In November 2022, after the collapse of FTX, crypto assets took a major hit. Solana – a leading Layer 1 blockchain that was closely associated with FTX and Sam-Bankman Fried (SBF) was arguably the worst affected by the crisis. In fact, it was declared dead by most crypto commentators and influencers. Notwithstanding the dire circumstances, the Solana team persevered and continued building. In the 14 months since, the Solana ecosystem has risen from the ashes and revitalized itself with several major technical enhancements, dapp deployments, token launches as well as built a thriving NFT culture on the chain. Its token has taken the market by storm and done a 5x in price in the last 3 months of 2023, giving it a fully diluted market cap of $58 billion.

A brief history of Solana is important to understand its initial association with FTX. Solana was founded by operating systems expert and former Qualcomm engineer, Anatoly Yakovenko, and former Director of Product at Omada Health, Raj Gokal. Solana was part of a cohort of new Layer 1 chains that emerged in late 2017 to tackle the scalability problems that plagued Ethereum in 2017. Solana marketed itself as the fastest Layer 1 blockchain. Solana was fortunate to survive the last crypto winter in 2018 after raising a seed round in 2018 and Series A in 2019. It launched its mainnet in March 2020, but had little traction initially.

Then in August 2020, after DeFi summer happened, FTX founder SBF took an interest in Solana as he was looking for a chain on which they could build a DeFi ecosystem with highly scalable dapps. SBF decided to back Solana and reached an agreement to purchase its token from the Solana Foundation. Between August 2020 and May 2021, FTX and Alameda Research (SBF’s hedge fund) accumulated $58 million of SOL tokens, over 10% of total supply. To put things in perspective, at the peak price of SOL in 2021, their investment was worth nearly $14 billion. Solana did not have a lot of vocal influencers in 2020, and SBF served as their key influencer and garnered attention for the Layer 1. As such, after FTX imploded, Solana suffered a near death experience. SOL holders rushed for the exits causing its price to drop 96% from the peak. This severely dented the Foundation’s treasury, shortening its runway. To make matters worse, many projects building on Solana also had their funds stuck on FTX and many had to shut down. Most people wrote off the chain completely.

To be fair, Solana’s problems started even before FTX went bankrupt. Through 2022, Solana faced 5 major outages even prior to the FTX fiasco as the network was repeatedly attacked by bots. Repeated forced shutdowns made the chain unusable and the community started to lose faith in Anatoly’s tech architectural design choices. Prominent founders and thought leaders called out Solana for their “first come first served” design of processing transactions and claimed that it cannot scale. Solana’s founders believed that a decentralized transaction processing layer should have the properties of a public good and should not discriminate users based on price. To this end, Anatoly devised the chain’s key innovation – “Proof of History” - an internal clock that allows Solana validators to determine the sequence of transactions in chronological order and processes them accordingly. In contrast, Bitcoin’s design choice, which most smart contract networks followed, was to discriminate users based on their ability to pay a higher transaction fee. Those that pay more, get processed faster. While a simple solution to dealing with spam transactions, networks that allow users to jump transaction queues by paying higher fees often see drastic fee spikes, making the chain unusable. In some phases of the bull market in 2021-22, Ethereum transaction fees could cost as high as $50 to simply send tokens to another address. Although Solana does not face congestion issues in the form of high fees, spam transactions could lead to network outages. If the transaction cost on a chain is extremely low, so is the cost to flood the network with spam.

The tech team at Solana rolled out multiple upgrades during2022-2023 and scaled the chain to a higher throughput capacity than before the attacks. These upgrades include:

• QUIC – They migrated the core protocol atop a more efficient communication layer that has receipt acknowledgements and flow control. The transport layer was created by Google.

• Stake-weighted QoS – A spam mitigation upgrade that puts a lower bound on the amount of data that can be transmitted by a node based on their percentage stake in the network. So, a node cannot be censored beyond a certain limit, and this restricts spam. This is an alternative to simple first come first serve transaction processing.

• Local fee markets with multi-threading – Transactions are categorized, and each category is processed in parallel. If one category gets congested, it does not affect the entire network. A fee market has been added as well that allows users to pay a priority fee to skip transaction queues.

