97% big dump didn't kill it: Solana's eight-year blood and tears history unveiled - it turns out that true strong ones never follow the script.

Original title: How Solana Survived When Most Other Coins Fell

Original author: NEW ECONOMIES CryptoLeo, Odaily

Source:

Reprint: Daisy, Mars Finance

In a bear market, a qualified SOL guardian is trying to boost your confidence again. Solana co-founder Anatoly Yakovenko was interviewed by NEW ECONOMIES in November, discussing the origins and development of Solana, as well as its lows and recoveries, and touched on topics related to regulation and stablecoins. Additionally, Anatoly outlined a grand vision for the future of Solana. Odaily Planet Daily has compiled it as follows (due to the abundance of trivial content, the key points will be presented in the first-person narrative):

The origin of Solana, from side hustle to full-time.

Solana originated from a “perfect storm,” when a friend and I started a venture project, more accurately a side business, where we were working on AI-related things, like deep learning servers, and we also used these GPUs to mine cryptocurrencies to pay for the purchase of these GPUs. But a question arose in my mind: why would people spend money to pay for our AI-related products? After having two cups of coffee and a bottle of beer, my partner and I talked about mining, PoW, Satoshi Nakamoto consensus, and algorithms, as well as why using electricity is so important in this process.

I spent most of my career as an engineer at Qualcomm. Most people should know that Qualcomm is deeply involved in wireless protocols, radio technology, and mobile devices. Your phone likely uses Qualcomm products, and it may also use products that I helped develop.

I stayed up until four in the morning that day, and suddenly had a flash of inspiration. I thought of encoding the passage of time into a data structure. I recalled the protocol originally used in cellular networks, called Time Division Multiple Access (TDMA). This concept first appeared in the 1960s and 1970s and is very simple: it divides time into segments and then uses different time slots to transmit data, which avoids interference and allows more information to pass through. I thought of this because Bitcoin and the PoW mechanism face similar problems.

If there are two block producers, and both miners generate blocks simultaneously, a fork will occur, causing the network to be in a chaotic state where information cannot be transmitted normally. You have to discard one of the blocks. Therefore, if we can allow the two block producers to take turns producing blocks, conflicts can be avoided, and the bandwidth utilization of the protocol can be maximized. I made a rough calculation and found that its throughput is 1000 to 10000 times higher than that of Ethereum or Bitcoin at that time.

The idea came to me, maybe I should start a company. The smart contract platform really interests me because it provides developers with a whole new application development environment, and these applications are different from those built anywhere else. Therefore, you cannot directly build smart contracts on regular AWS servers; you need the verifiability, cryptographic guarantees, and so on provided by the blockchain, which makes it possible to write code that can handle funds.

At that time, many people believed that databases like those on Wall Street controlled the funds, which were monitored by humans, and many products were just optimizing the work of these people. Smart contracts, on the other hand, are completely different; the software itself is responsible for holding the funds and is the sole authoritative source of the flow of funds. Therefore, to some extent, smart contracts have subverted the entire data model.

At the beginning of entrepreneurship, boldly pursue the things you are convinced of.

At the beginning of my decision to start a business, I needed to persuade many people, and the first person I needed to convince was my wife. She is an engineer and knows me very well. I have always had a side job, always putting some ideas into practice during my spare time. We already have a child, and at that time she said, “Well, this might work, but you can't be both a worker and a father while also starting a business on the side. You have to choose one: either go all in or give up.”

It was this sentence that prompted me to make the decision to start a business. I remember she was in Colombia at the time, Facebook was expanding, and she was working at a startup that was a competitor to Facebook in Colombia, when Facebook was still in a very early stage. The experience she gained there was that the market goes through about a six-month boom period, during which everyone knows there will be a product in development that will capture 80% of the market share, and it will have certain explosive characteristics. If you miss that window, you will never be able to catch up. So at the end of 2017, I felt it was the best window to build an L1 blockchain with specific attributes, enabling it to scale to cover the globe and truly handle all global financial systems.

