Solana Q2 Update

While most alternative Layer 1 networks, such as Near, Fantom, or Avalanche, have seen lackluster usage throughout 2023, Solana has continued to show significant potential since our last report. From a technical perspective, Solana’s strong 2023 network performance shows promise that the 2022 implementations of QUIC and local fee markets are working as designed. From a product perspective, Solana successfully shipped out its Saga phone, which has a vibrant ecosystem of developers building dApps for the Solana Mobile Stack (SMS). One particularly popular dApp is xNFT Backpack, which enables executable NFTs (xNFTs). Further, several protocols have continually attracted steady volume and users. It looks like Solana’s redemption arc is in full swing, but substantial growth will be needed to rival the surge in L2 popularity.

Tech Update

While 2022 proved to be a rough period for Solana network performance, the network implemented a couple of changes before 2023 to address congestion issues. While these network upgrades are old news, we have actually been able to observe whether these optimizations addressed previous issues.

First up is QUIC, a general-purpose protocol used to relay transaction requests that dynamically adjusts to request overflow. Prior to QUIC, Solana utilized User Datagram Protocol (UDP), which had a rough “spray and pray” approach to relay transactions between nodes. One major drawback of UDP was the fact that it doesn’t require a handshake between a transaction sender and a node to authenticate that the sender was genuine and is not a bot. QUIC lets the network blacklist IP addresses or wallets that spam transactions. Further, QUIC utilizes separate streams of data, so that dropped transaction requests in periods of congestion can be distributed to a separate stream instead of dropped entirely.

Another major upgrade that has been vastly beneficial for Solana is local fee markets. Prior to local fee markets, Solana fees were fixed, meaning that there was no option to set priority fees to push a transaction through. This led to a myriad of issues in 2021 and 2022, where bots effectively spammed the network during high volume NFT mints. Local fee markets introduced priority fees, which allow users to pay surplus fees on top of the base fee to prioritize a transaction. It is important to note that unlike on Ethereum where 100% of the priority flows to the validator, on Solana 50% of the priority fee is burnt.

With both local fee markets and Solana’s parallel processing capabilities, the network has successfully provided a lightning fast, low fee execution environment. Parallel processing ensures that network transactions can still happen in a bubble outside of a heavily in-demand smart contract. For example, when everybody on the network was spamming the Madlads mint contract, users could still interact with Jupiter Aggregator to swap tokens without being encumbered by one hot network event.

In May, Solana Labs released a new validator client upgrade, v1.14, that brings several improvements to the network for developers and end users. Developers can now more accurately estimate future transaction costs thanks to a new RPC API. This new API will also be very beneficial in later client upgrades, especially in computing transaction cost projections within local fee markets. The staking program also received a major overhaul, where delinquent stake is now permissionlessly deactivated after five epochs (~10 days) to prevent degraded network performance. Solana’s block propagation protocol, Turbine, received an important upgrade pertaining to data processing that should strengthen network performance even more.