The Road to Solana's Revival: Analysis of Key Indicators and Driving Factors

Introduction

The Solana ecosystem has shown a strong recovery momentum after experiencing significant setbacks. The price of $SOL has rebounded from a low of $9.6 in December 2022 to the current $71, and the total locked value (TVL) has also risen from $210 million to $812 million. This report will delve into the key factors driving the recovery of Solana.

Technical Features of Solana

Solana adopts a unique Proof of History ( mechanism, allowing nodes to reach consensus on the order of events without needing to communicate with other nodes. This approach gives the Solana network significant advantages in throughput and timeliness.

In addition, the Solana network charges project developers for state rent and validator voting fees, reducing the dependence of token prices on transaction frequency, while increasing the cost of deploying smart contracts, which helps to reduce the prevalence of fraudulent smart contracts on the network.

Overall, Solana features high transaction throughput, low transaction fees, and fast block confirmation times.

In terms of decentralization, Solana has also made substantial progress. The network currently has about 3,000 nodes distributed across 392 different data centers in 31 countries. According to the Nakamoto coefficient ), which measures the degree of decentralization of blockchain, Solana scores 21, surpassing several well-known blockchain networks such as Bitcoin and Ethereum.

Current Status of the Developer Community

Despite facing setbacks, the number of developers in the Solana ecosystem remains at a high level. According to Electric Capital's developer report, as of March 2023, there are approximately 2,540 active developers in the Solana ecosystem. Although this is a decrease from the peak of 2,648 in December 2022, most developers are still staying within the ecosystem. Emerging high-quality projects such as Jito, MarginFi, and Backpack continue to emerge.

It is worth noting that since March, the number of developers has declined, but this is mainly concentrated among part-time developers. The number of full-time developers remains relatively stable, indicating that the core development activities of the Solana ecosystem are still ongoing.

Fund Flow Analysis

Comparing the $SOL trading data from the past year with the Solana ecosystem's TVL data, it can be observed that the outflow of assets is slower than the decline in token prices. Especially during the period when FTX and Alameda Research were allowed to sell their staked $SOL assets multiple times, the token price showed a stable upward trend instead. This indicates that the Solana ecosystem is overcoming the negative impact of FTX's bankruptcy, and the market holds an optimistic view of its future development.

In the Solana ecosystem, the top two protocols by TVL are the liquid staking protocol Marinade and Jito. Both offer liquid staking services, but their profit optimization methods differ.

Marinade Finance automatically transfers customers' staked assets from low-performance validators to high-performance validators. Since Solana validators need to pay voting fees, which are unrelated to the scale of staking, large validators effectively obtain voting fees from small validators, leading to significant differences in validator performance.

Jito Network is the first staking product on Solana that includes MEV rewards. Jito Lab developed the Jito-Solana client to effectively capture MEV profits within the Solana network. Traders bid on the transaction sequences they believe are profitable, and third-party block engines identify the highest value transaction combinations through complex simulations. These bids are then distributed to validators and token holders ( JitoSOL ), thereby increasing the returns for token holders.

These liquid staking protocols provide $SOL token holders with an annualized return of about 7%-9%, attracting significant capital inflow during the market recovery period, further driving the steady rise of the $SOL token.

Application and On-chain Activity Analysis

The daily transaction volume of Solana consistently far exceeds that of other blockchains. The main on-chain transactions come from trading, liquidity staking, and protocols like NFTs. Similar to Ethereum and BSC, activities on Solana are mainly concentrated in the trading sector. However, unlike Polygon or Base, on-chain activities on Solana exhibit a more diversified ecosystem, not dominated by a single or just a few applications.

The Solana network has significant advantages in speed and cost. In the past month, the total transaction volume on Solana was approximately 825 million transactions, which is 24 times that of Ethereum, but the total Gas consumption was only 62,735 $SOL(, about 4.3 million USD), with an average transaction cost of about 0.005 USD. In contrast, Ethereum's total Gas consumption during the same period was approximately 268.4 million USD, with an average transaction cost of 7.89 USD, which is 1578 times that of Solana.

Market Development and Technological Advancement

In 2023, Solana made significant progress in market expansion and technological innovation:

• In August, e-commerce giant Shopify integrated Solana Pay as a new payment option.
• In September, credit card giant Visa expanded its settlement solution with Solana.
• In April, Solana introduced State Compression technology, significantly reducing the cost of NFT minting.
• In July, Solana's EVM-compatible solution Neon officially launched on the mainnet.
• In October, the new third-party validator client Firedancer developed by Jump Trading went live on the testnet, aiming to improve network efficiency and transaction processing capabilities.

Summary

The significant recovery of Solana can be attributed to several synergistic factors. First, its unique technical architecture achieves high transaction throughput and low fees. Second, the resilience and growth of the developer community highlight the vitality of the Solana ecosystem. Capital activity, including sustained interest from investors, as well as technological advancements such as the launch of the Jito-Solana client, State Compression, Neon, and Firedancer, have greatly enhanced Solana's efficiency and scalability. As the impact of FTX and Alameda's bankruptcy gradually diminishes, these factors collectively demonstrate Solana's ability to innovate and adapt in the dynamic blockchain landscape, highlighting the increasing trust and interest of developers and investors, making Solana a leading competitor in the blockchain space.