For me, the biggest motivation to create Solana is actually twofold: first, you have to go all out, and second, you don't want to miss out when the market is booming. I think anyone reading this who is still hesitating about whether to dive into fields like AI should wait another six months or a year; you will really miss the good opportunities. Act now, and if you've already started, that's even better.

Unlike BTC and ETH, Solana pursues trading efficiency.

Solana is a high-performance blockchain, and the key use case we have always pursued is transactions. If you consider Bitcoin as a means of value storage/digital gold, then building a value storage mechanism is not a technical challenge. In fact, ensuring settlement and global availability does require some engineering techniques. Satoshi Nakamoto's PoW algorithm and the Bitcoin white paper excel in this regard. However, you cannot develop a Bitcoin Plus version; you cannot compete with Bitcoin in this market by adding features or increasing throughput. Ethereum's goal is to treat settlement as an application scenario, with the idea that after execution and settlement at the final checkpoint, you can use the Ethereum ledger as a reliable source of truth.

I have never thought about competing in the settlement phase; perhaps there is still some technical room for improvement in this area, such as adding an execution layer, but I am more interested in the execution itself. In other words, to build a global blockchain that can handle transactions, payments, and all the operations required by users in their daily lives, all of which can be completed within a single system.

The most unique aspect of Solana may lie in its vision: no need for independent blockchains or hierarchical structures, you can integrate all functions into a huge state machine and collaborate to complete all operations at the fastest speed. Here's a data point: the transaction volume completed by Solana in its first month was equivalent to the total transaction volume of Ethereum during its entire lifecycle at that time.

Entrepreneurship challenges, financing and recruitment

There are many challenges encountered at the early stages of entrepreneurship. For any founder, making progress in the first important approval process may be the biggest obstacle, and the vast majority of companies fail at this stage. I remember having thousands of meetings. Around the end of 2017, I listed all the venture capital firms in Silicon Valley that might invest in cryptocurrencies. Fortunately, I was in Silicon Valley at that time. I think this might be the reason why Silicon Valley remains a center for entrepreneurship: you can meet thousands of people in a very short time and try to pitch your startup ideas.

For founders, being able to effectively promote the product vision and philosophy is key; otherwise, you will never be able to attract talent, never be able to sell the product, and never be able to guide users, whether you are doing B2B or B2C.

Pitching Solana is a brand new experience for me, and it's a process where I can learn and continually improve. That's why I believe that in Silicon Valley, you can build a huge list and force yourself to repeat your efforts thousands of times to ensure you ultimately reach the most valuable investors. The more familiar you become with the process, the better your pitch will be.

For founders, you are striving to convey information in the most concise way possible. In a short 10-minute conversation, you must figure out how much the other party already knows about cryptocurrency, as you don't want to repeat what they already know. You also need to explain in the shortest time possible the specific problems the product is addressing and its impact, and help them see what kind of changes the world will undergo, which is based on the philosophy of cryptocurrency.

The strategy I used at that time (I don't know if this strategy applies to all founders) was to first pitch to the company and then to that partner. Even if the company ultimately backed out, I could persuade the partner to seek a commitment, making them more likely to help me connect with other venture capital firms they know that invest in this field. In the end, this allowed me to participate in thousands of meetings and find those companies that focus on the crypto space and are more willing to take risks at an early stage, because the venture capitalists investing are also employees of the company; they invest in the company and also make personal investments.

In fact, we had already completed a round of financing and were almost done. It was the first quarter of 2018, and there was still no standard, secure, and reliable investment template in cryptocurrency that could be quickly provided to investors. We spent 6 weeks having lawyers draft the relevant documents. However, during that time, Ethereum began to decline by about 10%, and many funds went bankrupt as a result, which was the first challenge we faced in the early stages. Even so, there were still quite a few people willing to participate; they were not entirely crypto funds and did not invest 100% in cryptocurrencies. Their balance sheets held more USD, but they viewed this investment as an opportunity. In the end, we completed this round of financing, but the situation was quite unstable at that time.

