The development of Internet products is always accompanied by improvements in bandwidth. In Web3, Solana marks a moment when its high throughput and low transaction costs make it possible to make consumer-level applications. Just like we saw platforms bear server costs in the Web2 era. On Solana, compressed NFTs allow developers to send a million NFTs for a few hundred dollars.

Currently, most of what is on Solana is an extension of the broader cryptocurrency landscape and is seen as "X, cheaper and faster". But building new applications requires fighting against the inherent behavior of users, which requires a lot of resources, and most startups are unwilling to challenge.

However, what I am excited about Solana is that it has a great potential to change the current landscape of the Internet. I will go into more detail about how it is achieved at the end of the article, but for now, let's take a look at Solana's current situation.

Given Solana's relationship with FTX, the early ecosystem is mainly focused on DeFi. Mercurial was originally a stable asset exchange platform on Solana, similar to Curve on Ethereum. After the FTX debacle, hackers stole over $400 million worth of tokens from FTX, of which approximately $800,000 was Mercurial’s governance token MER. This led to the developers parting ways with Alameda Research. As part of the re-emergence of development, Mercurial was abandoned and two new protocols were born: Jupiter and Meteora, a yield aggregator and a DEX aggregator, respectively.

Solana’s low fees make it easier for users to trade at a higher frequency, which can be easily seen from the numbers. Three charts tell the difference between trading on Ethereum and Solana. Ethereum shows superior metrics in terms of transaction volume and locked value (TVL).

It is important to note that Ethereum has a five-year head start and a healthy DeFi ecosystem with multiple underlying tokens valued in the billions of dollars. Therefore, the metrics below are somewhat flawed. When observing the charts, conclusions should be drawn by looking at all three charts rather than a single chart.

However, the TVL on both chains differs much more than the volume. At some point, the TVL number is not that important. The higher the volume to TVL ratio, the better the capital efficiency. Recently, Solana has clearly outperformed Ethereum in this regard.

One of the reasons for the recent increase in volume is users' desire for Airdrops. Jupiter announced an Airdrop program, where 50% of the tokens are reserved for the community, divided into four different phases, with the first phase likely to launch in early 2024.

While Airdrops may be what drives Solana's activity, it is important to understand that certain designs are not possible on Ethereum. For example, order book designs are not possible on the Ethereum base layer. Protocols such as dYdX and Aevo have already forked to their own chains.

Solana's combination of speed and low fees means that market makers can conduct high-frequency trading on-chain without having to resort to CEX or wait for a superior second-layer solution.

Many CEXs today barely touch the chain. Sometimes, when chain integration is difficult, they simply add a token and prohibit deposits or withdrawals of that token. But CEX also has its advantages, and market makers (MM) still choose CEX as their main activity platform not only because of the fees, but also because of performance guarantees.

As people say, liquidity breeds liquidity. Traders flock to platforms with the most market makers because it is relatively easy for them to enter and exit large positions.

On-chain lending markets allow market participants to obtain asset returns. In addition, they allow investors to convert from one asset to another without generating taxable events. Marginfi is the highest-valued lending protocol on Solana, locking in more than $350 million in deposits and $80 million in borrowings.

Before FTX collapsed, Solend was the main lending protocol on Solana. In November 2021, its total locked value was almost close to $1 billion. In November 2022, when FTX went bankrupt, the price of Solana ecosystem tokens plummeted, causing positions in DeFi protocols to be liquidated. Solend's total locked value fell from more than $350 million to about $25 million in just one week.

As of December 26, 2023, the total locked value was just over $200 million and has not yet recovered to the level before FTX's collapse. Solend's decline in locked value created an opportunity for a new protocol to attract funds. Considering that Solend already has a token, it is not enough to attract and retain users by interest rates alone.

Marginfi seized this opportunity and announced the launch of "points", which means that depositors and borrowers will receive Airdrops at some point in the future in addition to interest. Marginfi launched points in the first week of July 2023. Since October 15, Marginfi's total locked value has grown more than 10 times from about $30 million to about $485 million in just two months.

