State of Solana Q4 2023

Key Insights

• Solana sustained QoQ growth across many metrics in Q4, including market cap (423%), average daily fee payers (102%), DeFi TVL (303%), average daily DEX volume (961%), and average daily NFT volume (359%).
• Solana Foundation’s annual Breakpoint conference helped drive growth, with many big announcements and launches from teams including Jupiter perps and token, Frankendancer, Backpack Exchange, and Render’s migration.
• JTO’s airdrop and BONK’s Coinbase listing further spurred onchain activity in December.
• Catalysts in Q1 and beyond include Jupiter’s airdrop, token extensions, and continued progress on the launches of Firedancer and TinyDancer.

Primer

Solana (SOL) is an integrated, open-source blockchain with the goal of synchronizing global information at the speed of light. Solana optimizes for latency and throughput, sacrificing some verifiability. It seeks to accomplish this through features such as its novel timestamp mechanism called Proof-of-History (PoH), block propagation protocol Turbine, and parallel transaction processing. Since mainnet launch in March 2020, several network upgrades have brought further network performance and resilience, including QUIC, stake-weighted Quality of Service (QoS), and local fee markets.

Network and ecosystem development and growth are supported by the non-profit Solana Foundation, Solana Labs, as well as other third-party organizations including Helius and Superteam. Solana Labs has raised over $335 million in private and public token sales. The Solana ecosystem features a growing set of projects across many sectors, including DeFi, consumer, DePIN, payments, and privacy.

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Key Metrics

Financial Analysis

SOL was one of the leaders of the Q4 crypto market rally. It ended 2023 with a market cap of $43.8 billion, increasing 423% QoQ and 1,106% YoY. In Q4, it surpassed ADA, USDC, and XRP in market cap, ranking it 5th among all tokens. SOL began the year ranked 17th in market cap.

Revenue, which measures all fees collected by the protocol, increased by 19% QoQ in SOL terms. With SOL’s price appreciation, total quarterly revenue in USD more than tripled to $13.7 million. Half of these fees are burned, while the other half are distributed to the block producer. At the moment, these burned tokens have not significantly reduced inflation, which stood at 5.6% at the end of the quarter. This inflation rate strictly measures new tokens issued for validator rewards and does not consider other token unlocks.

The inflation rate is set to continue decreasing by 15% every epoch year until it settles at 1.5%. As of writing, 71.5% of the SOL supply eligible to be staked is staked, with these holders opting out of dilution from issuance. Note that tokens held by Solana Labs or the Foundation are not all counted as circulating despite not being locked. With the uptick in fees, the annualized real yield rate for SOL stakers increased 58% QoQ to 1.7%.

One of the main SOL-related stories in Q3 was what would happen with Alameda/FTX’s SOL, now controlled by the FTX Estate. Alameda and FTX bought over 57 million SOL from the Solana Foundation and Solana Labs. However, these tokens are subject to various unlock schedules, with the average unlock date being in Q4’25 — though the locked accounts could be sold over the counter. Chainsplainer ashpool concluded their coverage of FTX Estate’s SOL management, noting that the FTX Estate has unstaked and transferred most of its unlocked SOL. Upcoming unlocks can be viewed on Solana Compass and Gelato.

Network Analysis

Usage

Network activity, measured by non-vote transactions and fee payers, rose along with SOL’s price. Daily fee payers hovered between 80,000-100,000 for most of 2023. Solana Foundation’s Breakpoint conference spurred the first leg of growth at the end of October into November. Further events, including JTO’s airdrop and Coinbase’s BONK listing, compounded into further growth. In total, average daily fee payers grew 102% QoQ to 190,000, and average daily non-vote transactions grew 65% QoQ to 41 million.

New fee payers followed a similar growth trend, reaching yearly highs when ignoring anomalous activity in Q2 from an unknown program. Average daily new fee payers increased 176% QoQ and 88% YoY to 32,000. November’s new fee payer cohort had the highest one-month retention rate of any Solana 2023 cohort at 25.6%.

The increased activity in December spurred more transactions to include a priority fee for inclusion, and consequently, the average transaction fee increased 175% QoQ to 0.000025 SOL ($0.002). The daily priority fee rate reached a yearly high of almost 69% on December 26, while the daily average transaction fee peaked on December 27 at 0.001 SOL, 4x the average Q4 fee and 11x the average Q3 fee.

However, the median fee remained steadier. The highest daily median fee was 0.00000623 SOL, less than 1.25x the fixed base transaction fee of 0.000005 SOL which serves as the median on most days. The discrepancy between the relative rises in average and median transaction fees indicates that local fee markets are successfully preventing global fee spikes.

Of course, Solana’s fee markets are not perfect. Discussions about improving them intensified in Q4. There are several inefficiencies being discussed by the community with debated solutions, including the following.

