The world of smart contracts is all about speed. And when it comes to speed, there is no project like Solana. Some call it the next Ethereum killer, while others already call it an Ethereum killer. But no matter which group you fall into, one thing is sure: Solana delivers the fastest and cheapest transactions.
Cryptocurrency users want the transaction times of Visa, Mastercard, and other payment processors. Why else use crypto for payments if you need to wait 10 minutes in line before you can leave the store? Even in non-digital use cases, the speed at which a blockchain confirms transactions is as important as security or decentralization.
But do the tokenomics warrant Solana’s extravagant NFT market, a rich dApp ecosystem, or a potential payments chain? Let’s find out.
What Is Solana?
Solana is a decentralized blockchain network powered by smart contracts that enables developers to build decentralized applications. It represents one of the largest dApp ecosystems in crypto, and it hosts the second-largest NFT market.
Solana is the first blockchain to achieve scale by using a novel proof of history consensus mechanism that validates transactions without mining. This allows for the development of high-performance applications that can process over 10,000 transactions per second.
The Solana team is led by co-founder and CEO Anatoly Yakovenko, who has a strong background in both software engineering and entrepreneurship. Anatoly was the co-founder of Alescere, a VOIP startup. He also has experience as a software engineer at Qualcomm and Dropbox.
The rest of the Solana team is equally impressive, with backgrounds in mathematics, physics, computer science, and engineering. The team has a deep understanding of the challenges that need to be solved in order to build a high-performance blockchain protocol. Notable members include: Raj Gokal, Mable Jiang, and Patrick von Felten.
The Solana protocol has been under development for over four years and has been tested extensively. The team has released a number of open source libraries and tools that allow developers to build applications on the Solana platform.
Solana is still in development, but the team has already released a number of impressive products and has a clear roadmap for the future. The Solana protocol has the potential to be a game-changing technology that enables the development of high-performance decentralized applications.
There are some concerns surrounding Solana's level of decentralization due to its consensus model. PoH's major drawback is that nodes vote on new blocks and transfer those votes to so-called leaders. leaders then collect votes and sign off the block themselves. The norm in most blockchain is that validators confirm blocks and then nodes decide whether they agree with the new block’s legitimacy.
Solana (SOL) Tokenomics Explained
SOL is Solana’s native token. You use SOL to pay transaction fees and interact with various dApps. You can also earn SOL by contributing to the network by being a node or validator. The tokenomics behind SOL revolve around scalability and security.
Solana distributed SOL tokens during the course of five funding rounds. Four of the five funding rounds were private sales. Three of the sales occurred during 2019, from which the team raised $20 million in capital. The rounds were joined by Multicoin Capital, BlockTower Capital, Rockaway Ventures, and others.
According to an announcement, the team used the capital to fund engineering and project management. The team did not disclose how many tokens the private investors have gained from the sales.
The fourth and final private sale took place in 2020. The team raised $4 million from a public auction sale hosted by CoinList.
The initial distribution of SOL tokens is as follows:
15.86% to Seed Round investors
2.63 to Founding Sale investors
5.07% to Validator Sale investors
1.84% to Strategic Sale investors
1.6% to Public Auction Sale investors
12.5% to team members
12.5% to the Solana Foundation
38% to the Community reserve fund (managed by the Solana Foundation)
SOL has a market cap of $12 billion. It has a circulating supply of 354 million tokens and a total supply of 508 million tokens. The token has a dis-inflationary emission rate and is expected to reach 700 million by 2030.
Some investors are not amused by Solana’s distribution because VCs and other private investors hold a large share of SOL’s supply. This problem raises additional questions as to whether Solana is truly decentralized. Moreover, the number of validators is small compared to other smart contract networks, like Ethereum.
SOL Use case
The SOL token has two use cases: staking and dApps.
You can run a validator with SOL or delegate your tokens to a validator to receive rewards. Like many PoS networks, Solana emits tokens to reward you for securing the network. Current APY rates for staking SOL ranges between 5.5% and 6.15%. Yields are proportional to the amount of capital being staked.
DApps represent the second use case. The main utility behind SOL is paying for gas fees when executing any transaction – including when interacting with a dApp. Much like ETH, SOL is the main currency within Solana’s ecosystem that people use to pay for various products and services. For example, you pay trading fees with SOL when using a DEX like Raydium. All Solana NFTs are also denominated in SOL.
Therefore, by investing in SOL, you invest in the ecosystem that it represents. Factors such as network activity, dApp TVL, and NFT activity heavily influence the value behind SOL. And the reason why SOL is so attractive in the first place is that people enjoy the network's cheap fees and extremely fast transactions.
Solana is a popular blockchain network featuring smart contract functionality that represents a major hub for dApp and NFT activity. Investors love Solana for its high transaction throughput and low transaction costs.
SOL is the native token on Solana that you use for paying for various products and services. You also pay gas fees in SOL whenever you send a transaction. And you can earn SOL by staking it or by running a node and earning staking rewards.
There are various concerns regarding Solana’s tokenomics. First, private investors and VCs own a large portion of the token’s supply. Secondly, the network’s validators are not as diverse compared to other networks. They’re small in number as well.
But despite these issues, Solana succeeds in delivering a fast and cheap ecosystem. The tokenomics might improve in the future as VC holders distribute their tokens to retail investors. The number of validators will surely increase as the network grows, helping out with the project’s centralization issues.
If you enjoyed reading this article about Solana, I recommend reading the following articles:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.
Binance Smart Chain’s elusive PancakeSwap became quite popular among DeFi investors, reaching a level where it competes against traditional DEX options like Uniswap and SushiSwap. Did PancakeSwap rightfully earn its fame and if so, how?
What is Yearn Finance and what makes it the best yield farming protocol in town? Andre Cronje’s creation has progressed far in the world of decentralized finance and many believe that his ecosystem will flip most of DeFi.