The Road to Solana's Revival: Analysis of Key Indicators and Driving Factors

Introduction

In December 2022, the Solana ecosystem experienced a significant setback, with the price of $SOL plummeting 96% from its peak of $260 in November 2021 to $9.6. However, this was not the end of Solana's journey. Over the past year, developers have remained committed to the platform, actively developing and launching innovatively designed protocols. As a result, the price of $SOL has shown resilience, rebounding to the current $71, with the total locked value (TVL) also recovering from $210 million in December 2022 to $812 million.

This report will explore the key factors driving the recovery of Solana.

Features of Solana

Although this article will not delve into the technical advantages and innovations of Solana, it is worth noting that the success of a public blockchain largely depends on its underlying technical architecture. Therefore, we will briefly describe the technical characteristics of Solana and the advantages it brings.

Solana adopts the Proof of History ( mechanism, which is different from the commonly seen Proof of Work and Proof of Stake blockchains. This allows nodes to reach consensus on the sequence of events without having to communicate with other nodes. This unique approach enables the Solana network to achieve network throughput and timeliness that are different from other blockchains.

In addition, unlike Ethereum, which charges fees for each on-chain transaction and burns a portion, the Solana network employs an additional method. It charges project developers a state rent and validator voting fees. This strategy reduces the reliance of token prices on transaction frequency while increasing the cost of deploying smart contracts, potentially decreasing the prevalence of fraudulent smart contracts on the network.

Overall, Solana features high transaction throughput, low transaction fees, and fast block confirmation times.

Solana, which has been criticized for network centralization, has made substantial progress in decentralized infrastructure. The network has expanded its reach by integrating more nodes globally, currently operating approximately 3,000 nodes across 392 different data centers in 31 countries. This expansion can be assessed using the Nakamoto coefficient, which measures the minimum number of independent entities required to potentially shut down blockchain operations. This coefficient is commonly used as an indicator of the degree of decentralization of a blockchain, with higher scores indicating greater decentralization. Currently, Solana's Nakamoto coefficient is 21, surpassing Bitcoin and Ethereum's 2, Binance's 8, Polygon's 4, and Cosmos's 7, demonstrating significant progress in enhancing decentralization.

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Current Status of the Developer Community

After the bankruptcy of a certain trading platform, the number of developers within the Solana ecosystem remains high, and development progress is active. According to a developer report from a certain organization, the number of active developers in the Solana ecosystem was approximately 2,540 in March 2023, slightly down from the peak of 2,648 in December 2022. Most developers still remain in the Solana ecosystem despite the panic. As the user base of certain related applications gradually decreases, new high-quality projects such as Jito, MarginFi, and Backpack are emerging. Since March, the number of developers working on Solana has declined. However, the developer report indicates that this decline mainly occurs among part-time developers. The number of full-time developers remains relatively stable, indicating that core development activities in the Solana ecosystem continue.

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Capital Activity Analysis

When we exported the $SOL trading data from the data platform for the past year and compared it with the TVL data of the Solana ecosystem during the same period, it is clear that the outflow of assets is slower than the decrease in token prices. It is particularly noteworthy that during the time when a certain institution was approved to sell its staked $SOL assets multiple times, ) was often associated with peaks in trading volume in the chart (, while the token price showed a steady upward trend. This indicates that the Solana ecosystem is overcoming the negative impacts of a certain trading platform's bankruptcy, and the market holds a positive outlook on the future development of the Solana ecosystem.

Now, let's take a look at the flow of these assets in the Solana ecosystem. The top two protocols by TVL are liquidity staking protocols: Marinade and Jito. They both offer liquidity staking services, but their profit optimization methods are completely different.

• Marinade Finance

Marinade's staking service provides customers with automated management, transferring staked assets from low-performance validators to high-performance validators. As mentioned earlier, validators on Solana need to pay voting fees while running. Whether you stake 10K $SOL or 1m $SOL, the voting fee paid is the same, then part of the voting fee is burned, and the rest is redistributed to block proposers. Therefore, large validators actually obtain voting fees from small validators; this is why there can be significant differences in validator performance, and there are indeed benefits to being concentrated together when operating as a validator.

The Marinade liquid staking protocol ) MLSP ( allocates the received $SOL to one or more validator nodes. Marinade regularly updates its list of validator nodes, selecting the best candidates based on performance and reputation. The profits accumulated by MLSP are accumulated in the deposit pool, thereby increasing the value of mSOL.

• Jito Network

Jito positions itself as the first staking product on Solana that includes MEV rewards. Jito Lab has developed the Jito-Solana client, which is the first third-party validator client on Solana. The architecture of the Jito-Solana client is designed to effectively capture MEV profits within the Solana network. Traders submit sequences of trades they believe will be profitable for bidding. Then, a third-party block engine runs complex simulations to identify the highest value trade combinations. These bids are subsequently allocated to validators and token holders ) JitoSOL (, thereby increasing rewards for token holders.

They each hold hundreds of millions in TVL, and due to the self-capacity of liquidity protocols, it's difficult to determine an accurate number. Let's return to their impact on the recovery of Solana.