Kamino is the second largest borrowing platform on Solana, and its incentive mechanism shows the rapid growth of the platform. The protocol announced the upcoming points on December 3, and the total locked value increased 8 times to about $245 million in three weeks.

Staking is one of the core components of Proof of Stake (POS) chains. It enables stakers to earn returns from protocol inflation and fees and protects the security of the chain. Liquid staking is critical infrastructure because chains should have low barriers to staking and should not exclude users due to high fees.

Liquid staking allows investors to stake any amount without deep technical understanding or running node software. Although Solana's validators must stake SOL from the beginning, while Ethereum did not start proof of stake until last year, liquid staking on Ethereum leads the industry. More than 383 million SOL are staked, accounting for about 90% of the circulating supply.

Of this, a staggering 362 million or about 95% is staked natively, meaning it is locked up and not leveraging any staking derivatives. This means that users who stake via native SOL are missing out on the opportunity to use liquid tokens for DeFi. If you stake SOL via protocols like Marinade or Jito, you will receive mSOL or JitoSOL in return, which can be used in DeFi applications. As staking derivatives grow, one can expect users to gradually choose derivatives instead of taking on opportunity costs.

The liquid staking market only has about 20 million SOL. Currently 24% of circulating ETH is staked, but about 68% (31% LST and 37% platforms) is staked via liquid staking platforms and CEXs. If 31% of SOL is also staked through different LSTs, Solana’s LST market can be estimated to be around 115 million SOL or around $11 billion.

Marinade is the first Solana liquid staking protocol born out of a 3rd place finish at the 2021 Solana Hackathon. The protocol was launched on the mainnet in August 2021. The solution, similar to Lido, is simple and functional. When users stake SOL through Marinade’s staking pool, they receive Marinade SOL or mSOL, which can be used in Solana’s DeFi applications.

mSOL accumulates the rewards earned by the Marinade staking pool and is adjusted relative to SOL every period (approximately 2 days). When users stake using the liquid staking option, they have to pay a fee to the pool. Liquid staking exposes users to the smart contract risk of the staking protocol.

Marinade also offers its users the option to stake SOL natively. When they do this, users do not receive mSOL in return. When users exercise this option, they use native Solana functionality and Marinade simply acts as an interface. Users are the only ones who can withdraw their SOL at any time.

Users actually create a Solana staking account and delegate the responsibility of managing the stake to Marinade. The staking account receives staking rewards at the end of each period. Marinade does not charge any fees to users, and they are not exposed to Marinade's smart contract risk.

Marinade and Jito are the two largest providers of liquid staking protocols on Solana. Marinade has a total locked value of approximately 7.1 million SOL and a market share of approximately 41%. Jito has a total locked value of approximately 6.4 million SOL and a market share of approximately 38%. Similar to Marinade's mSOL, Jito provides JitoSOL to users as a voucher for locking SOL in its staking contract. In addition to validator earnings, Jito also passes on MEV rewards to JitoSOL holders.

Liquid staking tokens are very convenient for users, but there are some drawbacks. One of them is that liquidity can become an issue. For example, mSOL experienced a depegging on December 12. When a trader dumped a large amount of mSOL, the price dropped from 1.16 to 1.02. This can be quite detrimental for a token that is supposed to be “pegged”. Although arbitrageurs ensured that the price returned to the peg, the incident highlighted the need to improve the liquidity of liquid staking tokens.

Currently, there are more than 10 liquid staking tokens on Solana. When more liquid staking tokens are launched, the problem of low liquidity may become more serious. To solve this problem, Sanctum has proposed a solution. Sanctum Infinity is a multi-liquid staking token pool that allows swaps between all liquid staking tokens in the pool. This can be seen as an aggregation layer for Solana’s liquid staking tokens. The solution is expected to be launched in the first quarter of 2024.

