Solana is a decentralized, open-source blockchain that aims to provide fast, secure, and scalable infrastructure for decentralized applications (dApps) and smart contracts. It was created in 2017 by Solana Labs, a San Francisco-based company co-founded by Anatoly Yakovenko.
In addition to its high transaction throughput, Solana boasts several other notable features, including low transaction fees, fast block confirmation times, and support for a wide range of programming languages.
In this report, we will provide an overview of Solana’s main events, technological innovations, and use cases of the third quarter. We will also discuss the current state of the Solana ecosystem, including its adoption and growth. Finally, we look into 2023 and highlight some of the most exciting narratives and projects.
Although it has been a tough year for Solana, data supports the assumption that the ecosystem has matured enough for it to be somewhat impermeable to black swan events, given that the core user and developer base has not abandoned the ecosystem, having instead doubled down on the chain.
The SOL token price experienced volatility in Q3, with a significant correction of 30% in June, sparked by the Securities and Exchanges Commission's (SEC) move to sue Binance and Coinbase, which stated that Solana and several other tokens were securities. The recovery was fast, ending with a strong touch of pre-FTX levels. In Q3, the SOL token price reached a low of ~$12.50 and a high of $32.00. As with the entirety of the crypto market, August was a period of cooldown and apparent apathy, as trading volumes dropped sharply.
Another factor that contributed to the volatility of the crypto markets and the SOL price was Blackrock Bitcoin ETF filling. The Blackrock news sparked a wave of ETF fillings from other hedge funds and companies, further igniting the Bitcoin and Altcoin rally.
At the timing of writing, Solana is in a strong uptrend with a rally of over 30% in the last weeks.
The market capitalization of the Solana blockchain has increase from under $8B to ~$10B in the third quarter, outperforming all other majors and most altcoins in the top100.
Trading volume is a relevant metric for assessing market liquidity, price discovery, efficiency, and risk management.
Solana's daily trading volume has averaged $400M, with outliers such as the Securities and Exchanges Commission (SEC) suit against Coinbase and Binance in early June. Trading volume hit a quarterly high of $2.1B in July, on the day that SOL’s price touched pre-FTX levels for the first time ever since the November crash.
The Solana Daily Active Addresses chart shows the daily number of unique addresses that were active on the network as a sender or receiver. Solana's daily active addresses have been, on average, hovering at the 250k mark. Since the price of SOL reached $32, daily active addresses have been trending down from the local high of 350K to an average of 200K, at the time of writing.
Although active addresses have recently been trending down, Solana is in close competition with other blockchains such as Ethereum and Polygon. This stability in daily active addresses suggests that the Solana network and its user base are resilient.
As each transaction (which contains one or more instructions) is sent through the network, it gets processed by the current leader validation client. Once confirmed as a global state transaction, this transaction fee is paid to the network to help support the economic design of the Solana blockchain. Solana has averaged 100 thousand daily fee payers in Q3.
After the initial shock caused by the SEC claims of SOL being a security, TVL climbed 31% to yearly highs. Solana Total Value Locked has hit a yearly high of $328M in August. Although the SOL price went up to yearly highs and dropped 35%, TVL did not slow down or decrease and instead has reached the highest number since the FTX crash, of ~$430M. A major reason for this is due to the positive change in sentiment among crypto investors, in addition to the rise of new DeFi protocols in the ecosystem such as marginfi and SolBlaze experiencing rapid growth in Q3.
Solana DEX Volume continues to show resilience and strength. The most recent evidence is how the monthly DEX volume surpassed $1B in August, extending a streak of eight months with volumes exceeding the $1B milestone. There are two main takeaways from this data.
Although June and August were months of fear and apathy in the crypto markets, the monthly DEX volume did not show signs of added weakness, which is evidence of how the Solana ecosystem is maturing and bringing more liquidity on-chain. In addition, July saw a sharp increase in trading volume due to the positive shift in sentiment around Solana as well as several liquidity incentives created by ecosystem projects such as marginfi, Cypher Protocol, SolBlaze and more. In September the overall crypto markets experienced a slowdown in activity, which resulted in a 25% drop in DEX Volume on Solana, compared with a 29% drop in the broad crypto markets.
Drift Protocol had a great third quarter, experiencing strong growth on all relevant metrics.