At that time, I was sitting in the office of 500 Startups (now renamed 500 Global) with another co-founder, Raj (because one of the investors was from 500 Startups). He said, “I think I have to work hard, I have to fight hard.” At that time, I believed that once a product had investment commitments, it was very likely to grow bigger and bigger like a snowball, eventually turning into actual checks. However, my advice is to keep fundraising until there is really money in your bank account.

I think the second challenge is recruitment. However, I am lucky that many former colleagues I worked with during my time at Qualcomm are eager to do something new, and these people all have over ten years of experience in underlying operating systems or protocols. For example, one of those involved in the development of the Solana protocol had previously participated in the formulation of the LTE specifications. These individuals, who have a very deep understanding of networks, operating systems, GPUs, CPUs, and underlying chips, are able to understand what I said to them, 'Since you all need to change jobs anyway, you can consider building Solana as a vacation.'

I hired some experts in their respective fields whom I know very well, and everyone quickly got into the swing of things, starting to build what I believe was the most advanced network at the time. It turned out that at launch, Solana was several streets ahead of all its competitors.

From the alignment of the founders to Solana having PMF.

When it comes to work partners, the best way to describe my relationship with Raj is that it's like being in a romantic relationship, requiring full commitment. I was introduced to Raj by a mutual friend, and at that time, I had no impression of him, just an ordinary person. The mutual friend specifically said, “You are a great engineer, but other than that, you have no other experience. You need someone who can complement you. Raj has previously founded a company and did very well, but he has no engineering experience at all. You two are a great match.” We get along very well, and my wife basically calls us a 'work marriage.'

Our decision-making process is indeed exhausting, but in that high-pressure, fast-paced environment, we repeatedly debate certain viewpoints until all obviously bad options are eliminated, leaving us with what I call the Pareto optimal set (Pareto efficient means that there is no room for further improvement in the discussion). We can choose A, B, or C, and all the trade-offs seem quite similar; we have discussed almost every possible direction, and at this point, it almost comes down to luck.

It is very tiring and requires strong endurance. It also requires mutual trust and faith in each other's judgment. I believe that the CEO and the initial employees or co-founders need this kind of character; they can argue fiercely based on mutual trust, but still feel that everyone respects each other. This is quite difficult; I just like to argue, and I don't mind losing. Many shortcomings or characteristics of the CEO will ultimately affect the company culture, and in the early days of the company, any factor can trigger a debate.

Strive to build the product and complete development as soon as possible, but you cannot anticipate all possible failures. Should you assume you will succeed and then invest funds to develop some auxiliary features to solidify that success and better launch the product? Or should you first focus on developing the product well to prove you can do it, and then go on to do other embellishments? In the early stages, especially when developing complex products, you have to make many such decisions.

For example, entrepreneurial books like “Zero to One” by Peter Thiel contain a lot of great advice, and the best advice you can get is to build a Minimum Viable Product (MVP), which means creating the smallest product that can validate your idea, but this is actually very difficult to define. So you have to find your own niche market. We spent some time doing this, and it was almost forced, probably during the second year of our development cycle.

At that time, there was only about 12 months of funding left (a total of 24 months of funding was maintained), and the product was still unable to operate normally. We could only cut all other features except for the existing ones, release the product as soon as possible, and minimize the changes that needed to be made. This allowed us to seize the market opportunity and launch a product that was completely different from all other products on the market.

To some extent, during the first year of developing Solana, I wanted to take on as much product risk as possible and create a top-notch product. This was indeed part of our vision. By the end of that year, we had developed a series of features and taken on about eight technical risks. If you only take the risk of trying one technology, the probability of success is 50%. But if you try eight technologies, the probability of all eight succeeding is only 1/256. Thus, the chance of failure is significant, with various problems arising, and then we have to find ways to fix them, making repeated adjustments to bring it to market.

But it is precisely because of these decisions and the risks we took early on that we have a range of differentiated features, which are effective to varying degrees. They are not perfect, but we have indeed expanded capacity and reduced latency, and the development experience based on Solana is vastly different from any other platform.

