Executive Summary

• Solana is a high-performance network boasting a thriving decentralized finance (DeFi) market, while also acting as an incubator for emerging industries.
• Solana’s speed and affordability make it stand out from its predecessor competitors. 
• In addition to a Proof of Stake consensus algorithm, Solana operates on a Proof of History protocol, acting as a trustless global clock to ensure fair transaction ordering, reducing fee-based arbitrage, and enabling equitable, high-speed blockchain processing.
• Solana uses Rust, a programming language designed for performance, reliability, and memory safety.
• Solana was able to regain and solidify its stability, learning from infamous outages of recent years. 
• Firedancer validator client is a solution anticipated this year to help reduce network congestion and solidify Solana’s role as a top solution.
• The new U.S. administration is already boosting confidence in crypto, particularly in DeFi ecosystems like Solana, a sector eager for regulatory clarity.

Solana, the fourth-largest cryptocurrency by market capitalization, is a high-performance blockchain network powered by its native token, SOL. Designed for scalability and mass adoption, Solana operates as a settlement layer for a wide range of use cases, including decentralized finance (DeFi), non-fungible tokens (NFTs), remittances, gaming, and more.

Solana’s architecture addresses critical challenges in decentralized networks, particularly slow transaction speeds and high costs. By leveraging a groundbreaking timekeeping technique called Proof of History (PoH) in conjunction with Proof of Stake (PoS), Solana enables unparalleled transaction efficiency. The network can handle thousands of transactions per second with minimal fees, making it ideal for high-throughput applications such as DeFi, Artificial Intelligence (AI), Decentralized Physical Infrastructure Networks (DePIN), and other emerging technologies.

Whether you’re an institutional investor exploring blockchain opportunities or a tech enthusiast interested in cutting-edge innovations, Solana offers a robust and scalable foundation for the decentralized future.

How does Solana work? 

This section will briefly outline how the Solana blockchain operates – including its consensus mechanism, how blocks are produced on its decentralized distributed network, and how it addresses issues prevalent on similar smart contract platforms such as Ethereum. With a benchmark throughput of up to 65,000 transactions per second (TPS) and block time generation of 0.4 seconds puts the Solana network on par with highly proficient centralized systems. At the heart of those features is the network’s ability to provide means to reach consensus on a global clock without the need for substantial peer-to-peer messaging.

Proof of History (PoH)

Before settlements on the Ethereum blockchain, miners generally prioritize transactions from high to low transaction fees rather than their respective timestamps. As such, this leads to exclusions of transactions with relatively lower fees — and hence prices out microtransactions. Furthermore, given the open-source design of Ethereum, bots take advantage of market signals to prioritize their trades in a block in order to seize opportunities — such as timely participating in a token sale or an NFT auction. This concept is dubbed Maximal Extractable Value (MEV), as transaction fees represent a portion of miners’ revenue alongside the block reward.

Solana’s Proof-of-History (PoH) protocol aims to address this issue by establishing a trustless, secure source of time or a global clock preventing arbitrage based on transaction fees and time discrepancies amongst validators. Proof of History is an add-on protocol – not a consensus mechanism – that embeds the passage of time into the blockchain data structure as it constructs a chronological record of events. It can achieve this outcome as it is a high-frequency verifiable delay function (VDF). This algorithm dictates applying a set of consecutive steps for proper evaluation without parallel processing.

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Solana relies on a serialized reiterative algorithm, SHA-256, for hashing every transaction and documenting their chronological order. As such, processed transactions are both hashed and introduced as the input for the subsequent transaction. As a result, the harmony around the time and order of the transactions expedites the time needed to verify them, as this process doesn't require validator communication.

Tower Byzantine Fault Tolerance

An integral part of Solana’s consensus mechanism involves Tower Byzantine Fault Tolerance (BFT), which leverages PoH as the network’s global clock for reaching an agreement while preserving the properties of BFT and abstaining from synchronization on every block. The protocol ensures that network validators or nodes act in the network's best interest by allowing up to one-third of faulty network nodes. Furthermore, the protocol keeps them in harmony by availing Proof of History as a cryptographic clock that bakes in vote lock-outs when validators vote for a particular fork.

