Solana after the FTX collapse: Can it still “kill” Ethereum?

Among the top cryptocurrencies, Solana is probably 
the one that has suffered the most in the crypto   Winter. One of the most successful layer 1 
protocols of the last bull market, Solana allows   Record-fast and cheap transactions, and it was 
even called an Ethereum killer. But because of its   Connection with Sam Bankman-Fried, Solana was hit 
hard by the collapse of the FTX crypto exchange.   The SOL token fell to record lows last November, 
and some major projects have left the platform   Since then. So the big questions now are: will 
Solana recover from this crisis? And does it still   Have what it takes to win the layer-1 race? I try 
to find out in my conversation with Austin Federa,   The head of strategy at the Solana Foundation. I'm 
Giovanni, on this show we challenge the ideas that   Shape the world of crypto. In each episode, we 
assess a macroeconomic outlook, crypto narrative,   Or a potentially disruptive technology. Only the 
most solid ideas will make it to the other side. 2022 was pretty rough for Solana. That 
was largely because of what happened   With FTX. So the fact that SBF was heavily 
involved in a lot of Solana-based projects,   The fact that FTX had a large amount 
of SOL token that also had an impact.   What is the lesson that the Solana 
Foundation drew from the FTX collapse? Yeah, you know, I think the collapse of FTX took 
pretty much everyone by surprise from folks in   The industry to folks in the media. You know, 
one of the things, though, is that Sam was not   And FTX was not like intricately involved in the 
Solana network. It was one of many places that   They'd been investing in and building on. And, 
you know, if you look at kind of where they've   Made investments, I think they've made about 109 
investments based on the data that the bankruptcy   Firm has put out. 20 of those were in Solana-based 
projects, but the majority were not. You know,   They invested over $40 million in a lot of Solana 
competitors as well. So I think the, you know,   The assumption that, like FTX was intricately 
involved with the Solana network is one,   Because it was a network Sam was an early 
proponent of, but it didn't, you know,   They weren't critical to the network operations 
or sort of the ecosystem. I think what we've seen,   You know, in the, I guess we're coming up 
on two months since the FTX's implosion,   Is that the Solana community is stronger than 
ever. There's more on-chain transactions than   Before FTX collapsed. There is actually more 
validators operating on the network than before   You've seen. Solana has the most active 
users of any chain at this point. And so,   The community staying power is here. And, you 
know, markets will do what markets will do,   But that's sort of separate from the core 
fundamentals and the technology of the network. Yeah, I believe that that was largely like a 
reputational issue. Don't you think that for   The health of Solana and a lesson could be not 
being so tightly associated with any single,   I would say, crypto personality? 
Because that is a point of weakness. You know, part of the ying and the yang of an 
open, permissionless, decentralized blockchain  

Is you can't control who buys what. And you can't 
control what they build on the network. And so,   You know, I think you're right that 
from a reputational perspective,   You know, the external perception was that 
there was a very close relationship between,   You know, the Solana network 
and FTX, which wasn't the case. You mentioned the fact that there are very good 
statistics. So, according to a recent report by   Electric Capital, Solana is seeing a record level 
of new developers contributing to the blockchain   Every month. So why are developers 
moving so much into Solana despite   The headwinds in terms of price that we 
witnessed in the last couple of months? You know, I think one of the things about 
Solana is it's not EVM compatible. It's a   New runtime environment, it's a new programming 
language that you have to use. And so that means   The folks building on Solana have a reason 
to build on Solana. They're looking at the   Characteristics of the network, it's high 
transaction capacity, it's fast settlement,   You know, it's fast throughput. And they're saying 
that these are a series of characteristics that   Mean "I can build a different type of product 
on Solana that I can't build elsewhere". And   Sometimes that's economic difference, right? 
Whatever things decrease by orders of magnitude,   You can build new types of products and 
services that aren't transaction constrained. We saw the two top NFT projects that were 
active on Solana, which were DeGods and Y00ts   That announced they are going to migrate from 
Solana into respectively Ethereum and Polygon.   They announced it last month and they are 
supposed to make this transition in 2023.   So that was taken as a big blow because those 
were like two of the top NFT projects on Solana.   So some interpreted it as a sort 
of exodus of NFT projects. How   Do you interpret this phenomenon and how 
does Solana plan to invert this trend? Yeah. Look, I think if you look at the 
decision of those founders to do that,   That wasn't a community vote. That was sort of 
a unilateral decision by the organization that   Runs that project, which it's their purview to 
make. I think NFT projects are inherently more   Portable than code-based projects because at the 
end of the day, like NFTs are an amazing use of a   Blockchain, but they're not using a lot of the 
underlying technology that makes the network a   Differentiator from another network. I think 
NFT projects are the most portable types of   Projects in crypto. You know, I think we have 
not seen some sort of mass exodus of projects,   You know. DeGods and Y00ts were two of 
the highest volume traded projects on   The network and, you know, we wish them 
success in whatever they're doing next. Solana was experiencing a lot of outages, and 
that was basically one of the main problems   Of the Solana blockchain. Anatoly 
Yakovenko, the founder of Solana,   Also acknowledged that that was an issue. He 
called it Solana's Curse. What has been done  