At that time, Ethereum used the PoW mechanism, and the block generation time was about 12 seconds, but you had to wait for at least two blocks to confirm the finality of a transaction. Therefore, users needed to wait 30 seconds to confirm a transaction, which definitely resulted in a poor user experience, and the processing capacity of 7 or 11 transactions per second was too low for any scale of application.

At that time, we achieved final confirmation of thousands of transactions in just 400 milliseconds, and considering all round-trip times on the server side, it would only take one to two seconds. So users or developers who saw the performance of Solana were amazed, because Solana was so different, even though the product itself was still quite imperfect at the time. But it could run, although it would probably crash in about an hour.

Then there is the scheduling of the time to stabilize its listing, which is also the most stressful thing. You need to cut some things, such as our support for EVM, or support for a certain programming language, or the need for an advanced browser, or launching our own wallet stack, etc. Strip these away and push the most basic version to market as soon as possible. But I think defining a minimum viable product that can achieve product-market fit (PMF), which is ultra-high capacity, low latency, and removes all other features, is very difficult because you don’t really know how much you should sacrifice or what developers really care about. We are fortunate because we basically made most of the right choices and the final outcomes were greatly aided by our previous experience in developing operating systems and developer platforms.

But I think the hardest part is still the persistence of the product. Cryptocurrencies can bring a lot of deceptive viral effects. Your token price may skyrocket, but in reality, there are no users, and you are disconnected from the users. At that time, we didn't have much of a user base, but the SOL token price went up, and we needed to take this opportunity to accumulate as many actual user cases as possible. If we miss this opportunity, it will be hard to recover.

We were lucky at the first hackathon, with many people submitting their works, but the applications they created were all kinds of messy stuff. By the second hackathon, I felt like “Wow, we seem to have found our direction,” because the projects from the first hackathon were continuously improved over three months, and the final products were very polished, fully functional, and truly aligned with our overall vision for finance, trading, and DeFi.

During the second hackathon, while reviewing the entries, I found that there were huge differences in terms of quality, usability, business models, and actual entrepreneurial capabilities (such as whether they could raise funds and survive). Seeing these companies secure funding during the hackathon made me feel that we now have product-market fit, and it belongs to the core business with a path to profitability.

So I think this is the biggest change since Solana was launched. I mean, considering all factors, it's just lucky that the product reached this stage within a year of its release. Most companies take several years to figure out the best product-market fit, and I believe it really takes ten years to build a company.

From being full of vigor to suffering a heavy blow, Solana seeks survival in the midst of crisis.

Then came one of the worst lows we have experienced in the industry - the FTX incident. It is well known that FTX was one of our largest investors and partners. At that time, we were in the midst of our third Breakpoint conference, which was a massive event attracting around 1,600 developers. All our tickets were sold out, and as a result, FTX collapsed on our return flight.

At that time, the situation was like this: on the plane, I felt everything was going smoothly when the FTX collapse caused a crypto crash, and the market was in a slump. This was simply a large-scale collapse that could potentially destroy the entire ecosystem. Solana was founded in the early bear market of 2018 when Ethereum was dropping 10% weekly. So we are very cautious; therefore, we never overhire, and the company has ample funds and resources to develop and improve products.

I was very scared at the time; many Solana ecosystem projects that raised funds on FTX actually kept their funds on FTX because if their funding chain broke, it would be over, and there would be no way to replenish the funds, and all the funds would be completely drained.

Fortunately, we conducted a large survey, and the results showed that 85% of companies are doing well, while 15% of companies are completely doomed. Among these companies, there was a promising one called Armani's Backpack, which was developing a wallet at the time. They had just completed a round of financing, about 10 million dollars, and all the funds were on FTX and could not be withdrawn. They only had a few million dollars left at that time and were planning to double the team size to create a product and complete the remaining seed round financing. At that time, there were only about six of them, and I thought most companies would go bankrupt, but they successfully made it through.

