Solana From the Outside
Three Things #94: November 19, 2023
Autumn is in full swing and that means it’s also conference season. I’m at Ethereum Devconnect this week, and two weeks ago I attended Solana Breakpoint, so I can’t help but compare and contrast the things I saw and heard at each ecosystem’s big annual event. It may seem a little weird to write about Solana while attending a major Ethereum event but I wrote this as much for the Ethereum community as I did for Solana. Solanans (is that what they’re called?) already know Solana’s strengths and weaknesses. By contrast Ethereum folks genuinely have no idea what’s going on in Solana.
I attended Breakpoint out of curiosity since I’d never been to a big Solana event before and since I’d heard a number of promising things about the project and the ecosystem from friends. I’m writing about Breakpoint and about Solana more generally this week because the event left a fairly strong, fairly positive impression on me. My first introduction to Ethereum was also at a large developer conference, DevCon III, an experience that was, in retrospect, life changing. I wouldn’t quite say the same about Breakpoint this year but it did pique my curiosity about all things Solana, and it had a similar energy.
I shared this brief memo with my team after Breakpoint and I thought I’d expand it into something more comprehensive this week, looking at the aspects of the Solana project and ecosystem that are the most interesting and seem the most promising. Like the work I did previously in Ethereum and other ecosystems, a big part of my work at Spacemesh today involves studying, thinking about, designing, and building open source ecosystems and communities. I approached Breakpoint with this mindset: what can mature ecosystems like Ethereum and nascent ones like Spacemesh learn from what’s going on in Solana today? It certainly seems worthy of study and attention.
Here are three perspectives on Solana today.
Thing #1: Downtime? What Downtime? ⛓️💥
Let’s start with the tech. It’s the most straightforward thing to like about Solana. Solana’s technology isn’t perfect but it’s not bad and it’s improving. It’s had some episodes of downtime but the issues that caused that downtime have been identified and addressed and the network has been stable for about nine months. The Solana team is trying to build a single, integrated global state machine that can handle tens or even hundreds of thousands of transactions per second, and can process those transactions in parallel. When airplanes take off they mostly fly just fine; when we launch rockets they mostly take off just fine. Solana is mostly flying just fine at the moment. It’s very technically ambitious and I think the team deserves credit for achieving stability.
As I wrote around the time we launched Spacemesh, you should always be a little embarrassed by your first release, you should minimize time until your product comes into contact with the market, and you should iterate from there. That seems to be the Solana approach, so in this respect at least I’m Solana aligned. Personally I’m willing to forgive occasional downtime early in the life of a project and I think it says more about the project launching before it was perfect than it does about any fundamental flaw in the technology. Also, people have short memories: almost no one remembers the issues Ethereum faced in 2016, which in many ways resemble Solana’s issues.
In fact, Solana calls its mainnet a “beta” which feels accurate and appropriate. It’s a little obnoxious and a little hypocritical, but as long as they don’t do what Gmail did and keep the “beta” tag around for five years it can be forgiven. It’s a good reminder that the software is still evolving rapidly and still has bugs, so you shouldn’t invest more than you can afford to lose on it. I feel exactly the same way about Spacemesh, and have to constantly remind people that it’s alpha software.
Ethereum also used to “move fast and break things” in its early days and I imagine Bitcoin probably did, too (though I wasn’t around at the time). It’s easy to do this early in a project’s lifecycle when there isn’t much at stake. That pace of change necessarily slows as a project matures, as there’s more at stake, and as there’s a greater and greater “installed user base” who would be upset if you do in fact break things. Solana is still in this phase, and it’s the most fun phase in the lifecycle of a project: when it’s live and you get real time feedback from the user and the market, but at the same time it hasn’t ossified and you can still think big and do really interesting things. If Solana continues to grow this will eventually become difficult, but I urge the community to delay that day as much as possible in order to both have fun now and also to make Solana as good as it can be.
What I respect most about Solana’s technology is that the project has chosen a very clear and lonely spot on the decentralization trilemma solution space. At one extreme you have centralized databases (i.e., Web2), or blockchains that are DINOs (decentralized in name only). At the opposite extreme you have extraordinarily decentralized blockchains like Bitcoin and Spacemesh. Ethereum is more Bitcoin-aligned and more towards the decentralized end of the spectrum, but it’s becoming more centralized. And Solana has staked a claim to be “decentralized enough” while still fulfilling its vision of being a single, integrated global state machine, a vision that’s totally the opposite of Ethereum’s modular vision. Basically every other layer one blockchain has struggled to find a comfortable, unique spot along this spectrum and as a result has struggled to differentiate itself.
