The performant chain thesis: Part 1
Note: This is a personal opinion piece and reflects my understanding of how decentralised, permissionless, and high-speed, low-fee chains with a thriving ecosystem can generate immense value while being sustainable.
Questions
• How does the chain/token accrue value?
• How is this different from the existing ways ecosystems/chains are valued?
• What did Solana do that was special?
There’s an ongoing debate about the most optimal, secure, and decentralised way to scale a blockchain and explore architecture that is truly ready for mass adoption. We have rollups that can scale the base layer by executing transactions offchain and posting the batch of transactions on the base/settlement layer such as Ethereum - the approaches here may vary from optimistic rollups to using zk and more. Next, we have the monolithic/integrated blockchain design that believes blockspace is an infinite resource and is a function of constantly improving hardware enabling the network to process transactions at extremely cheap/negligible fees. We also have modular chains like Celestia that separate consensus and data availability from execution allowing developers the flexibility to choose their own stack. For the purpose of this essay, I will restrict it to my analysis of why I think a base layer scaling is much more valuable than some of the other approaches and the unlocks this enables. The performant chain thesis assumes that being a highly scalable chain, with negligible fees to deploy/execute code and deliver services enables builders/developers with the ability to focus on product and consumer applications that scale without needing to direct an extended amount of resources and efforts towards contract optimisations for lower gas fees. This also means that the base layer is not extractive by nature and promotes abundance of resources available for consumption and access, enabling unique use cases that aren’t resource constrained and facilitate greater opportunities for the app layer to be much more profitable than the base layer
How is Solana best described? A single global atomically composable world computer that seamlessly runs concurrent applications and synchronizes state globally at the speed of light.
This enables Solana to compete with web2 counterparts and unlock a 100x experience onchain with property rights, permissionless access and speeds equivalent to if not superior.
Understanding the Solana Ecosystem
The Solana ecosystem is ripe with unique products and innovative solutions that leverage it’s speed and low costs to enable property rights, access to sophisticated financial products, develop unique coordination mechanisms with DAOs, Depin networks, network states - ready to onboard the masses onto an ecosystem that has more things for a user to do then just be a bag holder Solana currently uses protocol-based rewards that are generated from inflationary issuances from a protocol-defined inflation schedule and the remaining through transaction fees. As with any product/network, one can assume (and this is true) that a fair amount of current participation in network validation would be incentivised by the inflation (protocol reward issuance) with the goal of eventual scale (number of users and fees paid) to be more than sufficient incentive to offset issuance based rewards. This is in essence the counter to the existing prevalent thesis of building networks that are Day 1 extractive under the guise of generating fees to pay for validators and transactions. Ethereum has had a whole cycle worth of a head-start on Solana, allowing it to build the necessary liquidity, demand, and ecosystem products that can generate sufficient fees through volumes. Solana also has priority fees and burns 50% of all transaction fees to help build the economic value of the SOL token and maintain network security. The idea is that with scale and millions of users regularly transacting onchain as they would with any consumer app (financial or otherwise), the network will generate sufficient fees without compromising user experience. Priority fees also enable dapps/users to prioritise certain transactions that might be time-sensitive and skip ahead in the queue to get included sooner without spiking global fees across the network. There’s also the need to ensure the chain has a healthy ecosystem of products for users to care about enough to naturally find the need to own the native currency (SOL), Stables, or other SPL tokens. Solana has a wide range of ecosystem teams building innovative tools and products that have kickstarted the flywheel. Some of the teams I am most excited about include @drip_haus, @exchgART, @JupiterExchange, @jito_sol, @marginfi, @Kamino_Finance, @DriftProtocol, @ZetaMarkets, @Backpack, @phantom, @Claynosaurz, @tensor_hq, @MadLads, @Parcl, @getcode, @helium, @rendernetwork, @ionet_official, @FlashTrade_ and more.
A lot of these teams are yet to also drop their token.
Why is that important? The wealth effect on an ecosystem when fresh money is distributed into the hands of active participants and contributors is massive. The teams now have sufficient capital to keep innovating, the freshly dropped token gets integrated across the defi ecosystem and is immediately a productive asset for holders to borrow & lend, it also creates the necessary wealth for users to now consider spending on items - such as high value NFTs. A few good examples of tokens that created a fair amount of wealth for its recipients over the last year are @bonk_inu and @jito_sol
Bonk started as a meme token that launched at the bottom of the bear market, during some extremely tough times for the Solana ecosystem. Airdropped to builders and developers within Solana it enabled them to continue building and ride out the bear. At peak prices, the airdrop was worth over $100k+ and for builders especially from emerging markets this was a life-changing opportunity.
In December 2023, we had the Jito airdop. The eligibility criteria for the Jito airdrop was simple. All you needed to do was hold JSOL the LST for their staking protocol, or use it within the Defi ecosystem. Each JSOL represents 1 staked SOL and accrues MEV-powered staking rewards. The distribution of the airdrop was fairly unique since Jito decided to reward smaller accounts disproportionately and the lowest tier airdrop value ranged upwards of $15k. In simpler terms, even holding a few JSOL tokens would mean you were eligible for a fairly generous airdrop. This is a great example of ecosystem led growth that can power network wide demand and adoption.
With the massive success of Bonk and Jito, it was obvious that the next wave of products and teams on Solana that continued building through the bear and haven’t yet launched a token were next in line.
This saw a resurgence in user activity across various products and encouraged even more teams to announce POINTS to ensure there’s a clear and ongoing feedback loop with community members. POINTS are one of the more transparent ways I've seen this industry actually map contributions versus vague snapshot terms that are almost always an afterthought. It isn't entirely without its flaws but it’s a step in the right direction. This would not be a complete analysis if I did not capture @SuperteamDAO and its contributions to the Solana ecosystem.
Superteam is a global community of talent-building, contributing, and earning within the Solana ecosystem. High-quality producers shaping the future of permissionless, decentralised tech. In a little over 2 years Superteam members have earned close to $3M. You can read more about superteam here:
Website: https://superteam.fun
Earnings dashboard: http://earnings.superteam.fun
Reputation dashboard: http://reputation.superteam.fun
In hindsight, it’ll be extremely obvious that Solana’s social layer, culture, and builder ecosystem was always special and is the primary reason why the chain was able to survive the absolute worst conditions. I expect more chain ecosystems to be able to learn, adopt, and find their own unique ecosystem edges and culture with time and there’s plenty to takeaway from Solana’s journey.
Having said this, Solana is just getting started and there’s a lot of work yet to be done.