Despite Backpack losing a significant portion of funds, they doubled down on their efforts and truly focused on the product. I believe they turned the situation around by launching the Mad Labs NFT series and establishing the exchange. I think Armani's anger towards FTX and the desire to create a better exchange contributed to this shift. It's like the energy that comes from a founder driven by anger; I feel they captured the attention of the NFT market and even the entire industry when they launched Mad Labs, and it lasted for a full two weeks. It felt like a complete turning point, and you will see many companies reinvesting and revitalizing.

Just like the return of the bull market. One of the biggest lessons I've learned from this is that building a company during a bull market is actually very difficult, especially in the cryptocurrency space, because the signal distortion is very severe. You don't know who your core users are, and you don't know which features are truly important for your product and growth.

But during market downturns, if you have 10 to 20 loyal users who frequently use your product, especially in the financial sector, and you have a deep understanding of the value your product brings to them and continually optimize it to make it better each week, then during a bull market, you will see tremendous growth. First, these users will become your biggest advocates, and second, your product will be highly optimized for specific use cases.

The product has already achieved product-market fit, and the financial industry is very cyclical. During a bull market, the time risk can generate a huge volume of transactions and revenue, so you need to ensure that your product is highly optimized and ready to scale, regardless of what your business model is.

So it's really interesting to see those companies I interviewed after the FTX collapse; they basically all said, “We will continue to optimize our products. We have enough funds. Let's see what happens next year.” All of these companies succeeded and did exceptionally well.

The most serious issue was that the price of SOL dropped by 97% from its peak, and most people believed that SOL was already dead.

I think it's great to have a co-founder who loves crises. Some people are naturally more suited to operate in crises because your decisions are limited, and you have to act quickly. What we do most is communicate with founders who continue to grow their companies, helping them as much as we can to achieve product-market fit and clear obstacles for them. But at that time, we couldn't provide financial support because the funds were completely depleted.

The FTX incident surprised me about Sam; as you saw in the interview, he is the kind of super nerd, a quantitative analyst from MIT, a geek. They actually went completely bankrupt. But when I think about how huge the losses from that chaos might be, it's truly unbelievable.

In the context of more comprehensive regulation, will there be more chaos in the future of crypto?

I believe that the frequency of hacking attacks in engineering has significantly decreased, largely because innovations in smart contracts have reduced, and many uses of blockchain have already been explored. Smart contracts are starting to become commoditized; once deployed, you only need a certain number of CPMM automated market makers, without the need to take on the enormous engineering risk of building another one.

Similar to Bonding Curve, lending protocols, etc., you will see that the attack surface for hackers has been reduced. Whenever there is a large amount of innovation in the field of smart contracts, it is accompanied by many risks. In addition, I believe that now there are better tools, formal verification, better testing, and a deeper understanding of related attack vectors, which has led to improvements in how people deploy these aspects. The risks have significantly decreased, and with the launch of new financial systems, their risks are lower for a simple reason: they rely more on on-chain technology.

Regulatory issues are a major challenge faced by many exchanges or institutions. If regulations are too strict, it can lead to excessive time consumption and high costs. For example, obtaining a license might take two years, but one cannot wait two years to gain market share. Projects may choose to relocate their business to overseas markets with less regulation and utilize banking infrastructures that are not as well-developed as those in the U.S. to establish their operations, resulting in a variety of problems. I believe that many failures in the last economic cycle fundamentally stem from this.

Now the United States has a stablecoin bill, and the SEC has also turned over a new leaf, making it much easier to start a business here. However, the U.S. is indeed lagging behind; Japan, France, and the UK have already introduced laws related to cryptocurrencies, making the development related to cryptocurrencies much easier. Japan may be the best place, as people from developed countries are all getting into cryptocurrencies. It is precisely for this reason that projects like FTX Japan can be so successful; they are actually far ahead, but compared to the U.S., the size of the Japanese market is indeed small.

Looking ahead, Solana's vision is to absorb financial services.