To fix this issue or how are you planning 
to fix this issue in the course of 2023? We've made some substantial investments over 
the course of the last 18 months in core network   Features that are addressing a lot of those 
performance and reliability issues that users felt   Last year, and especially in the first quarter of 
last year. One of those major ones is something   Called local fees and priority fees. So what 
priority fees do is they're state specific. So   If there's a really high demand for an NFT mint, 
you may see the cost to transact go up from 0.000   To $5 to maybe $0.10 for a transaction, but that 
fee will only spike for that one piece of state,   For that NFT mint or for that one trading pair. 
It won't have any ability on, it won't have any   Impact on the cost to send a transaction via 
Solana Pay or, you know, to stake or unstake   Tokens, those will continue to be charged that 
kind of base layer fee. On Ethereum, you can buy   Your way to the front of the line, right? You 
can submit a transaction with a really high gas   Fee and you're basically paying for a fast lane 
pass to get up to the front. Before priority fees   Shipped on Solana, the only way to do that was 
to spam the network with a bunch of duplicate   Transactions and hope one of your transactions 
lands. So by doing things like local fee markets   And priority fees, there's now better 
optionality for developers who are,   You know, or traders who are trying to make money 
to not have to spam. In fact, you know, it's like,   Why would you send 100 transactions if you can 
just send one transaction and pay 50 times more   For that one transaction, but be guaranteed it 
will land. That's just one piece of core tech,   You know, quick, which was a change in how 
validators communicate from a networking   Standpoint. That also helped give more flow 
control optionality for spam prevention. Those issues that we saw in terms of outages 
were mainly related to the fact that if you   Maximize speed and low cost transactions, then you 
might suffer some issues in terms of stability of   The network. So, some people think that it's much 
better to work on a layer-2 solution on Ethereum,   So basically developing speed, low 
cost transactions on this layer 2,   While relying on the stability and the 
security of the layer 1, which is Ethereum. Look, the thing about rollups and layer 2s 
and those type of solutions is we've heard   A lot about them for a number of years at this 
point, and they haven't delivered the performance   Or the user friendliness that folks have been 
looking for and asking for. That doesn't mean   They couldn't get there someday. But the security 
of a layer 2 is only post settlement. So until it   Actually writes those transactions back to the 
layer 1, you're not actually inheriting any of   The security of Ethereum until you get to that 
point. Now, for some of the layer 2s, that can be   Seven days. For some of the layer 2s, that's much 
less time. But the shorter that time differential,   Generally speaking, the less of a discount you 
get for using the layer 2. The major innovation   Apart from smart contracts is this idea of atomic 
composability. That I can establish program to  

Program trust without any human involved, with no 
counterparty risk and no bridge risk. And that was   One of the major things that made DeFi possible 
on Ethereum, that made Ethereum successful in the   Early days. Layer-2 scaling solutions break 
composability; rollups break composability.   If I want to transact between one layer 2 to 
another layer 2, that is a bridge operation,   Either back through the main chain or going L2 to 
L2, and the minute you're using a bridge, you're   Using a trusted system. Bridges are not trustless, 
trustless bridges don't exist today. And a lot of   The zero-knowledge bridge solutions out there are 
still trust solutions, just with a zero-knowledge   Proof wrapper around them. And so, a lot of the 
questions here are basically: are layer 2s living   Up to the promise that that they have? I think 
the answer today is no, but that doesn't mean   They won't in the future. What we've seen is that 
developers don't want to deal with all of that.   They would much rather just build something on 
one global state that's fast, efficient, scalable. We're excited to see how Solana is going 
to rise again in 2023. If you had to point   Out the milestones that the Solana Foundation 
want to achieve in 2023, what would those be? I think when we look forward to 2023, one of 
the really big milestones I'm looking forward   To is the second validator client Firedancer 
getting deployed on mainnet. I think there's   A bunch of other sort of infrastructure layer and 
foundational level technologies that are going to   Make the Solana network easier to develop on, 
easier to interface with. One of these is like,   You know, there's a program called 
Provable Actions and NFT Compression,   Which is going to make it possible to mint 
100 million NFTs on Solana for about $1,000.   That's disruptively cheap that, you 
know, that is, I think, a 100x order   Of magnitude cost reduction. That opens up 
that infrastructure for all sorts of things. I really appreciate you being on our show. I   Hope to see you very soon. And 
yeah, best of luck for 2023. Excellent. Thanks very much. Appreciate it.