Problem: Inefficient Resource Pricing and Allocation

Potential Solution: Base Fees Determined by Compute Units

Solana compute units (CUs) estimate the computation required to validate a transaction, similar to Ethereum gas units. Each transaction requests a certain number of CUs. Each block has a global maximum of 48 million CUs and a per-account maximum of 12 million CUs.

Unlike in Ethereum, Solana’s base fee is not determined by compute units. It’s instead determined by the number of signatures, with most transactions having one signature. While each transaction requests CUs, actual usage is known only after execution. This leads to a general lack of compute optimization incentives: transactions often request more CUs than they need, and developers don’t build programs with compute minimization top-of-mind.

One proposed solution is to price transactions based on CUs.

Problem: Out-of-Protocol Side Deals

Potential Solution: Allocate 100% of Priority Fees to Validators

Half of each priority fee is burned, and the other half is sent to the leader. This differs from Ethereum where 100% of the priority fee is sent to the block producer. Burning half of each transaction fee promotes out-of-protocol side deals with validators like Jito auctions.

The potential solution here is straightforward: give 100% of priority fees to validators. This was officially proposed last week in SIMD-0096.

Problem: Existing Spam Incentives

Potential Solution: Scheduler Upgrades (V1.18) and Economic Upgrades (PRAW, Write Account EMA)

Although several upgrades have alleviated spam, they have not removed it. With the increased activity in December, a majority of compute went toward failed transactions.

There is some debate regarding the best way to further mitigate spam. Some attribute it mostly to inefficiencies with Solana’s scheduler (block-building mechanism), while others believe that economic upgrades are necessary.

Scheduler:

Solana’s scheduler features continuous block building using parallel threads. It thus lacks a global transaction order, making priority fees less effective in determining order. The absence of deterministic ordering based on priority fees leads to partial reliance on FIFO and variance of what thread a transaction lands in (network jitter). This incentivizes spamming transactions for preferred inclusion. There are planned upgrades to the scheduler, expected for V1.18, that should increase transaction ordering’s dependence on priority fees instead of randomness, alleviating spam.

Economic:

Solana’s parallel execution engine requires upfront, user-declared knowledge of dependencies. Transactions that declare dependencies on the same account can’t be executed in parallel. However, there are no penalties if a transaction doesn’t end up accessing the specified account.

This leads to a spam problem where transactions specify an account they don’t end up using. The spam worsens the experience for others whose transactions actually access the account. It also worsens overall network performance: the more accounts specified, the higher the likelihood of contention that leads to replay spikes.

To address this, there have been proposals to introduce dynamic, per-account write lock fees. At a very high level, the fee system would be an adaptation of EIP-1559 for local fee markets. There are further debates as to whether the pricing curve should be set by each account owner or a global parameter. Mango Markets developers proposed the former in SIMD-0016: Program Rebatable Account Write Fees (PRAW). The PRAW proposal is over a year old and still actively discussed. In a recent post, Anatoly proposed the latter, with write lock fees for each account adjusting based on their exponential moving average of CUs used per block.

In both proposals, at least half of the write lock fee would accrue back to the write account. Beyond alleviating spam, these proposals also address how much sovereignty apps on a shared blockchain state should have. While there is some debate that the write lock spam issue can mostly be alleviated by scheduler improvements, it would not address the potential need to give apps more sovereignty.

Security and Decentralization

Staked SOL fell 19 million QoQ (5%), largely driven by the FTX Estate unstaking around 20 million SOL. With SOL’s price appreciation, total staked in USD terms grew 399% QoQ to $41 billion, ranking Solana second among all networks behind Ethereum.

FTX Estate’s unstaking hurt Solana’s Nakamoto coefficient, as Alameda/FTX staked to a wide spread of validators. At 22, Solana’s Nakamoto coefficient is the lowest it’s been in over a year, although it still remains above the median of other networks. Solana’s Nakamoto coefficient is benefitted by the Solana Foundation Delegation Program, which is currently delegating 68 million SOL. In early December, the Foundation proposed changes to the program to help participating validators become more self-sufficient over time.

The Nakamoto coefficient is the minimum number of nodes needed to break liveness. The metric can also be measured across other dimensions important to the resilience of a validator network, including distribution of stake by location, hosting provider, and clients.

Solana network’s 2,020 total validators are hosted in 34 countries, up 21% YoY. The United States leads with 30% of all stake. At just under the 33.3% threshold, Solana has a geographic Nakamoto coefficient of 2. The Solana Foundation noted in its October validator report that it plans to address the U.S.’s increase in stake share in the past year.

Right at the end of the year, Superfast’s Cape Town validator node went live. The validator node is the network’s first in Africa.

Solana validators are hosted in 309 unique data centers, up 10% YoY. Solana has a data center Nakamoto coefficient of 7.

As detailed in the validator report, Solana has a hosting provider Nakamoto coefficient of 3, comprised of TeraSwitch, AWS, and OVH.

Solana currently has two clients: the original Solana Labs client and an MEV-optimized fork by Jito Labs. Currently, 48% of stake is running the Jito client, up 51% QoQ and 534% YoY. However, it does not offer the same client diversity as a client written from scratch. To that end, there are two upcoming clients being written from scratch: Firedancer and Sig.

