Solana describes itself as a third-generation network designed to solve the blockchain trilemma — the almost impossible feat of improving performance without compromising decentralization and security. Solana looks to succeed where first and second-generation blockchains have failed by introducing innovative methodologies to optimize a blockchain network's speed while retaining a high level of decentralization.
Solana's decision to focus on finding a balance between speed, security, and decentralization stems from the need to create enabling environments for launching world-class decentralized applications. The goal is to provide a blockchain network to help DApps attain the same functionality and user experience that their centralized counterparts offer.
The Solana ecosystem has SOL as its base currency, which users can use to make payments, settle related fees and participate in the network's staking economy. The digital asset also doubles as Solana's governance currency. In essence, SOL holders can vote on proposals that would, in turn, determine the type of changes and upgrades adopted by the Solana ecosystem.
Like most blockchains, Solana relies on a consensus algorithm. Such algorithms ensure that blockchains do not require intermediary entities like Visa or PayPal to execute and validate transactions. However, rather than opt for the energy-intensive and slow proof-of-work (PoW) consensus protocol on Bitcoin, Solana has adopted a more dynamic alternative that gives room for highly scalable and eco-friendly operations.
Specifically, Solana dynamic consensus system combines the in-house designed proof-of-history protocol and the popular proof-of-stake (PoS) model. Armed with these two consensus mechanisms, Solana can process up to 50,000 transactions per second, which is why it is often called the "Visa of the crypto world." This is an exceptional feat considering that Ethereum, the most popular application-based blockchain, currently has 15 TPS as its maximum speed.
Solana also provides a flexible development tool kit that supports three popular programming languages: Rust, C, and C++. Proponents of Solana argue that the possibility of writing smart contract codes with multiple programming languages will help developers access a more familiar and flexible development environment, unlike what we have on blockchains with native smart contract languages.
What makes Solana unique?
Cryptocurrencies that are not pegged to traditional currencies are inherently volatile. The same is true of SOL which experienced price swings due to various factors. Launched in March 2020, SOL was sold at $0.22 to investors via a public auction that raised $1.76 million. In the first three months of trading, the SOL price fluctuated between $0.50 to $1.5, only for it to experience a rally that saw Solana's price peak at $4.735 in August 2020. However, according to Solana charts, this rally was short-lived, as SOL ended the year priced at $1.655.
Notably, 2021 proved to be the breakthrough year for the Solana ecosystem and its native cryptocurrency. In the first quarter alone, SOL price gained over 2,500%, making it one of the top-performing cryptocurrencies. However, this impressive feat was primarily due to a marketwide bull run. Following the record-breaking first quarter, SOL had a lackluster couple of months before experiencing another price rally that saw Solana peak at $253 in November 2021.
This growth in Solana price paved the way for a $314 million private token sale round for Solana Labs in June 2021. Solana Labs stated that the capital raised from this token sale would be used to develop and promote an expansive DeFi ecosystem on the Solana blockchain.
While this can be linked to the crypto marketwide bull run, other factors, including a growing enterprise interest, increased DeFi developer activity, and the explosion of the Solana-based NFT market, all played key roles. However, following a record-breaking November, Solana gradually succumbed to downward pressure as the SOL price fell by over 30% by the end of the year.
While the crypto bull run impacted SOL price positively in 2021, the bearish run of 2022 has had the opposite effect. For most of 2022, SOL has traded below the $100 mark, which is majorly due to a marketwide bearish run and the recurrence of network outages.
SOL price and tokenomics
The Solana team conducted five funding rounds between 2018 and 2022. The first was a $3.17 million seed round, while the following three were private funding rounds that culminated in a $20 million Series A. The Solana team raised an additional $1.76 million via a public auction conducted in March 2022 in conjunction with CoinList.
The initial supply of SOL is 500,000 SOL, from which the Solana team allocated tokens to early investors involved in all five funding rounds. Below is a breakdown of the distribution of the initial supply of SOL:
-15.86% was used to fund the Seed round.
-9.54% was allocated to the Series A rounds.
-1.6% went to public sale investors.
-12.5% was distributed to the founding team members.
-12.5% went to the Solana Foundation, the not-for-profit entity in charge of promoting and funding pro-Solana initiatives.
-38% was set aside as a community reserve fund managed by the Solana Foundation.
About the founders
Anatoly Yakovenko, a software engineer, first introduced Solana in 2017 when he published a whitepaper where he proposed the concept of proof-of-history and how it can optimize the throughput of blockchains. Before venturing into the blockchain ecosystem, Yakovenko worked at Qualcomm and Dropbox as a software engineer.
After introducing the Solana project, Yakovenko teamed up with one of his former Qualcomm colleagues, Greg Fitzgerald, to co-found Solana Labs, the software development company responsible for building and maintaining the PoH-based blockchain network. Along the line, Yakovenko and Fitzgerald recruited more former Qualcomm colleagues.
