What does Solana’s future look like?
Disclaimer: The Expert Opinion section presents their opinions crypto industry players and is not part of Cryptonews.com editorial content.
This article is signed Valente manualResearch Director Mint.
Solana is a blockchain based on the concept of smart contracts to create decentralized applications. It is often classified in the category of Ethereum-killers, i.e. blockchains that have the same characteristics as Ethereum but offer more advanced performance and features than their common ancestors.
Solana emphasizes very high performance: in theory, it can process up to 65,000 transactions per second, compared to about 20 for Ethereum. For this, it uses a transaction verification mechanism called “Proof of History” in parallel with “Proof of Stake” used by most modern blockchains. Proof of History allows scheduling transactions with a latency of less than one second, a particularly innovative security mechanism.
When launched in 2020, Solana became a rapid success thanks to these features, the team managing the project was able to raise just over $20 million in SOL token sales, notably from Muliticoin Capital. Solana Labs is the sole contributor of the project’s computer code, which has meant centralization issues since the project’s inception.
The initial distribution of SOL tokens is extremely focused on project managers and early investors who bought all 450 million tokens issued. Since the launch of the project, the staking mechanism has enabled the distribution of tokens, but only 12% of the circulating tokens are currently in the hands of the community. Again, this situation indicates a highly centralized project.
But the real financial health of a project competing with Ethereum lies in decentralized applications and their use. At most Solana has only ever accounted for 3% of funds invested in decentralized finance projects, projects like Marinade Staking and Orca are never taxed on the market. If the total amount of funds invested in 2021 can reach 10 billion dollars, it is only a few hundred million at the moment and is less than 1% of the funds invested in decentralized finance.
Several competing Ethereum projects, such as Avalanche, are EVM-compliant, meaning that the Ethereum smart contract can be used as is on their blockchain. This means that a service like Aave can easily be ported to these networks. This is not the case with Solana, and a project that wants to exist on this blockchain will have to completely reprogram smart contracts specifically for Solana. Currently, no major decentralized finance project is willing to undertake this effort.
Finally, Solana tried to establish himself in the NFT market, but never managed to build a significant collection in this field. Worse, two major NFT projects, DeGods and Y00ts, left the ecosystem to move to Polygon, which could be seen as a sign of doubt about Solana’s viability.
Solana is also a blockchain where technical problems accumulate. Thus, during 2022, there were at least four complete outages of the blockchain, some of which lasted for about 24 hours.
Most of these outages were due to unplanned overloading of the network, calling into question the claim that the network could handle a much larger load than Ethereum.
The project leader confirmed that these cuts are the real problem on which he will focus his efforts. But it’s clear that when Ethereum has been operating since 2015 without the slightest hitch, that gives it a certain edge.
Last issue, Solana was embroiled in FTX bankruptcy turmoil when it was discovered that FTX and Alameda Research owned more than 50 million SOL and Solana’s fund had more funds tied up in FTX than company stock. This unexpected closeness also led to a collapse in the SOL price during November 2022.
At the time of writing this article, we searched unsuccessfully for reasons behind Solana’s strong return to the forefront of the cryptocurrency scene. Problems have piled up in the project and for the moment it is really losing ground compared to its competitors. Of course, a return to favor could occur during 2023, but there is little sign of renewed interest in this project at the moment.
Possible signs to watch for renewed interest in Solana could be announcements of interesting technical developments, especially features that differentiate it from Ethereum, as well as renewed interest in decentralized finance projects based on this blockchain.
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