With so many developments in the rapidly expanding industry of DeFi — short for decentralized finance — it’s challenging to keep track of the most promising networks.
In the race to become the ultimate DeFi network, the Solana ecosystem is emerging as a low-cost, high-speed competitor to Ethereum and others, with (yet) unmatched transaction throughput. These qualities, paired with peak composability, make the network a good alternative for both veteran developers and beginners looking to experiment with smart contracts and NFTs (non-fungible tokens).
What is the Solana ecosystem and what are the most notable projects building on it? We’ll analyze the reason behind its success as well as its perspectives for future adoption. This Forkast.News explainer will explore:
- What is the Solana ecosystem?
- How does the Solana ecosystem work?
- The advantages and disadvantages of the Solana ecosystem
- Notable projects
- The future of the Solana ecosystem
What is the Solana ecosystem?
Solana is the world’s first web-scale, open-source blockchain protocol, that enables developers around the world to build decentralized applications (dApps) on its ecosystem. Presently, Solana is capable of 50,000 TPS (transactions per second), making it the world’s fastest blockchain. Having the necessary security, censorship-resistance, and cost-efficiency required for world-class dApps, numerous developers and institutions are choosing to build on its ecosystem.
The Solana ecosystem refers to a suite of technologies that work synergistically with the protocol to boost its speed and scalability, and to a collection of dApps that are built on Solana’s open infrastructure. Anyone can start building on the ecosystem, thanks to its open protocol and suite of developer resources.
The ecosystem currently hosts about 500 dApps, but the network’s explosive growth indicates that this number is on a steady rise. Following the increased demand for DeFi (decentralized finance), Ethereum, the world’s leading open network, was plagued by network congestion that led to high gas fees. This drove more developers to Solana’s lightning-fast layer-1 solution, thanks to its average transaction cost of $0.00025 and 429-millisecond block finality.
How does the Solana ecosystem work?
To reach its peak scalability, Solana employs what it calls eight “core innovations” that make it the world’s first web-scale blockchain ecosystem. These computational technologies support thousands of node operators, allowing for transaction throughput to proportionally scale with network bandwidth. Solana’s throughput has previously seen peaks of 400,000 TPS.
The network’s consensus mechanism is unique compared to Bitcoin’s proof of work or Cardano’s proof-of-stake models. Solana employs a combination of proof of stake (PoS) and proof of history (PoH) consensus mechanisms to improve throughput and scalability.
PoH is not an actual consensus mechanism but works as a clock before consensus. It is a cryptographic clock that enables nodes to agree on the time order of on-chain events, without having to talk to each other — since each node has its own cryptographic clock. As PoH stores historical records of transactions, the system can order events and keep track of them much faster. You can think of it as a decentralized clock securing the network. This is what enables Solana’s ecosystem to reach consensus at industry-leading speed.
Solana’s PoS consensus model is reinforced by Tower BFT (Byzantine fault tolerance), another one of Solana’s eight core innovations. Tower BFT enforces a decentralized, universal source of time across the network via PoH, which is a permanent reference for each node supporting the network.
Tower BFT leverages PoH to reduce the processing power necessary to reach consensus — since the timestamps of the previous transactions don’t need to be processed. On traditional PoS networks, verifying timestamp accuracy requires a great deal of processing power and time. Tower BFT also enables the network to reach consensus, despite potential attacks from malicious node operators.
Another crucial element of the ecosystem is Sealevel, Solana’s transaction parallelization system that enables parallel smart contract runtime. Sealevel optimizes the network’s resource usage and enables horizontal scalability across graphics processing units (GPUs) and solid-state drives (SSDs).
Lastly, Gulf Stream — Solana’s mempool system (contraction of memory and pool) — forwards transactions to validator nodes before the previous set of transactions was even finalized. This mempool-less transaction forwarding protocol helps maximize transaction confirmation speed, as well as the concurrent and parallel transaction capacity of the network.
The advantages and disadvantages of the Solana ecosystem
Solana, a so-called “Ethereum killer,” allows developers to rapidly experiment and deploy apps using composable building blocks. This level of composability isn’t possible on Ethereum without having to deal with additional friction caused by layer-2 scaling or sharding solutions. We’ll explore the main advantages and disadvantages of the Solana ecosystem below.
Advantages
Industry-leading speed
As the first truly web-scale blockchain, Solana claims to support over 50,000 TPS secured by just 200 nodes — making it the fastest blockchain network. Solana achieves this high throughput without relying on layer-2 scaling and sharding solutions. In comparison, the Ethereum network only averages about 13 TPS, making Solana around 3,800 times faster than the largest smart-contract platform.