The NFT ecosystem on Solana has grown rapidly over the past year. At first, there was a lack of content to show, and some flagship projects like DeGods and yOOts chose to migrate to other chains. Although Magic Eden has been the leading NFT market on Solana, it hedged by going multi-chain. Leading NFT collectibles are essential to the community, so this gap must be filled.

New collectibles like Claynosaurz and Mad Lads filled this gap and created a strong sense of belonging in both communities by choosing to stay on Solana. What these two projects have in common is that they are a means to an end, not an end.

Mad Lads is a collectible formed by former FTX engineers with the goal of replacing FTX with another platform called Backpack. The exchange should fill the gap left by FTX while being more compliant with regulations, more transparent, and in the spirit of DeFi. Mad Lads has developed a Solana wallet that utilizes executable NFTs, or xNFTs, blurring the line between applications and NFTs.

Unlike traditional NFTs, collectibles stored on servers, xNFTs can execute code. xNFT allows users to interact with applications such as Jito Staking, Birdeye, Orca, and Marginfi from within the Backpack wallet.

Magic Eden was initially the dominant NFT market on Solana. It expanded support to Ethereum in August 2022 and eventually added other chains such as Polygon and Bitcoin (Inscriptions). While Magic Eden expanded support to other chains, Tensor focused on Solana and provided additional features such as TradingView integration and market making orders. In addition to these features, Tensor also launched a points event similar to Blur, where traders will receive Tensor's governance token as a reward.

I have been using Solana for more than two years and have personally experienced the changes in infrastructure. Solana stopped producing blocks more than ten times in 2022, but only once in 2023. Although this failure is undesirable, it is common for new chains trying cutting-edge technology. Even L2s like Arbitrum can experience these glitches when traffic surges.

Various factors contribute to improving infrastructure, from the workings of fee markets and client diversity to RPC nodes. Companies like Helius Labs and Triton are helping application developers with the following services:

• RPC nodes and webhooks that interact with the Solana network. Outsourcing this responsibility allows developers to focus more on solving core problems.

• Enhanced APIs that help developers save time getting the data they need, such as transaction history, NFT data, token metadata, etc.

Another infrastructure change is state compression, where Solana uses Merkle trees and only stores part of the data, greatly reducing storage costs. NFTs are one of the original applications of state compression. Helius Labs and Triton provide the necessary RPC node infrastructure and indexing services, while wallets like Phantom and Solflare provide user-friendly interfaces.

The cost of minting 1 million NFTs on Solana is about $247, while on Polygon it is about $98,000 and on Ethereum it is about $65,000,000. DRiP is an NFT platform that sends 3 million NFTs to different users every week instead of showing them ads. Through state compression technology, DRiP can achieve the same effect for about $250.

Some projects are improving Solana's connectivity with other chains and mixing the best components of Solana and other chains. Eclipse uses Solana's virtual machine SVM for computation and uses Ethereum as its settlement layer. In contrast, Neon is building EVM on Solana, which can perform parallel processing. Nitro is building Cosmos L2.

DePIN stands for Decentralized Physical Infrastructure Network. The idea of ​​leveraging decentralized infrastructure and inserting token incentives has been around for a long time. DePIN blurs the line between consumer and commercial devices. Helium and Hivemapper are some examples of DePIN on Solana.

Helium’s original mission was to create a decentralized wireless infrastructure to support IoT devices. Helium’s devices act as hotspots, and about 50 hotspots are enough to provide internet connectivity to a city. Anyone can host a Helium hotspot.

Helium has its own blockchain with over a million hotspots before migrating to Solana in April 2023. To support growth and further expansion, Helium outsources tasks such as infrastructure support to Solana to save costs and achieve better scalability.

Hivemapper is another example of a DePIN application built on Solana. It helps map the world by installing dashcams, incentivizing participants with HONEY Tokens. So far, Hivemapper has mapped 100 million kilometers worth of roads, of which 6.6 million kilometers are unique.

Hivemapper leverages the power of web3 infrastructure by incentivizing regular people to install dashcams and start mapping. This model enables services like Uber and Zomato to use Hivemapper in the future, just like using Google Maps, but with fewer permissions.