Firedancer is being developed by Jump Crypto in C. At Breakpoint, Jump announced that an early version of Firedancer called “Frankendancer” is live on testnet. Frankendancer runs the new C-based code for “transaction propagation” functions like sending transactions among validators and verifying signatures. It maintains the original Solana Labs client code for the runtime (transaction processing) and consensus mechanisms. The team also discussed mechanism details on one of the first components needed for Firedancer to reach 8 million TPS. Firedancer previously sustained over 1 million TPS in a testing environment, while the Labs client had around 55,000 TPS in a similar environment.

Outside of Firedancer, the Syndica team discussed details on Sig, a fourth validator client optimizing RPC reads in order to decrease slot lag, i.e., the lag time in between two blocks finalizing. In other words, Sig aims to reduce latency by making certain types of user requests flow from user to validator more fluidly. It’s also focused on readability and simplicity, hoping to be more accessible to developers.

With Firedancer getting closer to launch, discussions surrounding its impact on client diversity have heated up. Some have argued that Firedancer can bring either client diversity or higher throughput in the short term, but not both. Anatoly and others contend that if more than a third of validators run Firedancer as the primary client with Solana Labs/Jito client as a secondary client, it will benefit client diversity without sacrificing Firedancer’s performance advantages. The secondary client can verify downloaded blocks which is easier to do than running a full data propagating node. If a bug or failure occurs in the Firedancer client, validators can fall back on the secondary client. Thus, it will bring the safety benefits of client diversity. But for the liveness benefits, another high-performance client would be necessary.

Light client TinyDancer is also in active development. TinyDancer will improve the trustlessness of the network by allowing users to verify the state without having to run a full node themselves. The merge of SIMD 64: Transaction Receipts near the end of October brought light clients a step closer. SIMD 64 inserts into the core protocol a mechanism for validating the status of a confirmed transaction, removing the need to trust an RPC.

While exploring ways to build rollups on Solana, Sovereign Labs developed a proof-of-concept to enable Simple Payment Verification (SPV) light clients on Solana without any Solana consensus changes.

Performance, Upgrades, and Roadmap

The Solana network is currently on its longest streak without a network outage, standing at 309 days as of December 31, 2023. The streak is the result of new technical features rolled out in the past year, such as QUIC, stake-weighted QoS, and local fee markets, as well as improvements to the network upgrade process. While this does not mean Solana will never go down again, it is worth recognizing the successful developer work to improve upon a widely criticized issue.

After a successful V1.16 upgrade at the end of Q3, the V1.17 upgrade is planned for a Q1’24 mainnet launch. It will bring further ZK support, potentially including Poseidon syscalls, as well as making resiliency and performance updates like better estimation of compute units.

Beyond Firedancer and potential fee market changes, other upcoming features include Token Extensions, Program Runtime V2, and potential consensus/execution optimizations via Multiple Concurrent Leaders and Asynchronous Execution.

Token Extensions

Token extensions are part of a new SPL token standard enabling a set of configurable features for token issuers. They were designed largely based on feedback from discussions with enterprises and financial institutions, but they have use cases in more crypto-native DeFi and consumer applications as well. There are more than a dozen extensions, notably:

• Confidential transfers: Confidential transfers have garnered most of the token extension-related buzz. If a token creator enables this extension, a transfer’s source, destination, and token remain public. However, the transfer amount is hidden from everyone except the source, destination, and an optional third-party auditor that can be added by the issuer.
• Transfer fees: Token issuers can add protocol-enforced fees on every token transfer. Options include a fixed fee, variable fee, and fee cap for each transfer. The extension has already been implemented by tokens like Bonk Earn (BERN).
• Transfer hooks: Transfer hooks add more programmable logic to transfers beyond transfer fees. They allow token issuers to add conditions for a token transfer to succeed. Examples of said logic could be whether or not an account holds a KYC token (which in turn could be created through the non-transferrable tokens extension), is on a certain compliance-related list, transacted before 2023, and so on.
• Permanent delegate: The permanent delegate extension gives the token issuer complete authority over the token. The token issuer could burn or transfer any amount of the token at its will, even if the token is held by another account. The extension is best used for tokens representing offchain assets or data where the token issuer has to comply with regulatory requirements. This extension could be used maliciously, but infrastructure providers are already adding features to warn users if enabled.
• See Solana’s docs and Helius’s blog for more information on the other extensions.

The features these extensions enable are largely possible on other networks but currently require either developers building the infrastructure themselves or permissioned environments. Implementing them directly into the token program layer thus has several advantages:

• Infrastructure Support: All major wallets, applications, and other infrastructure providers will support token extensions. It would be more difficult for a project building its own solution to reach this level of ecosystem infrastructure support.
• Composability: Tokens and applications that would otherwise have to be walled off in permissioned environments can co-exist on Solana mainnet with existing permissionless token experiences. Users don’t need to bridge, and applications and infrastructure providers don’t need to support another network.