The most popular Solana decentralized trading platform has reached an all-time high of $1B cumulative volume. In addition, Drift set new ATHs for TVL in both USD and SOL terms. Currently, the protocol has over $17M worth of TVL, and 985K in SOL terms.
In September, Drift introduced CONNECT by Drift, an open-source Metamask Snap, allowing Metamask users to trade and bridge assets from EVM Chains. As a customer-oriented product, Drift has listed several assets on the platform in Q3, including RNDR and HNT.
Stablecoins are a structural part of any decentralized ecosystem. They facilitate trading on exchanges, transactions and payments. One of the most meaningful use cases of stablecoins is allowing users to hold non-volatile assets on blockchains.
They are also incremental to DeFi. Protocols need deep liquidity to function appropriately, which can only be obtained from a stable asset like USDC.
Solana’s stablecoin market cap decreased 2.3% quarter-over-quarter, although it has recorded a high of $1.70B.
Solana’s stablecoin market cap is at ~$1.5B at the time of writing. When looking at stablecoin dominance, USDT and USDC hold the vast majority of market share, with around 98% of total stablecoins in the Solana ecosystem. USDT has 56% dominance and USDC has 42% dominance. UXD, PAI and USDH represent ~2% of the total stablecoin market capitalization.
Solana stablecoins are stablecoins that are native to the Solana blockchain and not issued or minted anywhere else. UXD Stablecoin (UXD), Parrot USD (PAI) and USDH are the three largest Solana stablecoins. UXD has seen a period of sustained growth from demand generated by DeFi protocols such as marginfi. UXD’s market cap increased by 200% in the third quarter, while PAI and USH remained flat.
Liquid Staking enables users to stake their crypto assets for network participation while still maintaining access to their liquidity. Instead of locking up tokens, users delegate their assets to a third-party service provider, receiving liquid tokens in return. These liquid tokens are tradable and widely accepted as collateral within DeFi, allowing users to enjoy staking rewards without sacrificing flexibility. Liquid staking aims to make staking more accessible and attractive to a broader audience by addressing the liquidity issue.
Marinade’s mSOL is the largest LST protocol with 75,258 holders of its token, followed by Lido’s stSOL with over 31,000 holders. JitoSOL and bSOL are the third and fourth biggest LSTs, with 6,482 and 5,645 holders, respectively.
Solana’s well-known liquid staking OG, Marinade Finance launched Marinade Native in July. So far they’ve received over 2.5M SOL staked and currently have over 600 wallets staking via Native.
Marinade is able to create 100+ native stake accounts and rebalance each epoch, on behalf of a user for virtually no gas fees eating up staking rewards.
Marinade Native, which only requires the user to delegate their stake authority, opens the opportunity of using an automated, permissionless delegation strategy of Marinade, but without requiring any smart contract interaction - something many larger SOL holders have indicated they are not ready for.
MNDE incentives are returning to Marinade From Oct 1. - Jan 1 via the Marinade Earn program. Those who hold mSOL or Marinade Natives stake will earn 1 MNDE per SOL staked over the course of the three-month period. The new referral campaign has also been revealed, enabling referrers to earn 1 MNDE per SOL staked from their unique referral link/ID.
Solana, which has faced criticism in the past for the centralization of its network, has made significant strides in decentralization.
The Nakamoto Coefficient measures the minimum number of validators or nodes that would need to collude for censorship, or prevent a blockchain from operating correctly. The larger the Nakamoto Coefficient is compared to the number of nodes or validators, the more decentralized the blockchain network is.
Solana leads the Nakamoto Coefficient among major L1s with a 31 NC, followed by Avalanche and Ethereum, with 27 and 20 respectively.
As per the most recent data, the Solana Network has a total of 2,919 nodes operating in 392 different data centres located in 31 countries.
Solana has repeatedly suffered criticism over network instability, outages, and congestion. Although in the past it has suffered from periods of instability, the network has drastically improved with recent patches aiming to solve several of these issues.
Per Solana Status, the last outage was recorded on February 25th, lasting 18 hours and 50 minutes. After the outage, Anatoly Yakovenko, the founder of Solana, assured that throughout 2023, the network instability issues would be patched and fixed permanently. So far, data shows that this might be the case, as Solana has not experienced a single network problem since then.