Turbine

Another critical component that aids with the swift dispersion of data is the turbine protocol. Turbine is a block propagation protocol that breaks down transactional data into smaller packets. It was invented by Solana and heavily influenced by BitTorrent technology. Turbine vastly improves the network’s processing capabilities, as distributing copious amounts of data to all the nodes can be a significant hindrance. Solana’s architecture allows network leaders to break down blocks’ data into smaller packets and then broadcast them to a group of validators known as a neighborhood. They subsequently disseminate another portion of the data to the following neighborhood, and so on. A potential weakness can be the reluctance of a node to retransmit data; nonetheless, it is addressed with the relaying of erasure codes alongside the packets of data. This system helps increase the network capacity by preventing dispersing whole copies of the ledger, thus allowing for higher transaction throughput.

Sealevel

Sealevel is Solana’s parallel smart contracts runtime. Most second-generation blockchains are single-threaded processors – indicating that only one smart contract can modify the state of the network at a time. This creates a bottleneck as the Ethereum Virtual Machine (EVM), for instance, inspects each transaction to ensure that they are not at odds with one another. In addition, the EVM investigates the status of all account balances, whether individuals or smart contracts, stored in the network’s state.

Solana introduces a hyper-parallelization transactional engine that can process up to thousands of smart contracts simultaneously, since Solana’s transactions “specify the states a transaction will read or write while executing.” In that case, non-overlapping transactions found to be in the same state can be run concurrently without any issues, leading to higher network performance.

The SOL Token

The SOL token is the native currency of the Solana network. As of January 25, 2025, Solana’s circulating supply is approximately 486.65 million SOL tokens, with a total supply of around 592.78 million SOL. The currency functions as a utility token for accessing services on the ecosystem and powering them, namely for paying transaction fees when issuing transfers or interacting with smart contracts. SOL can also be used in staking to generate rewards and eventually participate in on-chain governance.

The network strikes a balance between deflationary and inflationary models as it features a 7.7% inflation rate attributable to staking. This rate is set to decrease by 15% annually until a long-term stable rate of 1.5% is reached. In 2022, Solana introduced priority fees with a token-burning mechanism, where 50% of each fee was burned to manage congestion and reduce the circulating supply. However, this model led to imbalances, as users often bypassed the burn by making side deals with block producers, undermining validator incentives. In May 2024, validators voted (77% approval) to end the burn mechanism under proposal SIMD-0096, redirecting 100% of priority fees to validators to enhance network security, efficiency, and alignment of incentives.

Governance and Treasury

The Solana Foundation, a Swiss non-profit organization, is expected to maintain possession of the network’s intellectual property and assist with the broader development of the blockchain with Solana Labs, based in the U.S. Likewise, the latter is also expected to continue as a core contributor to the growth of the network.

As for when it comes to the token distribution, 16.23% of the total supply was allocated to seed sale, 12.92% for founding sale, 5.18% was directed for validator sale, 1.88% towards strategic sales, 1.64% meant for CoinList Auction, 12.74% for the team, 10.64% for the foundation, while 38.89% intended for community token distribution.

The State Of Solana

Anatoly Yakovenko published the Solana whitepaper in November of 2017, and the first open-source prototype was demonstrated in February of 2018. The success of the single-node testnet was shortly followed by the release of the Multi-Node testnet in mid-2018, illustrating the scalability capabilities of the Solana network. In 2019, on-chain programs, multi-region, multi-cloud and incentivized testnets were launched. Since the Mainnet launch in March 2020, continuous improvements and optimizations have been made to the network, increasing its stability and security.

Solana’s initial coin offering (ICO) in March 2020 raised approximately $1.76 million, with tokens priced at $0.22 each.  As of January 27, 2025, Solana (SOL) is trading at $251.28. This represents a value increase of approximately 1,142 times (or 114,100%) since its ICO. Since the ICO, the market capitalization of Solana has grown to $117.3 billion, ranking number 5 on Coingecko, with 193.526% yearly growth and a 24-hour trading volume of over $4.7 billion across various exchanges. The Total Value Locked (TVL) in Solana reached $11.8 billion by January 2025 with almost 30% dominance from Jito, one of Solana’s native liquid staking platforms — the counterpart of Lido, which dominates Ethereum’s TVL by 47.5%. For context, the current Solana TVL is equivalent to Ethereum's in December 2020. As of writing, over 80% of Solana’s TVL emanates from three projects: Jito, Raydium, and Jupiter. 