Token extensions are live in Solana’s open-source code, but before recommending its use, the Foundation and Labs are awaiting final steps, such as security audits. Token extensions will likely launch officially in mid-January, although the confidential transfers extension will require some further upgrades in 1.17 and 1.18 before being fully enabled.

Several tokens and applications have already experimented with token extensions. As noted above, BERN uses transfer fees to enforce a 6.9% fee on every transfer, which goes toward BERN holders, a burn, a developer fund, and BONK DAO. FluxBeam is a DEX that supports token extensions. It also has a telegram bot service FluxBot and a UI tool for creating and managing extensions. Another Hyperdrive project, The Vault, uses token extensions such as transfer hooks to create a staked SOL derivative where the stake rewards are separated from the derivative token.

Lastly, major infrastructure providers, including Phantom, Solflare, Metaplex, and Helius, added support in Q4 for token extensions in preparation for the official launch in January.

Runtime V2

In a nutshell, the Solana program runtime is the part of the Sealevel Virtual Machine (SVM) that allows Solana validators to execute programs (smart contracts). At Breakpoint, Solana Labs engineers showcased Program Runtime V2. Upgrades in Runtime V2 are centered on cost and API accessibility improvements via software optimizations.

As the average cost to execute a program decreases, the design space for programs increases. Engineers can fit more instructions into one program call, allowing for increased program complexity. Increased maximum program complexity leads to increased freedom for application developers.

Multiple Concurrent Leaders and Asynchronous Execution

Solana developers and researchers have also been working on longer-term initiatives to further increase throughput and reduce latency. Anatoly Yakovenko, co-founder of Solana and CEO of Solana Labs, recently shared future projects he’s most excited by, including:

• Multiple Concurrent Leaders: Slot leaders are responsible for producing blocks during a time interval. Right now, each slot has one leader. Anatoly proposes that multiple leaders per slot would reduce average latency, MEV, and censorship risks. There are still open questions, including how to split bandwidth between the leaders and deal with forks.
• Asynchronous Execution: Asynchronous execution aims to streamline transaction processing by decoupling execution from consensus. Current slot leaders manage transaction execution and scheduling (building and propagating blocks). Instead, slot leaders could focus solely on scheduling. Non-slot leader validators could also forgo immediate execution. A sub-committee of validators would just form consensus on fork choices. Removing execution from the critical consensus path could reduce block times, enhance efficiency, and alleviate issues like execution-related latency spikes. Validators would asynchronously execute transactions within a set interval like an epoch. Full nodes would still be able to execute transactions in real time to service end users. To learn more, refer to Anatoly’s recent write-up. He believes asynchronous execution is a rare design with “virtually no trade-offs.”

Ecosystem Analysis

DeFi

Solana DeFi TVL increased 303% QoQ and 505% YoY to $1.5 billion. Lending protocol MarginFi’s TVL grew 1,404% QoQ to $337 million, going from the sixth largest to the top Solana DeFi protocol by TVL. When it launched its points program on July 3, MarginFi only had $3.2 million in TVL. In Q4, it launched several UX upgrades, including a PWA and a simplified UI. It also teased YBX, an upcoming LST-backed stablecoin.

Lending protocol Solend’s TVL grew 323% QoQ to $242 million, with its market share growing 5% QoQ. Season 1 of its points program launched in August and ended in early December with a tease for Season 2. Unlike MarginFi, Solend already had a native token. Thus, its points program was and still is tied to SLND tokens, among other rewards, rather than a potential airdrop. Solend also launched a native Android app, available in the Solana dApp store.

Kamino joined the lending competition this quarter with its 2.0 upgrade that included a new borrow/lend protocol. Since its launch in mid-November, Kamino Lend has amassed $139 million in TVL. Its TVL roughly doubled in the days after Kamino announced plans to launch a points program for a future airdrop. Kamino 2.0 also brought single-click leverage tools for SOL staking yield (looping xSOL/SOL) and going long/short tokens against USDC. Its original liquidity vaults product ended the year with $88 million in TVL (though not counted in Solana’s figures to avoid double-counting).

DeFi volume also grew notably, with average daily spot DEX volume increasing by 1,116% QoQ to $359 million. Of the Q4 volumes, 45% used liquidity from Orca, followed by Raydium at a 29% market share. Orca and Raydium were also third and fifth in Solana TVL, at $190 million and $133 million, respectively. Although it averaged 0.8% of daily DEX TVL market share, Phoenix averaged over 9% of DEX volume market share. Phoenix is a fully onchain central limit order book that has received praise for its capital-efficient design.

BONK-SOL accounted for the fourth-highest token pair trading volume in Q4, following SOL-stable and stable-stable pairs. The pair had almost $1.3 billion in total Q4 volume, an 11,000% QoQ increase. BONK is a memecoin that was airdropped to Solana developers as a 2022 Christmas gift. In mid-December, Coinbase listed BONK. Its $238 million first-day Coinbase trading volume was the 12th highest in the exchange’s history.