Solana has had a 100% uptime in the last eight months.
Developer activity is critical for blockchain projects because it indicates how active, innovative and engaged the ecosystem is. It ensures the blockchain's reliability, fosters innovation, and supports a thriving ecosystem. Developer activity also enhances transparency and promotes interoperability making it a vital metric for assessing a blockchain's health and potential.
Solana is the fourth largest network by active developers with 1475, a number 20 times higher than what was speculated by unverified sources in early 2023. Ethereum is the largest network with 5946 active developers as of June 1st, followed by Polkadot and Cosmos, with 1923 and 1685, respectively.
Measuring active developers across all blockchain is often a controversial topic with several sources publishing either inaccurate or biased data. Most notably, Token Terminal's highly meme'd claim that Solana only has 75 active developers in the ecosystem. Solana's active developer numbers often seem undercounted across most sources, when taking into account the 10k+ signups for Solana's Q1 GRIZZLYTHON Hackathon and the 5k+ signups for Hyperdrive Hackathon in Q3.
The Solana NFT Ecosystem is one of the most lively in the crypto space. Data shows that Solana is the second biggest NFT ecosystem in the crypto markets, immediately followed by Polygon, which has been showing signs of strength in 2023, particularly since DeGods announced the move to bridge y00ts away from Solana. More recently, the DeGods team announced that y00ts will be bridged from Polygon to Ethereum, which sparked some debate as to what the future of Polygon NFTs will look like.
Ethereum has consistently led the NFT market in terms of trading volume, daily buyers and traders. In July, August and September, Ethereum recorded $272M, $226M and $174M of trading volume, respectively. Solana saw in July, August and September trading volumes of $37.5M, $34M and $27M. Polygon has been catching up in Q3, with a combined volume of $92M, which is $6.2M less than Solana’s cumulative trading volume for the quarter.
Although Solana’s monthly average NFT trading volume is around 7 times lower than Ethereum’s, the market cap of SOL is ~25 times lower than Ethereum, which goes to show that the Solana ecosystem is lively and thriving despite the depths of this bear market.
Solana speeds up NFT narratives due to its low transaction fees, speed and high social engagement. For instance, Solana went through the 0% royalty debate in September 2022 and found a solution to royalties in early 2023, while on Ethereum the debate only started in early 2023. To this day, there is still no consensus or a unified solution on Ethereum.
The SolanaFloor NFT Index consists of a carefully selected basket of Bluechip collections based on multiple weighted criteria: volume, social trends, age, and other statistics. This basket is reviewed monthly.
The SolanaFloor Chart presents the index in SOL (green) and USD (purple).
In dollar terms, the SF Index is at quarterly lows. The SEC suit against Coinbase and Binance deeply affected the overall markets, and the Solana NFT ecosystem was not an exception. The index dropped from over $2,000 to ~$1,250, a 37% downside movement.
In SOL terms, the SF index has tightly followed the price of SOL. Theoretically, the NFT market should inverse its native token price, meaning that the floor price of an NFT should increase when SOL goes lower, and it should decrease as the SOL price goes higher. The third-quarter price action is evidence that this is not always the case, especially in a bear market. In addition, the market-wide Ethereum NFT capitulation played a big role in the negative shift of the Solana NFT market.
The index in SOL terms suffered a 37% decrease from 100 SOL to ~63 SOL.
Tensor started gaining market share in March with the launch of “loyalty” rewards for traders, mirroring the move by Ethereum marketplace Blur that helped catapult it over OpenSea.
The Solana-based startup, which raised $3 million in March in a round led by VC firm Placeholder, has matured enough to the point where the incentives are not the main reason for user retention. Tensor and Magic Eden practically hold the same market share of Solana NFT trading volume, together making up almost 90% of total volume.
Tensor has averaged 44% market share while Magic Eden has seen a 40% market share in the third quarter of 2023. Both marketplaces have great differentiating factors and potentially serve different members of the NFT crowd. It is likely that Tensor and Magic Eden will continue to build and fight for the number one spot in Solana’s NFT ecosystem for a long time.
