularity of 15 seconds/1 second (like DFINITY and similar projects)? I don't think it's a problem; the complexity and confusion they introduce in the protocol don't seem to add much value.

• They have a section dedicated to discussing attack and incentive misalignment issues. Their responses to attacks are completely unconvincing and similarly lack rigor or detail.

• They have an entire chapter discussing proof of replication, just like Filecoin. What is going on? Tell me about your consensus protocol and how transactions and accounts are implemented, what features your blockchain will have. I don't care about data storage proofs.

• There is also a long section that starts to describe smart contracts but only mentions that they will use LLVM as a backend to support multiple platforms. But nothing else is mentioned.

• A lot of content about GPUs and parallelization. This reveals a strange focus ------ if they need to implement a BFT consensus protocol and a usable smart contract platform, they shouldn't be obsessed with the parallel processing of their packet formats. I remember they did the same in the presentations I watched ------ spending most of the time discussing how to optimize processing with these nodes, and hardly any time actually describing their consensus protocol.

Conclusion: I would absolutely not invest in this project

Interestingly, five years later, when Haseeb @hosseeb tweeted to congratulate Solana for successfully establishing a place in crypto and joked about how his younger self missed a big opportunity, Solana co-founder Toly @aeyakovenko replied to this tweet: "All your concerns back then were indeed reasonable. Essentially, it was a bet ------ betting on whether we could solve these issues while maintaining the underlying advantages that other teams do not have."

Haseeb then replied to Toly: "I think that's the lesson here. Your obsession with underlying optimization and unique attack angles is something other teams lack. This kind of maximizing strengths while minimizing weaknesses is what matters most. I had no awareness of this at the time."