First Look: Solana - Figment

First Look: Solana

Figment
Published
January 21, 2021

Solana aims to solve one of the biggest problems facing blockchains: scalability. With staking rewards imminent, it is vital to learn about the intricacies of Solana’s Proof of History (PoH) consensus mechanism and its use cases. Figment supports Solana and SOL delegators with just a 7% commission rate. Learn more about Solana by reading below.

Quick Takes

Blockchain Scalability Now

We see the scalability problem as a sticking point for end-user adoption. One popular approach to solving this is sharding, which breaks up validation into small pieces and spreads it along the blockchain. But this makes it significantly harder for blockchains to communicate across chains.

Solana is a permissionless, decentralized, and secure smart contract blockchain platform proposing to solve the scalability problem – without sharding.

Why is that important?

Solana bypasses the complexities and developmental delays inherent in sharded blockchains. The Solana team has consistently delivered. Many ecosystem members have previously participated in Solana’s incentivized testnet competition, Tour de SOL.

Tour de SOL’s goal is to test the network’s stability and performance, as well as its design and parameters. It is also a place for developers to harden the network’s structure prior to introducing features on mainnet.

Solana soft-launched their client, mainnet beta, before the end of Q1 in 2020. They have over 350 validators, a global community, and continuing partnerships with Audius, Chainlink, Akash, Terra, with over 100 project integrations covering DeFi, gaming, and Web 3.

Solana

Solana is designed to ensure that the software doesn’t get in the way of the hardware. Their internal testnet achieved approximately 50,000 transactions/second across 200 nodes in 23 regions worldwide. As global Internet bandwidth capacities increase to meet user demand, so does Solana’s scalability solution.

Solana encodes the passage of time as data, called Proof of History (PoH), and leverages a verifiable delay function (VDF) to reduce transactional overhead between nodes in the network. The seven key innovations that make the Solana network possible:

  1. Proof of History (POH) — a clock before consensus
  2. Tower BFT — a PoH-optimized version of PBFT
  3. Turbine — a block propagation protocol
  4. Gulf Stream — Mempool-less transaction forwarding protocol
  5. Pipeline VM — Parallel smart contracts run-time
  6. Cloudbreak — Horizontally-Scaled Accounts Database
  7. Replicators — Distributed ledger store

Project contributors

The Solana Labs team is composed of over 30 members, including co-founders Anatoly Yakovenko and Greg Fitzgerald.

“Anatoly (CEO) rose the ranks to Senior Staff Engineer Manager over 12 years at Qualcomm. After leaving Qualcomm, he began engineering distributed systems for Mesosphere and, later, Dropbox. He holds four patents in his name, including one for the invention of a lossless data compression system that leverages recurrent neural networks.”

“Greg (CTO) spent 11 years at Qualcomm, where he contributed to the development of their LLVM toolchain. Before leaving Qualcomm to found Solana, he rose to the position of Senior Staff Software Engineer, leading the web and messaging infrastructure team.”

Funding

Solana Labs has raised a total of $41.8 million over a series of 6 rounds. Their last round was in March 2020, with funding from Multicoin Capital, Distributed Global, Blocktower Capital, Foundation Capital, Blockchange VC, Slow Ventures, NGC Ventures, Passport Capital, and Rockaway Capital.

Use Cases

Solana is designed for decentralized applications that demand high throughput. Its architecture enables transactions to be ordered as they enter the network, rather than by block, allowing for scalability in financial transactions, distributed storage, and gaming.

Financial systems can benefit the most from the scalability that Solana offers, particularly decentralized exchanges (DEXes) and marketplaces in need of fair transactions (to prevent front-running).

Solana can process micropayments with low transaction costs (~$0.00001USD/tx) and sub-second transaction confirmations, opening up opportunities for small payments in video games, payment processors, and e-commerce marketplaces.

Network Token

Solana’s native token, SOL, will be used for staking and transaction fees. Fractions of SOL are called lamports, used for microtransactions. Solana also has a wrapped token, SPL, which is the standard for synthetic token creation and exchange.

Token Distribution

After a token burn event last year by the Solana Foundation, the maximum supply of SOL is 489 Million. The token supply distribution is as follows:

Token Minting

New SOL tokens will be created based on an inflation rate that varies each epoch based on two main factors:

  1. Staking participation rate – the current fraction of staked SOLs out of the current total circulating supply
  2. The global time since the first block

Staking returns for SOL stakers will increase when more tokens are staked to incentivize participation and network security. Solana’s inflation rates are currently being discussed but are expected to look similar to what has been running on the testnet. We’ll talk more about this in the Project Updates section near the end of this article.