The people I spoke to at Breakpoint told me that, while Solana is “probably decentralized enough,” they recognize that there’s room for improvement. It also struck me that no one I met was bothered by Solana’s previous episodes of downtime. The topic didn’t come up once, not in conversations, not in talks, and not on the panels I listened to. It was sort of conspicuous in its absence. So many of the people I respect and listen to wrote Solana off a long time ago as unreliable and as trying to solve an impossible problem. I did, too, for a while. But I respect Solanans for not giving up on that vision and for making meaningful progress towards it in spite of the hate and FUD, much of it coming from the Ethereum community.
The people I met at Breakpoint feel like a bunch of nerds that are genuinely excited to talk about how to build a better, faster global state machine. Nothing to complain about there. I can count on one hand the number of blockchain community events and conferences I’ve attended that had such a high level of discourse involving good, interesting tech.
Thing #2: Came for the Tech, Stayed for the People 🤸♂️
The thing that first attracted me to Ethereum was the technology. Concepts like a decentralized world computer and smart contracts blew my mind when I first learned about them. They excited the computer scientist in me and lit my brain on fire. But what really impressed me about the first Ethereum event I attended was the people. It was the most unique, interesting, curious, intellectual, renegade group of people I’d ever met. Ethereans didn’t fit neatly into my existing mental map. I had so many inspiring conversations at that first DevCon that I went to another Ethereum event, then another. The rest is history.
Over the years I’ve attended events in around a dozen other, non-Ethereum ecosystems. With a few notable exceptions, they haven’t been very good. This is usually because of the quality of people they attract and the things those people want to talk about. Events in blockchain and cryptocurrency nearly always attract people who just want to shill their own project, or who want to talk about how wealthy they are, or how wealthy they’re going to be. The quality of discourse in Ethereum aside, the crypto community has earned its scorn and bad reputation.
A good bellwether for the quality of an event is the builder to non-builder ratio. An event with at least half builders is almost guaranteed to be a good event. Most crypto events have few to no builders (who, unless they’re nerding out with other builders, would generally rather be left alone to get on with the building), and tons of self-styled “investooors.” I’ve been literally the only builder in the room many times, and there’s nothing worse than that. It makes me want to melt into the wall.
I’ve been to Solana events in the past and, while they weren’t among the worst, they failed to impress me overall. The ratio of builders to investors and those looking to make a quick buck was quite low and the quality of the projects was quite low: mostly projects trying to ape Ethereum DeFi apps. Solana was pretty clearly overly financialized from too early in its lifecycle, which I blame on the investors that backed it including Alameda, and maybe also the timing of its launch. This really detracted from the quality of the discourse and I think it caused a lot of serious builders to steer clear. It’s so important to strike a delicate balance in terms of the composition of your ecosystem from the earliest days, and frankly I think Solana did a poor job of this early on.
Most people only give a project one chance to impress them. I don’t blame most people, given the degree of noise and nonsense in our industry. Working in crypto is like living in New York City: you learn to tune out almost everyone and everything because it’s the only way to get through the day.
I decided to give Solana a second chance and attended Breakpoint this year, and this time it did impress me. More than anything it reminded me of Ethereum DevCon circa 2018: some tech, some art, some gaming, some funky unique culture, lots of first-timers. It has a less whimsical, more polished vibe than Ethereum—less rainbows and unicorns, less awkward, cryptography autists, more neon and people who talk nice projected on huge, ultra sharp screens—but the vibe was still fun overall, like Solana doesn’t take itself too seriously. It felt approachable but not overly corporate, which is a difficult balancing act. It was big but not overwhelming: a few thousand attendees, which seems to be a sweet spot; pretty much everything declines as it scales beyond this point.
Most importantly I was impressed by the people I met. I tried to have as many random conversations as possible with developers. Since it was my first Solana event I was very curious to ask them some basic questions: What brought you to Solana? Why not Ethereum? What do you think about Ethereum and other platforms/ecosystems? What do you like/dislike about Solana? What does decentralization mean to you? How’s the dev ecosystem/dev tooling/developer experience on Solana today? Etc.