Scalability
Solana arguably has the most scalable blockchain ecosystem in the market at the moment, thanks to its protocol. The company’s current roadmap envisions 1 million TPS and 150ms block times for the future.
Cost-efficiency
Solana is one of the cheapest ecosystems for developers and DeFi enthusiasts, averaging US$0.00025 per transaction, whereas Ethereum averages US$6.85 per transaction. Benefiting from Solana’s low fee structure, a US$1 million transaction would cost about US$10 in fees, whereas the same transaction would cost approximately US$300,000 in gas fees on Ethereum.
Disadvantages
The Solana mainnet is still in beta
Solana is still a young project, having only launched its mainnet in March 2020. Despite offering complete functionality, the mainnet is officially still in beta, to mark that the team is still working on improving the network’s features and stability.
Inconsistent transparency reports
The Solana Foundation had been issuing monthly transparency reports to shed light on the previous month’s token activity as well as the next month’s expected activity, and other updates related to SOL. This transparency report hasn’t been disseminated since December 2020, which may be a sign of concern for investors. The Solana Foundation hasn’t made a public statement about the reason for the discontinued reports.
Centralization concerns
Compared to the Ethereum network’s 241,275 validators, the Solana ecosystem is only secured by 1060 validators, at press time. This can partly be attributed to the high hardware requirements for running a validator node on Solana. Regardless, this makes Solana less decentralized in comparison to Ethereum.
Another concern regarding the ecosystem’s decentralization is the SOL token distribution. The Solana Foundation community fund holds 38.89% of the total SOL supply, giving them sole custody of these tokens. In contrast, the Cardano foundation only kept 20% of the initial ADA supply for technical and business developent incentives.
Most notable projects
A peek into the Solana ecosystem will reveal that numerous leading blockchain and crypto projects are leveraging Solana’s open protocol. Let’s take a look at the most notable ones.
DeFi
Serum
Serum is the Solana ecosystem’s non-custodial DEX (decentralized exchange), known for its high-speed order flow. What makes Serum stand out is its decentralized, highly scalable matching engine, enabling it to power an entire ecosystem of interconnected exchanges. Any dApp on the Solana ecosystem can connect and supply liquidity to Serum and receive the liquidity from all other dApps connected to the DEX. It also supports cross-chain asset swaps, stablecoins, and decentralized oracles.
Serum is on a quest to decentralize the entire DeFi stack of the Solana ecosystem, by making it faster, cheaper, and more robust. Serum’s symbiotic design is important for the Solana ecosystem and its native token SRM is gaining traction among DeFi enthusiasts — partly because it was developed by FTX and Alameda Research.
Raydium
Raydium is an AMM, short for automated market maker, and an on-chain liquidity provider for Serum — the ecosystem’s exchange. Raydium is directly connected to Serum’s central limit order book and the liquidity providers also have access to the liquidity and order flow of Serum. In exchange for providing liquidity, Raydium gets a 20% cut of the DEX fees.
Raydium and its native token RAY are essential in bridging new projects with Serum and the Solana ecosystem. It can be used for liquidity farming, staking, and swapping tokens.
Mango Markets
Mango Markets is an open-source trading, borrowing, and lending platform focused on maximizing capital efficiency — by offering the first fully on-chain perpetual futures order book and spot margin trading based on Serum. Mango offers the lowest fees in the Solana ecosystem.
Mango Markets has a unique risk engine, making every asset cross-collateralized and usable for collateral for opening leverage positions. Open interests, deposits, and collateral also earn interest, meaning that traders may earn interest on their open positions. The trading tool aims to merge the liquidity and usability of CeFi with the permissionless innovations of DeFi. Its native token, MNGO, is a governance token that grants holders voting rights in Mango Markets’ DAO governance structure.
Wallets
Phantom
Phantom is the ecosystem’s go-to, non-custodial wallet, enabling safe crypto transactions, token swaps, and staking. To provide a user-friendly alternative to beginners, Phantom also offers a browser extension, so users can easily interact with the Solana ecosystem.
Phantom recently completed a US$9 million series A funding round led by Andreessen Horowitz to further improve the Solana user experience and develop a better Solana bridge to Ethereum and other layer-2 scaling solutions.
Solflare
Solflare is another one of the ecosystem’s three most popular wallets. The non-custodial wallet is available for PC and Mac users as a browser extension, and as an app for smartphone users. Solflare is also user-experience focused, enabling safe storage, transactions, token swaps and staking on the Solana ecosystem.
At press time, the Solflare wallet holds over 23% of the circulating SOL supply.
Sollet
Sollet is a web-based, open-source wallet for developers and advanced users of the Solana ecosystem. Sollet enables users to safely send and receive funds, as well as interact with the dApps on Solana. For beginner users looking for the best customer support, Sollet recommends using Phantom or Solflare instead.