On average, 57% of DEX spot volume was routed via the Jupiter swap aggregator. Jupiter was among the most talked about DeFi protocols in all crypto in Q3. The excitement was sparked by its announcements at Breakpoint, unveiling a new GMX style perps product (launched shortly after Breakpoint), a new liquid-staked SOL-backed stablecoin (yet to launch), and an airdrop. The first of four airdrop rounds (equaling 40% of the total supply) is planned for January. The airdrop’s criteria were finalized after being refined several times following community feedback.

Since its launch, Jupiter perps have averaged $53 million daily trading volume. The other main Solana perps player is Drift, which was one of Solana’s fastest-growing DeFi protocols in Q3. Its growth continued in Q4, with its average daily perps volume increasing ~10x to $23 million. In its Breakpoint presentation, Drift announced a $23.5 million Series A fundraise.

After being relatively flat for most of 2023, Solana’s stablecoin market cap grew by over $300 million QoQ, largely driven by an increase in USDC supply in December. USDC liquidity and interoperability on Solana should continue to grow from Circle’s Cross-Chain Transfer Protocol (CCTP). CCTP allows USDC to be transferred across networks without needing wrapped USDC. In early November, it launched on Solana’s devnet, with an estimated mainnet launch in the first half of 2024. Circle also launched euro-backed stablecoin EURC on Solana in mid-December. Near the end of the quarter, Paxos announced that it plans to expand its NYDFS-regulated USDP stablecoin program to Solana in mid-January. Doing so makes Solana the second network to support USDP after Ethereum.

Other notable DeFi-related events include Parcl V3 and points, Cube Exchange’s $9 million fundraise and Litepaper release, Ondo’s expansion to Solana, Hashflow’s expansion to Solana,  Zeta points, OpenBook V2, Lulo Flexlend, Rain.fi's update, SDX's launch, Starport's litepaper release, Meteora Stimulus Package, Cypher’s IDO, Fluidity’s launch, LiquidProp private beta launch, and Flash.Trade’s launch.

Liquid Staking

With 72% of eligible SOL supply staked, liquid staking protocols will be critical in enabling an ecosystem built on yield-bearing SOL. Incentive programs have been successful recently in growing the amount of total SOL stake that is liquid-staked. This rate grew 49% QoQ but is still relatively low at 4.3%.

Jito has been driving Solana's liquid staking growth. After introducing a points system in mid-September, Jito launched its token JTO in early December, airdropping 10% of the total supply to JitoSOL holders, Jito client validators, and Jito MEV searchers. With less than 10,000 eligible wallets and a distribution that favored smaller wallets, the minimum airdropped amount was almost $10,000 based on JTO’s price at the end of the quarter. JTO was listed on Coinbase the day it launched and was the exchange’s most highly-traded new listing since APE in March 2022 (before being quickly surpassed by BONK). Jito Foundation released its constitution, which proposes a governance framework for a JTO DAO, among other things.

Jito’s TVL in SOL terms grew 164% QoQ to 6.4 million SOL. Its market share grew by 85% QoQ to 38%, just behind Marinade. Jito’s growth was benefitted by Lido sunsetting its Solana instance following a governance vote. Lido had a 24% market share at the end of Q3, which fell to below 2% by the end of Q4. As noted above, Jito’s MEV Solana client also witnessed growth, with 48% of stake running the client, up 51% QoQ. MEV has also recently been picking up with the increase in onchain activity.

At Breakpoint, Jito unveiled StakeNet, an open-source protocol for decentralizing Solana staking pool operations. Currently, all Solana staking pools are managed by centralized actors that store historical validator data from onchain snapshots and offchain sources like validator gossip in their own offchain servers. They then use their own delegation logic and parameters to rebalance stake between validators and add or remove validators from the set.

StakeNet puts all of this onchain. It introduces a network of keepers that run a validator history and steward program. The validatory history program stores onchain up to three years of cryptographically verified data for every Solana validator. The steward program manages the delegation logic and validator scoring to operate the stake pool. With everything onchain, the delegation logic and parameters can then be adjusted through onchain governance. When it goes live, Jito will adopt StakeNet, with the hope that other staking pools will, too.

While its market share fell 12%, Marinade’s TVL in SOL terms still grew 26% QoQ. Marinade already has a native token MNDE, but last quarter it launched a rewards program to compete with the growth of newer, tokenless protocols. Last quarter, Marinade also launched Marinade Native, a native staking product to compliment Marinade’s liquid staking. Marinade Native is a stake automation platform that routes stake to 100+ top-performing validators without a performance fee or introducing any smart contract risk. Marinade Native has amassed $416 million in TVL.

Near the end of the year, Marinade introduced Protected Staking Rewards (PSR). Under PSR, validators will need to put up a SOL bond to be eligible to receive Marinade stake. If a validator has downtime or suffers other performance issues that affect its staking rewards, the SOL bond will be used to cover any losses for Marinade stakers.