The broad NFT ecosystem has been in a deep bear market over the course of 2023, although the sentiment significantly deteriorated in Q3, with the collapse of the Ethereum NFT ecosystem sparked by a deleveraging event. Other NFT ecosystems like Solana have been severely affected, as data shows. The Solana NFT Floor Value and Trading Volume saw a 30% decrease in Q3, indicating that many market participants may have abandoned the NFT ecosystem in the last months.
The recent stabilization in floor prices and trading volume suggests that a bottom may have been found in Q3.
Similarly to the Solana NFT Floor Value and Volume, we can conclude that the NFT ecosystem has lost a considerable number of its monthly users.
Claynosaurz is arguably the most loved project on Solana. The team minted their 10K PFP collection with conviction after the FTX collapse, one of Solana’s darkest moments since inception. From an external perspective, the third quarter for Claynosaurz was one of planning and building. Claynosaurz launched its official marketplace “Claynosaurz Marketplace” with Tensor, minted The Call of Saga in collaboration with Solana Mobile and welcomed Gaetano Mastropasqua from Rovio and Warner Bros to the team as a Strategic Advisor.
September has been a month of speculation for the 3D Generative Art Collection. Plushies may be coming to the Claynosaurz ecosystem, which has been received positively by the community as they hope for an expansion into Web2.
The growing speculation comes at a time when Solana Breakpoint is approaching and the team has been creating a lot of hype around the Amsterdam conference, with their main event in collaboration with Tensor.
Claynosaurz achieved a respectable milestone in Q3, with their collections amassing a collective trading volume of over 2 Million SOL.
Visa said in September that it would begin to send USDC, the second-largest stablecoin by market capitalization, to select merchants via Solana in a newly announced pilot.
Visa, which has a dedicated account with Circle, will begin to send USDC out of its treasury to payment firms Worldpay and Nuvei which can directly facilitate payments for merchants. Visa and the Merchants state that they have decided to send and receive USDC on Solana because of the blockchain’s capacity to process transitions faster than on Ethereum
Recently, Solana Pay announced an integration with Shopify, allowing businesses and users to transact using USDC on Solana.
USDC, the second-largest stablecoin with a market cap of $25.9 billion, will be the initial payment option for this integration. Josh Fried, business development and partnerships at Solana Foundation, mentioned that cryptocurrencies like SOL and BONK could be added to the list of available currencies for payment in the future.
Shopify accounts for 10% of total U.S. e-commerce and $444 billion worth of global economic activity.
Credit card processing fees usually cost a business between 1.5% and 3.5% per transaction, far more expensive than the average cost of $0.00025 per transaction on Solana’s blockchain.
MakerDAO, a leading DeFi project, is undergoing a major shift by considering the use of Solana's codebase for its new native chain called "NewChain," breaking away from its long-standing association with Ethereum. This shift is part of MakerDAO's comprehensive "Endgame" upgrade plan, spanning five phases, with the final phase focusing on NewChain's development, expected to take approximately three years.
Rune Christensen, co-founder of MakerDAO, envisions a mutually beneficial partnership between MakerDAO and the Solana community, proposing a Two-Stage Gravity Bridge from NewChain to Solana and a bridge from NewChain to Ethereum to strengthen the multi-chain ecosystem.
Christensen cites three key reasons for choosing Solana's codebase: Solana's outstanding technical quality, its resilience in overcoming challenges like the FTX incident, and the potential to access a pool of high-quality talent for MakerDAO's success.
Decentralized Physical Infrastructure Networks (DePIN) are a significant development in blockchain technology. DePIN utilizes tokens as incentives to encourage communities to collaboratively construct physical infrastructure networks and decentralized applications (dApps) such as charging stations and telecommunications systems.
In addition to the integration with Apple, Render Network recently moved its core product to the Solana blockchain. The Render community approved the network's expansion to the Solana blockchain, after a governance vote which proposed to deploy their burn-to-mint mechanism away from Polygon.
The third quarter of 2023 has been one of growth and expansion for the Solana ecosystem, with several DeFi projects leading the push for Liquid Staking and incentivising liquidity and adoption. Most metrics and data suggest that the ecosystem is resilient, robust and ready to begin a growth phase. While there is still a lot to do to enable mass adoption, many of the Solana ecosystem developers are building projects with the goal of disrupting the Web3 space as well as providing the necessary infrastructure for a expansion cycle.