The Bankless Guide to Solana

Updated: Feb. 2024
Jun 30, 20235 min read

First publicly launched in 2020, Solana is a blockchain designed to offer much higher “base layer” transaction throughput capabilities compared to other popular Layer 1 (L1) blockchains like Ethereum and Bitcoin.

For instance, while Bitcoin is currently processing ~4 transactions per second and Ethereum is pushing ~15 TPS without factoring in Layer 2s (L2s), Solana is facilitating ~2,700 TPS, and the network can theoretically support transaction levels up to the 65k TPS range.

Accordingly, Solana’s ability to power near-instant transactions in extremely inexpensive fashion has made the network an attractive smart contract platform for a growing number of web3 developers and users, which is evidenced by the chain's resurgence in 2023.

And while Solana is presently "monolithic" and may eventually face scaling pains with regard to how it handles all its own transaction, security, and data availability needs, there's also no reason why it can't become increasingly modular over time with further advances around Solana L2s.

How Solana works

Solana uses a unique consensus mechanism called Proof-of-History (PoH), which is a variant of Proof-of-Stake (PoS).

PoH optimizes the transaction process by assigning a timestamp to each transaction, allowing Solana to process transactions as they arrive instead of organizing them into blocks. This style of consensus, combined with the blockchain’s Tower Byzantine Fault Tolerance (BFT) algorithm, creates a meld of security, efficiency, and speed.

In contrast to Ethereum's use of the Ethereum Virtual Machine (EVM) for executing “smart contracts,” Solana employs the Solana Virtual Machine (SVM) that executes "programs." These programs are written in the Rust programming language and compiled to the WebAssembly bytecode format (WASM), enabling Solana to achieve high performance and parallel processing capabilities.

Additionally, while Ethereum wallets primarily support ERC-20 and ERC-721 tokens and Ethereum-based applications, Solana wallets are tailored for Solana Program Library (SPL) tokens and Solana-based apps.

The pulse of Solana

As of this guide's latest update, the total value locked (TVL) in the Solana DeFi ecosystem was ~$1.75B USD according to DeFiLlama.

That current TVL level makes the network the 5th-largest DeFi network in the cryptoeconomy today behind only Ethereum, Tron, BNB Chain, and Arbitrum. However, with regard to daily trading volume stats, Solana's been second only to Ethereum lately and has even temporarily pulled ahead of Ethereum here on multiple recent occasions.

Another bright spot for Solana is its NFT ecosystem, which is presently among the largest in crypto alongside Ethereum's and Bitcoin's respective NFT scenes. With rising wallets like Backpack and Phantom, rising collections like Mad Lads and Claynosaurz, and rising marketplaces like Magic Eden and Tensor, the prominence of Solana NFTs is officially here to stay.

The SOL token

SOL is Solana's native token that is used for various purposes within the network’s ecosystem, such as paying for transaction fees, participating in Solana staking, and as a medium of exchange around DeFi and NFT apps.

As of this guide's latest update, SOL was trading at approximately $103.30 USD, boasting a market capitalization of $45B. This positions it as the 5th-largest crypto in the cryptoeconomy today. The SOL circulating supply stands at over 436 million, with a total supply of more than 569M that steadily increases per inflationary staking rewards.

What you need to use Solana

  1. 👛 A Solana wallet — With both browser and mobile support, Phantom is currently among most popular wallets for creating and managing Solana addresses. After downloading, you’d create your first wallet by backing up your mnemonic seed and creating a password, etc. Then you'll be ready to receive your first SOL deposit!
  2. 🪙 Starter SOL — To start making Solana-based transactions, you'll need SOL in your wallet to cover gas costs. An easy way to begin is to purchase a small amount on a crypto exchange like Coinbase or Kraken and then deposit it to your wallet address.

What to do on Solana

1. Liquid stake SOL via Marinade Finance

The largest DeFi app on Solana today, Marinade Finance is a liquid staking protocol built on the Solana network that enables users to easily stake their SOL. In doing so, Marinade users receive "staked SOL" tokens (mSOL) that offer passive yield and can be used in the Solana DeFi ecosystem or unstaked at any time to exchange back to regular SOL.

2. Trade Solana tokens on Jupiter

Jupiter is an aggregator of decentralized exchanges on Solana that offers efficiently routed trades and in-built features like limit orders and dollar-cost averaged (DCA) buys. The project recently launched its native JUP token and plans to release further airdrop waves to its community of users.

3. Collect NFTs on Magic Eden

With many 1,000s of listed collections, Magic Eden has become a premier destination for NFT activity, offering a one-stop platform for users to discover and trade Solana NFTs and beyond. In addition to its core secondary marketplace offering, the platform features a Launchpad service for exclusive minting drops and partnerships with NFT brands.

Additional Solana resources

If you want to dive in deeper and enhance your knowledge of Solana in general, there are a range of additional resources to check out. Some good starting points include:

  1. 📜 Solana docs
  2. 🕳️ Solana community hub
  3. 🔑 Solana validators 101
  4. 🔍 Solana block explorer

Zooming out

Solana has emerged as a popular L1 blockchain that addresses the need for speed and affordability in the decentralized apps space. Its technology stack, built upon innovations like the SVM and Proof of History, has paved the way for a growing ecosystem of projects that caters to various sectors like DeFi, NFTs, and more. And while Solana will continue to face competition from Ethereum + L2s, it's begun to hold its ground better than ever before!

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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