Blaze has continued its ongoing BLZE airdrop, which began in August. After growing by 1,234% QoQ in Q3, its TVL in SOL grew 344% in Q4, ending with a 12% market share.

MarginFi launched its own liquid-staking protocol at the end of Q3. The LST routes stake to three validators run by the MarginFi team. Its liquid staking TVL in SOL grew 1,886% QoQ, cracking the top five of liquid staking protocols. As noted above, the MarginFi team has teased the launch of a liquid-staked, SOL-backed stablecoin.

The liquid-staking ecosystem is being further strengthened by Sanctum, which offers liquidity and stability to Solana’s liquid staking and DeFi ecosystems. In early December, Sanctum unveiled 2.0, bringing new products such as single-validator LSTs, an upgraded multi-LST liquidity pool, and a zero-fee flash loan program.

As LSTs in Solana DeFi protocols grow, LST liquidity will become increasingly important, especially if users leverage them against SOL. This dynamic became evident in mid-December when a user sold around $8 million worth of Marinade’s mSOL, causing its price to dip below SOL. While Sanctum provides a liquidity pool unifying LSTs, mSOL is still in the process of integrating it. The temporary depeg also caused a debate between several lending protocols over best risk management and liquidation practices.

Consumer

NFTs

Average daily NFT volume increased 356% QoQ to $4.8 million. Removing Bitcoin, Solana’s market share of NFT volume grew from 9% to 26% QoQ.

NFT marketplace Tensor’s market share of volume compared to Magic Eden grew to over 80% in early December, although Magic Eden reclaimed a majority share by the end of the quarter. Tensor started the year with a 1.2% market share.

The top collections by total Q4 trading volume include Mad Lads (613,000 SOL), Tensorians (510,000 SOL), and Claynosaurz (171,000 SOL). These collections all represent the transitioning PFP NFT meta towards brand-building and practical applications.

• Mads Lads were launched by the team behind the Backpack wallet and exchange. The Backpack Exchange was announced during Breakpoint and opened sign-ups in mid-November. Projects like Pyth, Dymension, Wormhole, and Monad have announced or teased an airdrop to Mad Lads holders, with holders also hoping for a Backpack Exchange airdrop.
• Tensorians are the native project of Tensor. They offer holders benefits like points for the expected Tensor airdrop and perks from partner projects.
• Claynosaurz has been experimenting with IP rights, creating content, and launching merchandise, similar to Pudgy Penguins on Ethereum.

Many notable Solana NFT collections saw significant QoQ increases in their floor price denominated in SOL. Mad Lads’ floor market cap grew 142% QoQ to 1.3 million SOL ($135 million), while Tensorians’ grew 517% QoQ to 0.8 million SOL ($80 million). The two projects are now Solana’s top collections by floor market cap.

Social and Creator Platforms

Compressed NFTs (cNFTs) have been the first successful use case of state compression, which was introduced at the beginning of Q2. State compression provides a cost-efficient method for storing data onchain by hashing data into Merkle trees and posting its root hash onchain. Depending on the composability level, the cost to mint and store 1 million cNFTs ranges from 5.3 to 63.7 SOL compared to 24,000 SOL without compression.

cNFTs enable new use cases across consumer, DePIN, and other sectors. DRiP is the foremost example of a consumer application that is only possible with cNFTs. DRiP partners with artists for free NFT art mints, with collection sizes much larger than the normal 10,000. DRiP minted over 35 million cNFTs in Q4, with another 4 million minted by Dialect, Helium, and other projcects.

At the beginning of the quarter, DRiP launched Droplets to power its in-app economy. Originally, Droplets were distributed to users depending on various engagement levels and were automatically spent when users received a collectible from the platform.

At the beginning of December, DRiP revamped the system, bringing Droplets 2.0. Users can still receive Droplets for free — but only through a spin-to-win mechanism that refreshes every six hours. Users can now also purchase Droplets with tokens or fiat (powered by Sphere). Lastly, users can directly gift Droplets to creators for potential perks. Droplets are converted to USDC and paid out to creators. DRIP paid out $143,000 to creators in Q4, with $84,000 in December alone.

Other notable events include:

• Access Fundraise: Creator monetization platform Access Protocol announced a $1.2 million seed round.
• Nina Protocol V2: Digitally native music platform Nina launched its V2 in mid-November, enabling artists to sign up with an email address and release music for sale or free. Nina uses Arweave and Solana to store music releases and facilitate transactions, with artists keeping 100% of their sales.
• Boba Guys Passport: Bubble tea chain Boba Guys launched a loyalty program built on Solana, minting cNFTs with the help of NFT tooling company Crossmint. So far, there have been 8,124 cNFTs minted for the program.
• SolLinked Masquerade: SolLinked added a “Masquerade” feature. Masquerade is a chat room where users can prove their onchain holdings in a privacy-preserving manner through Elusiv.
• Solarplex In-Post Minting: Web3 social media platform Solarplex added an in-post minting feature. It allows users to easily create an NFT and embed it into a post. Anyone who likes the post automatically collects the NFT.