I met plenty of smart, thoughtful, motivated builders who by and large were quite honest and thoughtful about the upsides and downsides of Solana and the challenges it’s facing. They mostly found Solana after trying Ethereum and feeling that Ethereum was too slow and too expensive—no big surprises there, and Ethereum sort of deserves that criticism. They’re mostly quite open-minded, are strong believers in “a multi-chain future” (this phrase came up so often I lost count), are not maximalists, and also want Ethereum and Bitcoin to succeed. They respect and admire Anatoly but also recognize that for Solana to succeed it also, like Ethereum, has to move towards multipolar governance and become more politically decentralized. They’re genuinely interested in the technical questions and challenges that Solana faces, which are admittedly many and interesting. They generally feel that, while far from perfect, the Solana tech is good enough for now and that both the core platform and the tooling are improving rapidly.
If I attend another Solana event—and I should like to—it’ll be for the people more than anything else. I had tons of interesting conversations and was introduced to lots of new ideas, which is the most you can ask of any conference that brings people together from around the world. Ethereum events used to feel that way. They still do, to some extent, but I get the feeling lately that Ethereans have taken their eyes off the ball. They’re not paying attention to Solana and other projects that threaten to steal Eth’s thunder, out of a sense of entitlement. Ethereans endlessly debate tiny topics (account abstraction) and lofty, obscure, abstract goals (“public goods funding”) while missing the larger picture. By contrast projects like Solana are doing a better job of figuring out the tradeoffs and sacrifices that must be made to build usable applications and, hopefully, achieve mainstream adoption.
It’s been Ethereum’s race to lose for a while and I think the cracks are starting to show. But that’s a big topic and I’ll save it for a future issue!
Thing #3: Money, Money, Money, Money 🫰
So far so good. But now we turn to the most complex and, in my opinion, most important topic: economics. Because what’s a blockchain if not an economic engine?
I asked everyone I met at Breakpoint about economics. Most people broadly said the same two things. First off, like me they don’t really understand Solana economics and couldn’t, e.g., even tell me how much staking yields are (apparently it’s currently around 6.8%). Secondly, they don’t care too much.
I get it. Economics is complex, nuanced, and difficult to understand. That nuance is lost on most people. Most people don’t get further than coin price. Even asking people to understand market cap is a stretch, which is why unit bias is real. Most people don’t understand how inflation is calculated or what the numbers mean—or that it means their own coins are losing value.
And Solana economics is particularly complicated. I read as much as I could about the topic this week but the information I found was unclear, out of date, incomplete, and contradictory. The official docs egregiously totally fail to mention the premine or any concrete numbers at all. I found several different numbers for things like current and final issuance, inflation, and premine size. I even tried asking but didn’t get any good answers. It’s sort of crazy to me that a project as mature as Solana doesn’t have a single, clear issuance chart like Spacemesh does. I get that the numbers depend on variables like total staked coins and transaction volume, but it wouldn’t be too hard to retrospectively update such a chart every so often. In any case I did my best to make reasonable guesses and estimates. Economics is the part of Solana that I remain the most skeptical about and nothing I learned this week made me feel otherwise, sadly. I’ll try to explain why.
As I mentioned above the thing that first turned me off about Solana was the early financialization. I understand that new projects do this because other projects have done the same and because investors expect them to. But it’s not ethical because it leads to investors and insiders dumping heaps of coins on uninformed retail investors, and it’s not the right, sustainable way to build a community-driven open source project.
If the project is worth too much too soon it causes all sorts of problems. Anyone who wasn’t a lucky, early insider resents the fact that they forever missed the initial value creation event. Sudden, massive wealth creation leads to entrenchment of economic classes within a community, which is more or less impossible to fix and leads to many social ills including an out of touch, entrenched early elite.
Let me be clear: I’m not saying that capitalism is bad or that the early team and investors don’t deserve outsize returns for believing in the project early, getting it off the ground, and taking on lots of risk. They do. (Capitalism ain’t perfect but I have yet to see a better option.) But it’s important that this process play out slowly, and in particular it’s important that that return should come after the project has launched, found product/protocol-market fit, and created real value for people other than those early insiders. There should be no liquidity events, no coin sales, etc. prior to this. To do anything else, such as handing hundreds of millions of coins to early insiders and dumping them on the market during bull runs before the project has done anything of note, is to fundamentally misalign incentives. It’s a mistake from which you cannot recover.
As I wrote recently, we made the difficult decision at Spacemesh not to raise too much money and to have the smallest possible footprint on chain in terms of coins allocated to early team and investors, with standard vesting. Not every investor likes these terms, not every investor understands why we’re doing this (which has made fundraising harder) but enlightened investors understand it and appreciate that we’re here for the long term and that we’re trying to take the high road and do this the right way, even if that means it’ll take longer.