Stablecoins
Tether (USDT)
Tether, the most popular and largest stablecoin by market capitalization, is integrating with the Solana ecosystem to bring unmatched transaction speed and cost efficiency to its users. Once the technical integration is complete, Tether will benefit from Solana’s +50,000 TPS throughput and transaction fees as low as US$0.00001.
USD Coin (USDC)
Circle’s USD Coin, the second-largest stablecoin by market capitalization, is natively integrated on the Solana mainnet — enabling fast and cost-effective transactions via Solana’s blockchain.
NFTs
Solanart
Solanart aims to be the first fully-fledged NFT marketplace in the Solana ecosystem. With user-friendliness at the forefront, Solanart enables users to connect their SPL wallets and seamlessly explore, buy, and sell digital collectibles.
Solsea
Solsea claims to be the first NFT marketplace that enables creators to choose and embed copyright-licenses when they mint NFTs. Solsea benefits from the same low-cost, high-speed transactions as the rest of the Solana ecosystem. Solsea is undergoing its biggest update yet, at the time of writing.
Games
Star Atlas
Star Atlas is a play-to-earn game with its blockchain-driven, massively multiplayer online metaverse built on the Solana ecosystem. The space-themed game has a dual token economy with ATLAS as the in-game currency and POLIS used as the governance token for the game’s DAO (decentralized autonomous organization) structure. Players are rewarded for their effort with ATLAS tokens and NFTs.
Star Atlas is building a true metaverse with an open economy, where players have absolute freedom and earn money playing. While the full game is still in development, a light version of Star Atlas is set for release sometime in the fourth quarter of 2021.
Aurory
Aurory is a gaming project with play-to-earn mechanics, built on the Solana ecosystem, with its in-game marketplace powered by Serum. The fantasy game is still in development, but it will feature both a PvP (players vs. player) and PvE (players vs. environment) game mode, where players will be rewarded with NFTs and Aury — the in-game currency, that will be an SPL token.
Besides the above-mentioned most popular gaming projects, the Solana has a host of less popular games being built on the ecosystem.
Other notable projects
Audius
Audius is a decentralized, artist-controlled, and community-owned music-streaming platform, aiming to give back power to the users. Audius integrated with Phantom to bring Solana NFTs to its platform, having chosen to migrate to Solana’s protocol due to its speed, low fees and censorship resistance.
Arweave
Arweave is a new type of blockchain-powered, permanent storage solution, and the home of the permaweb — a decentralized, community-owned web, where information lives forever. Arweave partnered with Solana to provide a data storage solution of ledger data, ensuring the data will always be retrievable.
Blockchain-based Service Network (BSN)
China’s BSN is a cross-cloud, cross-portal and cross-framework global public infrastructure network for deploying and operating dApps. BSN partnered with Solana to provide convenient access for developers working in BSN’s infrastructure.
The future of the Solana ecosystem
Solana has come a long way since its mainnet launch in March 2020, attracting numerous notable projects to the ecosystem — thanks to its scalability, high throughput, and sub-penny fees. This is reflected in SOL’s price action: the token rallied over 100% during August and in November hit an all-time high of US$249.65, according to CoinGecko.
On September 14, Solana tweeted about experiencing intermittent instability, after a massive increase in transaction load, peaking at 400,000 TPS. This caused the blockchain to start forking while making some validator nodes go offline. The validator community opted to restart the network to fix this issue, leading to a 25% price drop for SOL. How Solana will overcome these growing pains will determine the integrity of the ecosystem.
Ignition 2021 — a worldwide virtual hackathon with up to US$5 million in prizes and seed funding — culminated on 8 October. The hackathon encouraged developers to build the future of Solana on four tracks: DeFi, Web3.0, Gaming, and Art/Collectibles. Ignition 2021 was Solana’s highest-output hackathon so far, producing 568 project submissions and five winners for each track, funded to enrich the ecosystem.
There is more positive news surrounding the ecosystem as well, like the announcement of Breakpoint — the first conference organized by the Solana Foundation to celebrate the accomplishments of the community. Starting on Nov. 7, 2021, the four-day event will likely hold key announcements related to the future of the Solana ecosystem.
As high gas fees and network congestion are plaguing Ethereum, more projects are choosing to build on Solana’s cost-efficient protocol. And with the merge of the Ethereum mainnet with the beacon chain’s PoS system estimated for 2022, ETH 2.0 is a long way off from solving the network’s issues. In the meantime, the Solana ecosystem has the potential to gain market share to put it among the top smart-contract platforms of the future.