In September 2023, a certain trading platform was allowed to sell its crypto assets, including $SOL allegedly worth $1.16 billion. After a month of liquidation, some of these $SOL tokens were removed from old staking agreements and a certain trading platform's exchange wallet, gradually being sold to new holders, who are now staking them in the aforementioned liquid staking agreements. When Bitcoin's price broke $30,000 on October 23, the market continued to heat up. Typically, during market booms, people are reluctant to merely hold assets waiting for appreciation. This is where those liquid staking agreements come into play, offering an enticing yield enhancement method with about 7%-9% APY. This trend further propelled the steady rise of $SOL tokens.

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Application and On-Chain Activity Analysis

In addition to the optimistic expectations for Solana's price, the Solana ecosystem has also remained healthy and active during this period. Solana's daily trading volume consistently far exceeds that of any other blockchain, with the majority of on-chain transactions coming from the following protocols.

)Sol Incinerator is quite an interesting project. It allows users to burn useless NFTs and fraudulent tokens in exchange for a small amount of $SOL, with each NFT or token burned earning between 0.002 SOL and 0.01 SOL. If you are wondering where $SOL comes from, when an account is created on Solana, the network requires a small storage fee to open the account. By burning tokens, the account can be closed, and the storage fee can be reclaimed. (

As you can see, the activities on the Solana blockchain mainly involve transactions, similar to the trends observed with Ethereum and BSC. Unlike Polygon or Base, which are primarily influenced by one or two applications, the on-chain activity of Solana showcases a more diverse ecosystem; this should not be misunderstood as a lack of successful applications on the Solana network. On the contrary, it highlights the diversity of Solana. Well-known projects like Jito, STEPN, and Drift, although important, do not solely define the usage of the Solana network.

)Pyth, as a millisecond-level oracle, has not generated a large number of interactions on the Solana blockchain because its main data streams are collected and determined on Pythnet---an AppChain launched by the Pyth team based on the Solana codebase. The Pyth Network chose to build on Solana because the network can process thousands of transactions per second with fast finality. Additionally, Solana's 400ms slot time allows Pyth Network price feeds to update faster than most other layer one technologies. (

The Solana network has speed and cost advantages. To illustrate this, almost all public blockchains are faster and cheaper compared to Bitcoin and Ethereum. However, data from the platform shows that the total number of transactions on Solana in the past month was approximately 825 million, about 24 times that of Ethereum's 34 million transactions. Despite such a huge transaction volume, the total gas consumed was 62,735 $SOL, roughly equivalent to 4.3 million dollars, with an average transaction cost of about 0.005 dollars. In contrast, Ethereum's total gas consumption for the month was 126.7K, equivalent to about 268.4 million dollars, with an average transaction cost of 7.89 dollars, which is 1578 times that of Solana's transaction fees.

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Market Development and Technological Progress

In August, e-commerce giant Shopify integrated Solana Pay as a new payment option to change its business model. In September, credit card giant Visa also expanded its settlement solution with Solana. In Visa's announcement, Visa stated that the reason for choosing this integration is that "the Solana blockchain network has characteristics such as high transaction throughput and scalability at low costs, making it a good candidate for payment and Visa stablecoin settlement pilot projects." In addition to gaining favor in traditional markets and establishing partnerships with internet giants, the Solana network has also made commendable progress in technology and applications over the past year.

• State Compression

In April, Solana introduced state compression, a new data storage method that can reduce the cost of minting NFTs by more than 2000 times. With state compression technology, the cost of minting 1 million NFTs dropped from $25,300 to $113. In contrast, the costs for Ethereum and Polygon are $33.6 million and $32,800 respectively. Helium, which migrated to Solana in April, greatly benefited from this technology. During the migration, 900,000 hotspots on the Helium network were minted as NFTs. Without the compression technology, this would have resulted in a cost of over $260,000, but with the compression technology, the cost during migration was only $122.

• Neon

In July, Solana's EVM-compatible solution Neon was finally launched on the mainnet. Subsequently, the Solidity smart contract compiler Solang was also introduced. These developments make it easier for developers to write Ethereum applications on the Solana platform.

• Firedancer

In October, Firedancer went live on the testnet. Firedancer is a new third-party validator client developed by a company for the Solana blockchain, aimed at improving the efficiency and transaction processing capacity of the network. As the second client for Solana, it is designed to reduce the risks associated with a single client and prevent network downtime. Its goal is to process over 1 million transactions per second.

Clearing of a Certain Institution

This aspect has been briefly mentioned earlier in the section regarding recent capital activities. However, it is important to note that the liquidation process of a certain institution is extensive and ongoing. It is undoubtedly wise to cautiously anticipate and pay attention to the potential risks associated with Solana tokens.

In September 2023, a U.S. court signed an order allowing a certain trading platform to sell its crypto assets. The liquidation plan restricts $50 million per week, and the court's further order may permanently increase the weekly limit to $200 million. The liquidation process will be overseen by a certain crypto company.

According to a report by the Solana Foundation, the Solana Foundation and Solana Labs sold a total of 5800 to a certain institution.