The development of Internet products is always accompanied by improvements in bandwidth. In Web3, Solana marks a moment when its high throughput and low transaction costs make it possible to make consumer-level applications. Just like we saw platforms bear server costs in the Web2 era. On Solana, compressed NFTs allow developers to send a million NFTs for a few hundred dollars.

Currently, most of what is on Solana is an extension of the broader cryptocurrency landscape and is seen as "X, cheaper and faster". But building new applications requires fighting against the inherent behavior of users, which requires a lot of resources, and most startups are unwilling to challenge.

However, what I am excited about Solana is that it has a great potential to change the current landscape of the Internet. I will go into more detail about how it is achieved at the end of the article, but for now, let's take a look at Solana's current situation.

Given Solana's relationship with FTX, the early ecosystem is mainly focused on DeFi. Mercurial was originally a stable asset exchange platform on Solana, similar to Curve on Ethereum. After the FTX debacle, hackers stole over $400 million worth of tokens from FTX, of which approximately $800,000 was Mercurial’s governance token MER. This led to the developers parting ways with Alameda Research. As part of the re-emergence of development, Mercurial was abandoned and two new protocols were born: Jupiter and Meteora, a yield aggregator and a DEX aggregator, respectively.

Solana’s low fees make it easier for users to trade at a higher frequency, which can be easily seen from the numbers. Three charts tell the difference between trading on Ethereum and Solana. Ethereum shows superior metrics in terms of transaction volume and locked value (TVL).

It is important to note that Ethereum has a five-year head start and a healthy DeFi ecosystem with multiple underlying tokens valued in the billions of dollars. Therefore, the metrics below are somewhat flawed. When observing the charts, conclusions should be drawn by looking at all three charts rather than a single chart.

However, the TVL on both chains differs much more than the volume. At some point, the TVL number is not that important. The higher the volume to TVL ratio, the better the capital efficiency. Recently, Solana has clearly outperformed Ethereum in this regard.

One of the reasons for the recent increase in volume is users' desire for Airdrops. Jupiter announced an Airdrop program, where 50% of the tokens are reserved for the community, divided into four different phases, with the first phase likely to launch in early 2024.

While Airdrops may be what drives Solana's activity, it is important to understand that certain designs are not possible on Ethereum. For example, order book designs are not possible on the Ethereum base layer. Protocols such as dYdX and Aevo have already forked to their own chains.

Solana's combination of speed and low fees means that market makers can conduct high-frequency trading on-chain without having to resort to CEX or wait for a superior second-layer solution.

Many CEXs today barely touch the chain. Sometimes, when chain integration is difficult, they simply add a token and prohibit deposits or withdrawals of that token. But CEX also has its advantages, and market makers (MM) still choose CEX as their main activity platform not only because of the fees, but also because of performance guarantees.

As people say, liquidity breeds liquidity. Traders flock to platforms with the most market makers because it is relatively easy for them to enter and exit large positions.

On-chain lending markets allow market participants to obtain asset returns. In addition, they allow investors to convert from one asset to another without generating taxable events. Marginfi is the highest-valued lending protocol on Solana, locking in more than $350 million in deposits and $80 million in borrowings.

Before FTX collapsed, Solend was the main lending protocol on Solana. In November 2021, its total locked value was almost close to $1 billion. In November 2022, when FTX went bankrupt, the price of Solana ecosystem tokens plummeted, causing positions in DeFi protocols to be liquidated. Solend's total locked value fell from more than $350 million to about $25 million in just one week.

As of December 26, 2023, the total locked value was just over $200 million and has not yet recovered to the level before FTX's collapse. Solend's decline in locked value created an opportunity for a new protocol to attract funds. Considering that Solend already has a token, it is not enough to attract and retain users by interest rates alone.

Marginfi seized this opportunity and announced the launch of "points", which means that depositors and borrowers will receive Airdrops at some point in the future in addition to interest. Marginfi launched points in the first week of July 2023. Since October 15, Marginfi's total locked value has grown more than 10 times from about $30 million to about $485 million in just two months.