At 21Shares, we anticipate substantial growth in SOL staking across diverse projects driven by innovative financial services on Solana. These include emerging restaking protocols, novel liquid staking iterations, and proliferation of delta-neutral yield strategies leveraging Solana's LSTs and derivatives, similar to Ethena. We also expect the stablecoin market on Solana to surge, potentially growing by 50% from $10B to $15B, building on the momentum from 2024. AI agents are poised to be a significant part of the ecosystem, with Solana currently holding over 50% of this emerging sector's market share. We expect this dominance to persist, driven by Solana's cost-effectiveness and high transaction capacity, which are essential for demanding applications.

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As of writing, the Solana network has recorded 365 billion transactions through a vibrant ecosystem composed of more than 400 applications in various sectors, mainly decentralized financial services, and crypto art and games. The use of Rust over EVM-compatible Solidity as the core programming language has been identified as one of the key constraints for developers building on Solana. To facilitate ecosystem growth, the Solana Foundation hosts annual hackathons. For instance, the “Radar” hackathon took place in November 2024, encouraging participants to build the next breakout crypto startup. There were over 10,00 participants from over 120 countries, with 1,359 project submissions competing for a grand prize of $50,000 USDC, demonstrating the interest and strength of the growing community and continued developer support. As a result, Solana became the #1 ecosystem for new developers in 2024, overtaking Ethereum who occupied this place since 2016, according to Developer Report.

Reviewing Solana’s performance in the past year, the network has experienced significant and exponential growth. The value and rapid adoption of the network were reflected in the SOL price jumping by 44.71% in November 2024 alone, outperforming Bitcoin’s 38.69% jump in the same time period. This growth has largely been attributed to one main sentiment: the excitement over a political environment that would pour in favor of crypto, specifically DeFi ecosystems like Solana.

The Future of Solana

Solana’s business is cushioned by the most progressive crypto environments on the planet. The Solana Foundation is based out of Europe’s “Crypto Valley,” Zug, Switzerland, while Solana Labs is based in San Francisco, California. Solana’s future appears highly promising, bolstered by support from the Trump administration for homegrown cryptoassets. On Inauguration Day, the president and first lady launched official memecoins on the Solana network, driving a surge in activity. Despite the increased demand, Solana maintained impressively low transaction fees, with an average of just $0.27 per transaction—significantly lower than Ethereum’s $1.64 on the same day. This highlights Solana’s efficiency and scalability, even during periods of heightened network usage. It’s worth noting that Solana's robust performance during this activity surge, handling up to $45B in transactions on January 20 without any outages, demonstrates the network’s progress towards their North Star of becoming "Nasdaq on the Blockchain." This feat is particularly impressive when compared to Nasdaq's average daily volume of $120B, underscoring Solana's growing capacity to handle significant financial throughput

Decentralized Physical Infrastructure Networks (DePIN) represent an emerging crypto subsector focused on outsourcing and optimizing physical resources through decentralized systems. Solana powers DePINs like Helium (broadband), Hivemapper (mapping), and Render (3D rendering), which demand high-speed, low-cost transactions at scale. Solana’s fast and efficient blockchain provides the necessary infrastructure for these applications to operate smoothly and cost-effectively.

Over the past years, Solana has garnered partnerships with legacy players like PayPal and Visa. In 2024, Solana forged integrations with Shopify and Stripe on the retail side and Franklin & Templeton and Hamilton Lane on the institutional side. Solana must address network reliability issues to deepen its integration with traditional finance, especially as its network experienced downtime once in 2024 and multiple times over the past four years. Coming soon on Solana’s mainnet, the Firedancer validator client is a solution developed by Jump Crypto, positioned to reduce outages. On testnet, Firedancer was capable of processing over 1M TPS and is anticipated to enhance network reliability, solidifying Solana’s role as a top solution.

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