Gaming

Gaming has quieted down as a predominant Solana-specific narrative, but there was still a lot of discussion and several updates at Breakpoint.

• Star Atlas is a highly-anticipated game building on Solana. At Breakpoint, it unveiled gameplay features and a demo of its upcoming 2.2 release. At the end of last quarter, Star Atlas launched a 2D open-world game SAGE Labs. With every action taking place onchain, Star Atlas accounted for around 8% of total Q4 Solana transactions.
• Open-source onchain gaming framework Magicblock detailed its vision for a Solana native gaming engine (more on how those work and why they're important here).
• Other discussions at Breakpoint were held on the evolution of and mechanism design within the gaming space, as well as user acquisition strategies to maximize those designs.

In mid-December, Magicblock co-hosted the second Solana Speedrun along with Lamport DAO and the Solana Foundation. The gaming-focused hackathon offered up to $10,000 in prizes.

DePIN

Solana is becoming a hub for DePIN applications, hosting Helium, Hivemapper, Render, Teleport, and GenesysGo, among others.

Notable Q4 events include:

• Render Migration: At the beginning of November, decentralized compute network Render successfully completed the migration of its core onchain infrastructure, including its native token, from Ethereum and Polygon to Solana. The Render Foundation stated that Solana enables new capabilities for the protocol, such as real-time streaming, dynamic NFTs, and composability with onchain order books.
• Helium Mobile $20 Phone Plan: In early December, Helium Mobile launched its nationwide $20 per month phone plan with unlimited data, talk, and text in partnership with T-Mobile. It also released the indoor and outdoor Helium Mobile Hotspot, allowing users to help create wireless coverage in return for MOBILE rewards.
• Hivemapper Updates: Hivemapper aims to create a decentralized global map. Hivemapper Inc. announced that it has begun licensing map data on behalf of paying customers. Later in the quarter, Hivemapper released Scout, an open-source UI toolkit for monitoring street locations in real-time using Hivemapper dashcam imagery. Potential use cases include monitoring construction work zones, gas station prices, and advertising billboards.
• Teleport iOS App: Decentralized rideshare protocol Teleport launched its iOS app at the end of October. Teleport will begin operating in cities with at least one local rideshare operator and enough drivers and riders.
• Io.net Public Beta: Decentralized GPU aggregator io.net launched its public beta during Breakpoint. Io.net has aggregated GPUs from Render, Filecoin, and its own network to establish a decentralized cloud catering specifically to machine learning needs. It plans to launch its own token in Q1 2024.
• IoTeX Integration: Sensor network platform IoTeX integrated its W3bstream SDKs with Solana. W3bstream connects IoT devices equipped with use case-specific sensors (such as Hivemapper dashcams) to onchain contracts using zk-proofs.
• Nosana’s AI Pivot: In mid-October, decentralized GPU network Nosana announced a pivot from CI/CD use cases to AI inference. Its platform is currently in private beta with over 100 GPU nodes and 47,000 completed inferences.

Payments

With low transaction costs, sub-second finality, and a network of several thousand nodes, Solana promises to help power mainstream payment flows — so says Visa, which expanded its USDC settlement pilot to Solana last quarter. Beyond Visa’s announcement, another major payment-related win last quarter was the integration of Solana Pay into Shopify. Payments platform Helio announced in December that it would be taking over operations of the Solana Pay Shopify plugin.

Other notable events from Solana-native payments infrastructure companies and applications this quarter include:

• Sphere Early Access: Solana Summer Camp Hackathon winner Sphere launched early access to its payments solution in early December. Sphere’s features include offramping, onchain subscriptions, universal checkout, and more. It already powers payment flows for several Solana ecosystem projects, including Squads, io.net, DRiP, and Helium Mobile.
• Code Open Source: Payments app and protocol Code, which is now focused on building a micropayments solution, open-sourced its entire codebase at the end of November.
• Elusiv Payroll App: After launching private token swaps last quarter, Elusiv opened its private payroll app to waitlist sign-ups.
• TipLink Powering IRL Events: TipLink allows users to send or claim Solana assets with a link or QR code. At Breakpoint, over 15 teams used TipLink to distribute over 5,000 claimed assets. TipLink also powered NFT distribution through QR codes at ‘Artists in Residence’ at Art Basel Miami Beach.