Kamino is the second largest borrowing platform on Solana, and its incentive mechanism shows the rapid growth of the platform. The protocol announced the upcoming points on December 3, and the total locked value increased 8 times to about $245 million in three weeks.

Staking is one of the core components of Proof of Stake (POS) chains. It enables stakers to earn returns from protocol inflation and fees and protects the security of the chain. Liquid staking is critical infrastructure because chains should have low barriers to staking and should not exclude users due to high fees.

Liquid staking allows investors to stake any amount without deep technical understanding or running node software. Although Solana's validators must stake SOL from the beginning, while Ethereum did not start proof of stake until last year, liquid staking on Ethereum leads the industry. More than 383 million SOL are staked, accounting for about 90% of the circulating supply.

Of this, a staggering 362 million or about 95% is staked natively, meaning it is locked up and not leveraging any staking derivatives. This means that users who stake via native SOL are missing out on the opportunity to use liquid tokens for DeFi. If you stake SOL via protocols like Marinade or Jito, you will receive mSOL or JitoSOL in return, which can be used in DeFi applications. As staking derivatives grow, one can expect users to gradually choose derivatives instead of taking on opportunity costs.

The liquid staking market only has about 20 million SOL. Currently 24% of circulating ETH is staked, but about 68% (31% LST and 37% platforms) is staked via liquid staking platforms and CEXs. If 31% of SOL is also staked through different LSTs, Solana’s LST market can be estimated to be around 115 million SOL or around $11 billion.

Marinade is the first Solana liquid staking protocol born out of a 3rd place finish at the 2021 Solana Hackathon. The protocol was launched on the mainnet in August 2021. The solution, similar to Lido, is simple and functional. When users stake SOL through Marinade’s staking pool, they receive Marinade SOL or mSOL, which can be used in Solana’s DeFi applications.

mSOL accumulates the rewards earned by the Marinade staking pool and is adjusted relative to SOL every period (approximately 2 days). When users stake using the liquid staking option, they have to pay a fee to the pool. Liquid staking exposes users to the smart contract risk of the staking protocol.

Marinade also offers its users the option to stake SOL natively. When they do this, users do not receive mSOL in return. When users exercise this option, they use native Solana functionality and Marinade simply acts as an interface. Users are the only ones who can withdraw their SOL at any time.

Users actually create a Solana staking account and delegate the responsibility of managing the stake to Marinade. The staking account receives staking rewards at the end of each period. Marinade does not charge any fees to users, and they are not exposed to Marinade's smart contract risk.

Marinade and Jito are the two largest providers of liquid staking protocols on Solana. Marinade has a total locked value of approximately 7.1 million SOL and a market share of approximately 41%. Jito has a total locked value of approximately 6.4 million SOL and a market share of approximately 38%. Similar to Marinade's mSOL, Jito provides JitoSOL to users as a voucher for locking SOL in its staking contract. In addition to validator earnings, Jito also passes on MEV rewards to JitoSOL holders.

Liquid staking tokens are very convenient for users, but there are some drawbacks. One of them is that liquidity can become an issue. For example, mSOL experienced a depegging on December 12. When a trader dumped a large amount of mSOL, the price dropped from 1.16 to 1.02. This can be quite detrimental for a token that is supposed to be “pegged”. Although arbitrageurs ensured that the price returned to the peg, the incident highlighted the need to improve the liquidity of liquid staking tokens.

Currently, there are more than 10 liquid staking tokens on Solana. When more liquid staking tokens are launched, the problem of low liquidity may become more serious. To solve this problem, Sanctum has proposed a solution. Sanctum Infinity is a multi-liquid staking token pool that allows swaps between all liquid staking tokens in the pool. This can be seen as an aggregation layer for Solana’s liquid staking tokens. The solution is expected to be launched in the first quarter of 2024.

