What’s the reason for the meteoric rise this year?

Solana “rose from the ashes” post FTX after the token dropped 97% and the
market left it for dead. After seeing a meteoric rise in market value in 2021,
the “ETH Killer” was equally punished by investors in 2022. Solana’s token
price — which peaked at $260 in November of 2021 — went down, and traded
low at around $11.

As much as we are tempted to ascribe all the praises to one man or his team’s
effort, I have found that it goes beyond merely the marketing efforts of some
men that has caused the meteoric rise. I have identified 4 reasons through
research:

Reason #1 - Developer activity

Solana tends to attract a blend of web2 & web3 talent. The ecosystem was the
second fastest-growing blockchain in terms of developers last year and that is
still the case according to data from token terminal, behind only Ethereum.
The developer community is everything. If the devs leave, it’s all over. But
they kept building all through the last cycle and still are. This has been a major
boost in confidence for the community.

Reason #2 - Founder/core team/community

Solana is led by Anatoly Yakovenko, or “Toly.” He’s the public face of Solana,
wrote the white paper, invented the Proof of History consensus mechanism,
and is the leader of the network’s developer ecosystem. Prior to founding
Solana, Toly spent 15 years as a software engineer — primarily at Qualcomm.
He comes across as less ideological and more pragmatic than most crypto
leaders. His original goal was simply to build a more performant blockchain
than Ethereum.

The remaining core team at Solana consists of engineers from Qualcomm that
followed Anatoly. Specifically, Stephen Akridge and Greg Fitzgerald are the
other two co-founders and the principal engineers.
Solana has a strong presence across the crypto developer community, investor
community, and on social media (Twitter, Discord). The loyal community was
one of the reasons why Solana is still standing, standing up to criticism, and
giving the developers building on the chain that there is an audience willing to
use their products. This confluence of visionaries has led to more mindshare
and positivity that has helped Solana get through the tough market cycle and
into a position that appears meteoric.

Reason #3 - Go-to market focus

Solana (SOL) is optimized for scalability. This approach offers extremely low
transaction fees, making it attractive for users. This incentivizes more users to
join the network.

Solana is more performant and less complex from a user experience today. It
stands out in terms of speed, UX, and parallel execution.

Reason #4 - Moonshots (DePIN + Memecoins)

Decentralized Physical Infrastructure Networks (DePIN) are used to bootstrap
decentralized networks of physical hardware. Things like data storage, wireless
access for IoT, and cloud computing services are extremely difficult to
bootstrap. Tokens have proven effective at catalyzing the supply side of these
networks as they incentivize the investment in decentralized hardware at
scale.

DePINs have made solana their home, with projects like Render, Hivemapper
and helium from different sectors boosting and spearheading a narrative
emerging from the solana blockchain

And finally, the most obvious answer, memes, these viral sensations with
questionable aesthetics represent a most obvious reason to the meteoric rise
this year for the blockchain. It has spilled over to DEX trading volumes and
network congestions, testing the limits of the blockchain’s capability itself

It’s the ease of spinning up a token or a contract on the blockchain and turning
into a meme that has attracted users (and gamblers) to this sensational move.
What's happening on the network? What are users interacting
with?

Despite the many challenges during the crypto winter, Solana has silently built
and reinforced the ecosystem with some core infrastructures, some of which
are now well primed and positioned for this market cycle.

A DEX Aggregator
You’ve been in crypto long enough to know that DEXes are the number one
signal to know what is going on a blockchain. Why? DEXs are the backbone of
the entire ecosystem. They help to 1) bootstrap liquidity/TVL, 2) bring in users,
and 3) facilitate efficient, peer-to-peer markets.

Jupiter exchange (DEX aggregator) happens to have benefited from the

increase in DEX volume in Solana, which is a result of the increase in DeFi
activity on the chain. According to this data on dune, Jupiter has a 56.7% share
of the trade volume currently and 65% share of the organic volume (no bots) on
the chain.

It’s also no news that Solana’s DEX volume is now outpacing ETH L1 on some
days.

Liquid staking competition

Marinade Finance and Jito (recently rolled out) are the leading liquid staking
solutions on solana. While Marinade Finance holds the majority of staked SOL
(~10M), Jito boasts a higher market cap ($358M) than its predecessor. Jito has
been boosted by its airdrop success, gaining more liquidity from the attention
it got earlier this year.

According to DeFillama, The Liquid Staking market boasts a massive $53.4B in

TVL, Solana captures only a fraction of this potential with ~ $3B, following the
large stablecoin inflows into the blockchain solely for memecoins, a rotation
into yield bearing projects like this is very likely.
Identity
A 200% increase in 30-day unique daily active addresses on solana is a proxy for
increase in users, with increase come potentially more need for those users to
be identified. Bonfida, or Solana Name Service, is the ENS equivalent on
Solana. So, if you believe that Solana users will want to make their wallet
addresses human-readable, Bonfida (FIDA) could be a way to express that
thesis.

It has 237k active .sol registrations to date with a market cap of $61.5m. To
compare, ENS has over 2 million .eth active registrations with a market cap of
$617m

Memecoin Mania
This is the most engaged sector on Solana. Degens have got the chain
congested, to make transactions during this time, you’ve got to adjust your
slippage on DEXes or give margin on trade to get successful trades or
transactions.

Just like the time with Ethereum one could argue that each chain has a
“culture coin.” We think many memecoins are vying to represent Solana’s
culture in a similar way that Shiba Inu plays this role on Ethereum.
The drawbacks of the network.

Solana’s mainnet has faced several block production halts in the past. Each
requires manual fixes by hundreds of validators. These outages have
spotlighted concerns about Solana's network reliability.

Solana’s latest outage was its first in nearly a year and around half a dozen in
the past two years; it experienced a major outage on Feb. 6 at 10:22 UTC with
block production halted for over five hours before validators restarted the
network.

The most recent outage was blamed on a bug that resulted in an infinite loop
error, which caused the validators to stall on a particular block. An infinite
loop error causes a program to get stuck in an endless cycle, which, in the case
of Solana, prevented validators from verifying transactions on the network as
they were stuck trying to process the same block.

A significant factor contributing to Solana’s outages is the lack of validator

client diversity, leading to potential central points of failure. A validator is a
computer that participates in a Proof of Stake blockchain. Validators form the
backbone of Solana's network. Validator clients are applications that validators
use to perform their duties.

Having multiple clients distinct from one another improves fault tolerance in
the event that one implementation fails. For instance, if no client controls
greater than 33% of stake, a crash or a bug impacting liveness won’t bring down
the network.

Similarly, if there’s a bug in a client that leads to an invalid state transition,

the network can avoid a safety failure if less than 33% of stake is using that
client. This is because most of the network will remain in a valid state,
preventing a split or fork in the blockchain. Thus, validator client diversity
leads to greater network resilience because a bug or vulnerability in one client
will not debilitate the entire network.
Client diversity is measured by the percentage of stake running through each
client and the total number of clients available. As of now, there are 1712
validators on the Solana network.

Initially, there was one validator client on Solana, which was originally
developed by Solana Labs. In August 2022, Jito Labs released a second validator
client to mainnet while this was exciting it was not perfect. This is a fork of
Solana Labs code and this means that Jito shares many components with the
original validator codebase and is potentially vulnerable to bugs or exploits
that would affect the Labs client. In an ideal future, Solana would have at least
four independent validator clients.

This is an identified drawback of the Solana network. Although this is only

going to go on for a short while as a new validator client is being built by the
firedancer team and is looking forward to go live on mainnet later this year.