Staking

Solana aims to have thousands of nodes active at the network’s maturity, with no restriction on the number of nodes. Participants must stake SOL tokens as a security bond, and the unbonding period has not yet been determined. Leader selection/rotation is based on stake-weight, with expectations for minimum or maximum stake thresholds. There appears to be no advantage for an entity to run multiple nodes.

There will be two types of clients involved in the consensus mechanism:

  1. Validators — verify and submit transactions.
  2. Replicators — provide storage space to store the growing blockchain, meaning validators will only need to store the most recent transactions, rather than the full ledger.

The network will be secured by bonded validator nodes that put SOL at stake to participate in the network. The more transactions a validator writes, the more rewards they and their delegators earn. Participants receive block rewards and transaction fees. Token holders may also earn rewards by delegating tokens to reputable validators.

In December, after deploying it on the testnet, the Solana development team proposed a governance proposal for voting regarding PICO-inflation on mainnet. The proposal established an Initial Inflation Rate of 0.01% and a Dis-inflation rate of 0%.

This is just an initial rate. Given the current parameters of token inflation, the upper and lower ranges of token issuance may look like the following:

A proposal to enable inflation was released on January 21st.

Transaction fees

Every transaction on the network will involve a fee that incentivizes validators and replicators while protecting the network from spam attacks. The fee rate will vary.

Staking Rewards for Validators

Rewards will be SOL tokens, and the number will depend on the network’s inflation rate, the global amount of SOL staked, the volume of network fees, and for delegators, the validator’s commission rate. Many specifics are still under consideration and will likely be rolled out in the same process as inflation proposals.

Staking Rewards for Replicators

Anyone may offer the network storage space and use basic hardware such as a laptop to become a replicator. Replicators will earn SOL token rewards proportional to the number of successfully validated Proof of Replications provided to the network; thus, the amount of storage provided.

Staking risks

Validators and their delegators are at risk of being slashed. Downtime will not be punished by slashing, but both signing illegal transactions and voting for an inferior fork will result in a loss of tokens (slashed). Partial slashing may be implemented in case multiple validators are slashed simultaneously.

Governance

Long-term governance will be conducted under the Solana Foundation, a Swiss non-profit entity established in June 2019. Various stakeholder groups within the Solana community (validators, replicators, users, developers, and token holders) will elect the foundation’s board. Solana Labs transferred network governance to the Solana Foundation in 2020.

The Foundation commits to delegate 80% of their treasury evenly amongst nodes to:

  1. Improve the network’s censorship resistance and security
  2. Encourage growth of validator numbers through providing a baseline delegation.

Governance happens on-chain, with community voting accomplished via SPL Tokens minted based on the total active stake, then distributed to voters based on their stake weight.

Project status

They released the newest version of mainnet beta, v.1.4.24, on January 20th, 2021. This version was already running on the testnet since October 2020, finally coming to mainnet beta this month!

This release contains updates for improvements to memory on startup, various RPC timeout issues, and bug fixes. It also enables inflation rewards once the community votes on full-inflation for mainnet.

The full-inflation on mainnet will look similar to its state on the testnet, with an initial inflation rate at 8%, a long-term inflation rate of 1.5%, and a dis-inflation rate of -15%.

The Solana team released a proposed schedule for establishing inflation on their mainnet. The Foundation is hosting on-chain community voting to allow representatives the right to enable full-inflation. The proposed schedule breaks down into a Nomination period, Upgrade period, and Voting period:

If everything goes as planned, we should see inflation on the mainnet by the middle of February.

Community + Solana Ecosystem

In 2020, Solana dedicated significant resources to building and sustaining a large community of users, developers, and evangelists. The Solana Foundation established various programs to benefit both their protocol and ecosystem, funding projects like the Wormhole Bridge that connects ETH and ERC20 tokens to SPL tokens. The Wormhole Bridge helps existing projects, platforms, and communities seamlessly move tokenized assets across blockchains.

Micro payments and low-cost transactions make Solana attractive to video games and subscription services. Back in October, Audius announced its plan to build on Solana. Audius has over 1 million users, leading to increased gas times and load times on their chain.

Solana also hosted a hackathon with over 1,000 registrations and 60+ project submissions. Projects ranged from DeFi and Web3 to NFT gaming and core infrastructure, with promising results in fostering community engagement.

Solana maintains a list of all projects developing on their network here, demonstrating the value of community involvement in the protocol’s growth and success.