The NFT ecosystem on Solana has grown rapidly over the past year. At first, there was a lack of content to show, and some flagship projects like DeGods and yOOts chose to migrate to other chains. Although Magic Eden has been the leading NFT market on Solana, it hedged by going multi-chain. Leading NFT collectibles are essential to the community, so this gap must be filled.

New collectibles like Claynosaurz and Mad Lads filled this gap and created a strong sense of belonging in both communities by choosing to stay on Solana. What these two projects have in common is that they are a means to an end, not an end.

Mad Lads is a collectible formed by former FTX engineers with the goal of replacing FTX with another platform called Backpack. The exchange should fill the gap left by FTX while being more compliant with regulations, more transparent, and in the spirit of DeFi. Mad Lads has developed a Solana wallet that utilizes executable NFTs, or xNFTs, blurring the line between applications and NFTs.

Unlike traditional NFTs, collectibles stored on servers, xNFTs can execute code. xNFT allows users to interact with applications such as Jito Staking, Birdeye, Orca, and Marginfi from within the Backpack wallet.

Magic Eden was initially the dominant NFT market on Solana. It expanded support to Ethereum in August 2022 and eventually added other chains such as Polygon and Bitcoin (Inscriptions). While Magic Eden expanded support to other chains, Tensor focused on Solana and provided additional features such as TradingView integration and market making orders. In addition to these features, Tensor also launched a points event similar to Blur, where traders will receive Tensor's governance token as a reward.

I have been using Solana for more than two years and have personally experienced the changes in infrastructure. Solana stopped producing blocks more than ten times in 2022, but only once in 2023. Although this failure is undesirable, it is common for new chains trying cutting-edge technology. Even L2s like Arbitrum can experience these glitches when traffic surges.

Various factors contribute to improving infrastructure, from the workings of fee markets and client diversity to RPC nodes. Companies like Helius Labs and Triton are helping application developers with the following services:

• RPC nodes and webhooks that interact with the Solana network. Outsourcing this responsibility allows developers to focus more on solving core problems.

• Enhanced APIs that help developers save time getting the data they need, such as transaction history, NFT data, token metadata, etc.

Another infrastructure change is state compression, where Solana uses Merkle trees and only stores part of the data, greatly reducing storage costs. NFTs are one of the original applications of state compression. Helius Labs and Triton provide the necessary RPC node infrastructure and indexing services, while wallets like Phantom and Solflare provide user-friendly interfaces.

The cost of minting 1 million NFTs on Solana is about $247, while on Polygon it is about $98,000 and on Ethereum it is about $65,000,000. DRiP is an NFT platform that sends 3 million NFTs to different users every week instead of showing them ads. Through state compression technology, DRiP can achieve the same effect for about $250.

Some projects are improving Solana's connectivity with other chains and mixing the best components of Solana and other chains. Eclipse uses Solana's virtual machine SVM for computation and uses Ethereum as its settlement layer. In contrast, Neon is building EVM on Solana, which can perform parallel processing. Nitro is building Cosmos L2.

DePIN stands for Decentralized Physical Infrastructure Network. The idea of ​​leveraging decentralized infrastructure and inserting token incentives has been around for a long time. DePIN blurs the line between consumer and commercial devices. Helium and Hivemapper are some examples of DePIN on Solana.

Helium’s original mission was to create a decentralized wireless infrastructure to support IoT devices. Helium’s devices act as hotspots, and about 50 hotspots are enough to provide internet connectivity to a city. Anyone can host a Helium hotspot.

Helium has its own blockchain with over a million hotspots before migrating to Solana in April 2023. To support growth and further expansion, Helium outsources tasks such as infrastructure support to Solana to save costs and achieve better scalability.

Hivemapper is another example of a DePIN application built on Solana. It helps map the world by installing dashcams, incentivizing participants with HONEY Tokens. So far, Hivemapper has mapped 100 million kilometers worth of roads, of which 6.6 million kilometers are unique.

Hivemapper leverages the power of web3 infrastructure by incentivizing regular people to install dashcams and start mapping. This model enables services like Uber and Zomato to use Hivemapper in the future, just like using Google Maps, but with fewer permissions.