• Firedancer – An alternative implementation of the Solana validator client written in C and C++ by Jump. If bugs are identified in the original Rust client, validators can simply switch to Firedancer once its live. Multiple validator and node implementations are good for network robustness. Only 3 protocols have validator diversity - Ethereum, Solana, and Chainlink.

The upgrades are still in the process of being perfected but they have succeeded in 1) increasing Solana’s throughput from 500 to 6,500 TPS and 2) ensuring 100% uptime since the previous outage in late Feb 2023, both of which have revived faith in the network’s ability to scale. An interesting point to note is that according to the Solana team, the network scales with increasing CPU power and faster internet speed of validators. With Moore’s law CPUs get faster, and with Nielsen’s law internet speed gets faster and Solana scales with both.

Comparison of Solana and Ethereum ecosystem’s throughput and gas costs

Comparing fee markets: Solana vs. Ethereum and Others Gas-based Networks

Source: VISA

The relentless efforts of the Solana team appear to have paid off. During the course of 2023, the Solana team has paved the way in blockchain scaling and shifted the narrative for themselves away from FTX. The other core aspect that forms their focus is developer and user adoption. The chain boasts 560K daily active users as of December 31, 2023. Its daily transactions vary between 22-25 million, the highest of any chain. Solana’s total value locked (TVL) sits at $1.35 billion and has shown a steady increase since October 2023.

Solana’s user metrics compared with other high-performance networks

Source: Artemis

Today, the Solana ecosystem has close to 640 dapps deployed, including over 90 gaming projects. Games such as Star Atlas, Hdoki, Stepn, Genopets, and Space Falcon have launched in-game assets on Solana. Stepn is a fitness app that rewards users for walking. The app received significant traction in the first half of 2022 and its token – GMT did over a 10x in April 2022. There are 130+ DeFi apps on Solana, the most popular ones being Drift Protocol, MarginFi, Jito, Orca and Jupiter. Pyth Network (Solana’s main oracle) and Jito (an innovative liquid staking protocol on Solana) launched their tokens in 2023, both of which are trading at multi-billion-dollar valuations. Solana has also become a home for the emerging decentralized physical infrastructure (DePIN) vertical. Render Network – a DePIN project that serves as a marketplace for 3D rendering jobs – has announced their migration to Solana given its low transaction costs and fast confirmation times. Helium, another decentralized wireless protocol has already migrated. We expect DePIN to emerge as a new vertical for blockchain adoption and Solana has an early lead on this front.

In 2021, during the NFT mania of the bull market, Solana had its own NFT culture in which low cost NFTs were rapidly minted and traded. That culture has persisted through the bear market and there are now over 300 NFT and related infrastructure projects on Solana. A novel data compression mechanism has also launched that allows for the minting of over a 100 million NFTs for less than a thousand dollars’ cost. Another interesting update is the launch of a new token standard that allows for custom logics to be introduced in token contracts. The standard is an upgrade from the existing SPL standard, and it is highly likely that we see new use cases unlocked in the coming few months just based on these two upgrades.

Not only has Solana generated its own crypto-native culture driven by NFT projects and DeFi protocols, but also targeted Web 2 giants to accelerate blockchain adoption as payment infrastructure. Solana Pay, an open, free-to-use payments framework has integrated with the likes of Shopify, Checkout.com and Citcon. Thousands of merchants can accept money through Solana Pay, should they choose to. Although adoption on the payments front has been sluggish, all the critical pieces of infrastructure have been put in place by the Solana team for when the advantages of Web 3 (low cost and instant settlement times) are clear to the rest of the world. A breakthrough for Solana was its partnership with Visa, the world’s leading payment network. Visa brought onboard two key merchant acquirers, Worldpay and Nuvei, to open USDC accounts and settle transactions on the Solana blockchain. Visa separately released its own thesis of Solana as a network to settle transactions at Visa’s scale.

Solana has iterated and improved on its tech stack, transformed public perception post FTX, and emerged as a leader in the race to blockchain adoption. Expectations of its underlying technology can be observed in its recent price movement. As the adverse effects of the FTX collapse fade, SOL holders realize the positive effects of the FTX bankruptcy, which is the redistribution of FTX’s SOL tokens as they are sold in bankruptcy proceedings. Concerns of ownership concentration have dissipated, and majority of the sell pressure has passed. The team and ecosystem are full steam ahead for the coming cycle.