I joined this industry years ago in order to build something novel and different, something that puts everyday people everywhere on a level playing field and in the driver’s seat of their lives. This goal is more important today than ever before. In short, I’m convinced that proof of stake ain’t that thing. Of a total supply of around 560M coins Solana issued around 280M coins to investors prior to genesis. Why so many? Why did they feel the need to have such a large premine? Why not leave more value on the table for future generations of network participants to earn in a credibly neutral fashion? I suspect the answer is, “it’s what the investors asked for”—but then the question becomes, why did Solana need to raise as much money as it did? Spacemesh built something of comparable complexity for around 5% of the money Solana raised. I don’t mean to discount all of the other things that Solana has invested in, such as ecosystem building, grants, events, marketing, etc., nor to suggest that those things are all unnecessary, but it still feels like they could’ve done fine with significantly less—and left a lot more on the table for the community.
The question we should ask ourselves is, Who is this blockchain for? Is it for you, the lucky insider, who happens to be an accredited investor with access to private sales? Or is it for me, the ordinary person, who can add value in so many other ways? When half of the coins that will ever exist are reserved for those insiders, sadly the answer is pretty clear.
I intended to write about Solana, not Spacemesh, but when it comes to economics I can’t help but offer Spacemesh as a point of contrast. Because this isn’t theoretical. It’s tempting to say, “Well, sure, Lane, that sounds nice in theory but in practice you really do need to give half your coins to investors to get a project this complex off the ground.” But you don’t. Spacemesh is also a live, healthy layer one chain and since successfully launching a few months ago we’ve proven that you can do better. A lot better.
We reserved 75% of the coins at the ten year mark and 93.75% of long-term issuance for the community. The other 6.25% goes to investors, team, and treasury—and some of those treasury coins will be handed to the community over time, too. I’m proud of this economics. It wasn’t easy to get this done and not every investor and every insider likes it, but it’s a very clear statement: Spacemesh exists first and foremost for the community, not for insiders. I challenge other blockchain founders to do as good or better for their community. If they’re unable to do so, if they fail to do as well by their community as we have, I challenge them to explain why, openly and honestly, to their community.
Economics in the default world are hard enough for everyday people. As we’re all aware the cost of living, including food, transport, healthcare, education, and especially rent, are rapidly rising and wages aren’t keeping pace. Our governments are attempting to address these imbalances by printing more and more money, but the majority of that new money goes to people in positions of power, influence, and authority. Why would we want to recreate this world on chain? Blockchain gives us the opportunity to build something fundamentally better, fairer, and more egalitarian. To fail to even attempt to do so is cowardice plain and simple.
As I hope I was able to describe above Solana has gotten a lot of things right and the energy in the community is quite positive. I think Solana as a platform and as an ecosystem has a lot of potential and I wish it the best. As I mentioned, I think most people don’t actually think or care much about economics so I don’t mean to suggest that Solana won’t succeed in spite of these problems. Economics also doesn’t matter directly for many classes of applications. As long as the chain continues to work, is reasonably secure, and fees are reasonably low, that’s probably enough for most users and most applications. (The popularity of USDT on Tron has proven as much.)
But economics does matter a lot to me and to a minority of other stakeholders. And as far as I can tell Solana got its economics fundamentally wrong and I fear this is a mistake that can’t be fixed. Broken economics, and more generally a lack of understanding about those economics on the part of decision makers, is one of the biggest reasons I stopped contributing to Ethereum a few years ago and I refuse to contribute to another ecosystem that’s made many of the same mistakes. Over time, as the hype fades and as better alternatives appear, I do believe that more people will understand and become cognizant of blockchain economics, and that the chains that win long term will be the ones that put the community first economically. That’s what we’re wagering on at Spacemesh.
If you’re a Solana fan, help me understand why I should care about Solana from an economic perspective. What’s in it for me, an outsider, and for billions of other regular people? Why do insiders deserve half the coins that will ever exist? And why does the community deserve only 38.89%? I just can’t understand this and why this is okay, and just as I did in Ethereum I refuse to normalize this behavior on the part of Solana.
If someone cares to explain to me why I should contribute in spite of these economics I’m all ears and willing to be convinced otherwise. Until that time I’ll keep watching Solana from the sidelines.