Venture capital is flowing to Solana ecosystem

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Solana has exceeded all expectations following the FTX black swan event that saw the price of its native token drop to single digits. Now, it stands as much more than an unexpected underdog. With VanEck’s recent filing for a Solana (SOL) exchange-traded fund, Solana is knocking on the doors of the big leagues.

So what is it about Solana that has Pantera Capital calling it the “macOS of blockchains”? It’s all about the user experience. Solana is perhaps the most consumer-focused blockchain, aiming to meet users in the middle and sometimes even abstracting away on-chain features.

Unlike modular blockchains like Ethereum and Cosmos, the monolithic design of Solana’s network allows for vertical integration—a design that optimizes each blockchain component, resulting in a seamless user experience similar to Apple’s operating systems.

This architecture allows Solana to handle high throughput and low transaction fees. Both are important factors for decentralized finance applications, decentralized physical infrastructure networks (DePINs), and other low-friction blockchain applications like the recently launched Blinks. Solana has become an attractive platform for developers and users by optimizing its entire stack, contributing to increased retail activity and decentralized exchange (DEX) volume on the network. As a result, Solana has seen growth leaps in both active users and transaction volume, positioning it as a leading blockchain.

Solana’s growth is evident in the increase in its unique active addresses, from 14,000 in October 2020 to approximately 1.34 million today. Priority fees have also increased from less than $100,000 per month in mid-2023 to over $60 million in March 2024. The share of DEX volume on Solana has also increased significantly, from 0% in early 2021 to over 24% by May 2024, with 85% of all new tokens on DEXs being based on Solana as of May 2024.

These on-chain growth trends are pretty easy to explain. Solana has become a popular favorite for creating new tokens and meme coins. The ease of use, combined with Solana’s speed and low transaction fees, has made it the go-to destination for casual investors. The rise in popularity of Telegram trading bots has undoubtedly contributed to Solana’s on-chain boom, with community-driven meme tokens like Dogwifhat (WIF) reaching billions in market cap.

It would be shortsighted to attribute all of Solana’s growth and promise to the money markets. Sure, platforms like MarginFi and Jupiter are pushing the envelope for simple defi products that don’t require deep pockets to meaningfully outperform users in trading. But Solana has proven it can do much more.

Perhaps that explains why Pantera Capital is raising a new fund that aims to buy $250 million worth of SOL tokens (at a significant discount, as the tokens are from the FTX bankruptcy estate). This comes on the heels of Pantera Capital and Galaxy Trading’s big investment decision to buy around 30 million locked SOL tokens worth a total of $1.9 billion in April.

While the price of SOL has increased by more than 723% in the past year, Solana offers many opportunities for venture capitalists outside of speculating on the SOL token. One thing has become clear: crypto-adjacent technologies and otherwise digital systems that integrate web3 functions are more approachable to the average user than blockchain-based products. Solana is already one of the most widely used blockchain networks and is clearly charting a path to bring crypto products to mainstream consumers.

If the Apple comparisons are accurate, Solana would have succeeded in providing users with refined web3 use cases that are changing the way we communicate, transact, and create. From real estate to digital networks, from AI systems to identity verification services, there are no shortage of such projects built on Solana. Privasea, for example, is a technology that verifies human liveness to protect the digital presence of real people from bots and AI impersonators. As deepfakes, sybil activity, and other forms of digital fraud become more common than ever, solutions like Privasea address a necessary aspect of everyday life.

Another great example is Grass, a layer built on Solana designed to give users control over the rails where data is acquired for AI. Its success would mean disrupting the multi-billion dollar AI industry, where only a handful of players have enough computing resources to crawl the entire internet. With over two million users already, Grass is currently capable of fine-tuning certain AI models and informing certain types of real-time inference. It is estimated that once Grass reaches 25 million users, it will be able to crawl enough data to train ChatGPT from scratch on a weekly basis!

Crypto is not Web3 – but it could save it. Why AI is the next iteration of the internet, and crypto is a critical part of keeping it free.

The internet began as a place of complete freedom, where web 1.0 users existed completely outside of society’s constraints. Everyone was a…

— drej (e/acc) (@0xdrej) June 25, 2024

As a final note, critics point to Solana’s history of network outages as a bearish factor. Of course, this perspective doesn’t take into account that a major upgrade called Firedancer is scheduled to go live next year. Already, lightweight versions are being released to gradually increase the network’s resilience to congestion. The conditions are coming together to make Solana the home of a new generation of blockchain users, open up untapped markets, and revitalize mainstream ones. So it makes sense for VCs to get in early with strategic long-term investments.

Tim Haldorsson

Tim Haldorsson is the CEO of crypto growth agency Lunar Strategy. Tim first stepped into the crypto world in 2017 and hasn’t looked back since. Now, Tom has contributed to many reputable crypto publications and always enjoys talking about all things crypto.