Solana

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Project overview

Developed by Solana Labs to address blockchain performance bottlenecks, Solana is a proof-of-stake Layer 1 blockchain known for its high-performance, low transaction fees and scalability features. It also has smart contract capabilities allowing users to build decentralised applications and blockchain solutions on the protocol.

Solana first emerged when co-founder Anatoly Yakovenko published the Solana whitepaper in late 2017. Following fundraising efforts, the Solana network underwent several testnet stages before launching its mainnet beta in March 2020.

Technology

Solana’s technology operates on both a proof-of-history (PoH) and proof-of-stake (PoS) consensus model. Solana achieves its high throughput with PoH by allowing transactions to be timestamped and processed in parallel. This significantly decreases the need for validators to communicate to agree on the order of transactions, as seen in other proof-of-work blockchains. Solana uses Tower Byzantine Fault Tolerance (Tower BFT) within its PoS framework to quickly reach consensus among validators.

Solana has launched several products, including the Solana Mobile Stack, the Web3 smartphone Solana Saga, and Solana Pay, a permissionless payment ecosystem. Firedancer, a new validator client was was also released to improve the network’s security and decentralisation efforts.

Token supply model

Solana’s token supply model is designed to encourage holders to stake or delegate their tokens to validators and thereby improve the security of the network. In return for staking, tokenholders receive a portion of the newly minted SOL.

Solana adopts a unique supply inflation schedule, which started at 8 percent in February 2021 (Solana’s official launch) and is gradually decreasing by -15 percent each year until it reaches a fixed value of 1.5 percent per year (i.e. the long-term inflation rate).

Solana also implements a burning mechanism where 50 percent of the transaction fees are burned, while the other 50 percent go to validators that process the transactions. High on-chain activity may lead to deflation if the burned fees surpass the newly issued SOL tokens.

Key value drivers

The growing demand for high-performance and scalable blockchains is what makes Solana a preferred choice for many AI, DePIN, and trading apps. For instance, when dealing with NFTs or DEX transactions, during periods of high network activity, users often find themselves unable to afford the exorbitant gas fees, some of which far exceed the price of NFT or transaction itself. These instances push users towards networks like Solana, where smaller transactions remain practical and affordable.

Solana is also keeping up with the growing relevance of blockchain interoperability, with solutions like Solana EVM (Ethereum Virtual Machine) and deBridge enabling decentralised applications and transactions from Ethereum (and other chains) to run on Solana.

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