There are no engineering or technical reasons preventing the development of Solana. Solana's grand vision is that it can handle payments, transactions, contracts, IPOs, and all other businesses, all of which can be completed through a single chain using the same execution engine. Accelerating the circulation of the dollar, participating in the IPO market, and completing any transaction globally is a project that requires significant effort and dedication. Optimizing it to perfection takes a lot of time, but from an engineering perspective, there is no reason to prevent its existence.

So this is what we really want to build. If this system exists and has PMF, and everyone is using it, then you can actually reduce financial costs to the same minimum level as physical costs. This can also be said to be the final state of software eating the world (that is, the financial world).

The Solana ecosystem has many advantages because it is a more mature market that is growing faster and continues to expand. However, I believe competition to realize this vision will be fierce. I'm not sure if there will be a blockchain on the scale of Google that can handle 99% of significant transactions. There are two main reasons for this: first, countries with unique regulatory systems and firewalls may have their own blockchains; second, everyone wants a piece of the pie.

Even Google has launched its own chain. What will fintech companies and related businesses look like in the future, such as which platform to guide retail investors to, and how these integrations will take place is still uncertain, but I believe Solana is that platform, so we will wait and see.

In the case of developing in this direction, what I truly want to see in the future is that companies in the U.S. and Silicon Valley that want to go public can do so through a simple method I call “zero-to-Linux IPO,” achieving IPOs faster and at lower costs. Founders like me, if we want to do this, can use on-chain immutable smart contracts, which can be written into the S1 documents submitted to the SEC, and indicate that you are using this contract for a direct listing on this public commercial blockchain. These have auction properties, and I can directly list my equity on-chain, which will become the true source of the equity structure table and allow the public to access this information at any stage of the company's establishment without paying any fees to any investment banks, with no indirect costs. All incentives and any fees you would typically pay to banks can be used to incentivize AMM to provide liquidity.

This will be my ideal way of operating, as once this situation occurs, it will greatly change the way companies obtain capital and the way the public accesses early-stage companies.

I believe one of the most important components of the American Dream is the free market. You know, I came to the United States from the Soviet Union in 1982, when the internet was on the rise, and companies like Microsoft and Amazon were also continuously growing. They were like building the future, and now these companies have all become giants with market capitalizations in the trillions of dollars. I think in the 90s, people could buy Amazon stock, which was undoubtedly a huge gift from America, or a significant value proposition from America. And now, the number of publicly listed companies in the U.S. is perhaps the lowest since the 1970s, or it could be said to be the lowest period for IPOs. So, if we can provide founders with tools to complete IPOs at the lowest cost, the fastest speed, and with the least legal expenses, I believe this will greatly change the entire industry landscape.

This is a very cool part of a sci-fi future, where everyone globally can access financial services at the lowest possible cost, and at speeds comparable to the speed of light. I think this is one of the coolest projects I can be a part of.

Epilogue: The Future of Crypto, the Era of Stablecoins

I see that cryptocurrencies are being effectively adopted by Wall Street and some global institutions, with stablecoins being the main factor driving this institutional adoption trend. The Genius Act passed by Congress creates a framework for issuing stablecoins and starting to achieve product-market fit, which is far better than any funding interface that traditional banks can provide. Even building all fintech products on traditional banking is still not as good as using stablecoins. So this will be a major driving factor, and it is expected that stablecoins worth $10 trillion will be issued in the next 5 to 10 years. Currently, the issuance of stablecoins is about $250 billion (note: it has actually exceeded $300 billion), which represents growth by several multiples, and this liquidity will flow into all financial-related industries you can think of.

If you are a founder and passionate about fintech, or if you want to build a fintech company, I might suggest that you build your business around stablecoins. You can choose to integrate with existing stablecoins and manage various different stablecoins, or create your own stablecoin for specific purposes.

Translator's Insight

From concept to action, Solana has experienced peaks, valleys, and rebirth over nearly 8 years. The co-founders of Solana are some of the most passionate founders I have seen in the industry. They possess advanced technology, understand operations and risk avoidance, have faced crises and come through them safely, and are full of confidence and execution power regarding their future vision. They are true crypto builders. At this moment, the heart of a SOL soldier is gradually warming up.