Infrastructure

Notable infrastructure-related events from Q4 include:

• Squads V4, Fundraise, and Fuse: Over $2.5 billion of assets are secured in Squads’ multisig protocol. At the beginning of the quarter, Squads launched V4, bringing a UX redesign and new features, including browser extension wallet SquadsX. Soon after, it announced a $5.7 million strategic round led by Placeholder. At Breakpoint, Squads Labs announced smart wallet Fuse at Breakpoint. Fuse is a PDA wallet powered by the Squads multisig protocol. It has an expected launch in Q1 2024.
• Pyth Airdrop: Pyth is the predominant price feed oracle for Solana DeFi protocols. In November, it released a retrospective airdrop with over 86,000 wallets across 27 blockchains eligible. Instead of creating a claim contract on each blockchain, Pyth airdropped all tokens on Solana. Although there were some issues due to a lack of liquidity, the Solana network performed relatively well.
• Solana Mobile Updates: The Solana Mobile team announced several updates at Breakpoint, including new generalizations so any chain may integrate Solana mobile. The updates also introduced the capability for wallet apps to directly integrate into Safari via extensions and the capability for new gaming SDKs using Unity and Unreal Engine to more easily integrate mobile wallets. Solana Mobile’s Saga Phone had disappointing sales numbers but then quickly sold out once people realized that a BONK airdrop claimable by Saga phone users was worth more than the cost of the phone following a surge in BONK’s price. Several other projects have since airdropped to Saga phone users.
• Phantom Cross-Chain Swapper: Leading Solana wallet Phantom launched a bridge allowing users to transfer and swap tokens between Solana, Ethereum, and Polygon directly within their wallet. The bridging is powered by Li.Fi and several other protocols, with the swap functionality powered by Jupiter and 0x.
• Wormhole Fundraise: Cross-chain protocol Wormhole announced a $225 million fundraising round at a $2.5 billion valuation. Wormhole is one of the leading protocols for cross-chain connectivity with Solana.
• Helius Updates: Developer tooling company Helius had several updates in Q4, including launching transaction websockets and a priority fee API, as well as supporting fungible tokens (SPL, Token Extensions, cNFTs, and inscriptions) in its Digital Asset Standard API.
• Backpack Exchange and Wallet Updates: The team behind the Backpack wallet launched a centralized exchange, Backpack Exchange, in mid-November. The exchange’s wallet lives on Solana, enhancing transparency. Backpack also added an NFT collection locking feature, launched its mobile wallet on the Apple and Google Play stores, and open-sourced the Backpack Wallet Extension.
• Underdog Embedded Wallets: Underdog Protocol is an API for NFT-related needs. In late November, it launched an embedded wallet tool. This enables users to claim and manage NFTs with a social login instead of needing to first create a Web3 wallet.
• Other developments: Light’s ZK Anchor, Armada’s launch, SolanaFM’s Quantum launch, ‘create-solana-dapp’ tool update, Google Cloud BigQuery support, Ironforge’s RPC Gateway, Vybe token pages, MPCVault integration, Trezor support, Space Operator’s open beta, SNIPER’s upgrade, and Eclipse testnet launch.

Growth

Ecosystem growth is furthered by grants, hackathons, accelerators, and other initiatives put together by the Solana Foundation and independent organizations like Lamport DAO and Superteam.

Notable events in Q4 include:

• Breakpoint: The Solana Foundation hosted its annual conference from October 30 to September 3 in Amsterdam. There were over 3,000 attendees and 100+ presentations. Many teams used the opportunity to make big announcements, as detailed throughout this report. Breakpoint 2024 will take place from September 19 to September 21 in Singapore.
• Hyperdrive Hackathon: Solana Foundation’s online Hyperdrive Hackathon ended in mid-October, with the winners being announced at Breakpoint. AI-powered telegram chatbot Fluxbot took home the Grand Champion prize ($50,000). Other track winners ($30,000 each) were:
  • Mobile Consumer Track: SolLinked, a pay-to-access, people-as-a-service starting with email.
  • Crypto Infrastructure Track: epPlex, a protocol for minting self-destructing NFTs.
  • AI Track: Wysdom, a Notion-like platform for collaborative Web3 development and research.
  • Gaming and Entertainment Track: Solciv, a fully onchain strategy game inspired by Sid Meier’s Civilization.
  • Finance and Payments Track: Starport (formerly known as Alexandria), a consolidated central limit order book where orders can be filled with multiple assets while avoiding multi-hop trading fees.
  • Physical Infra Networks Track: Shaga, a P2P network for gaming computers.
  • DAOs and Network States Track: Pubkey Link, an open-source Discord verification bot service.

In total, over 7,000 participants submitted 907 projects, a record-breaking amount for Solana Foundation hackathons.

• Solana Labs Incubator: Solana Labs launched an incubator for existing Solana projects or Web2 and Web3 projects considering Solana. The incubator offers support for development, fundraising, marketing, and more.
• Hong Kong Hacker House: The 2023 Solana Hacker Houses Tour wrapped up with the Solana x Circle Hong Kong Hacker House in mid-November. Thirteen teams participated in the VC Pitch and Demo Day to close the event.
• RetroPGF Round 1: OpenBlock Labs partnered with the Solana Foundation to launch a Solana Retroactive Public Goods Funding (RetroPGF), with $250,000 worth of SOL in prizes. Top recipients included OpenBook, Cubik, and SOLfees, among others.
• MtnDAO V5 Announcement: The fifth edition of month-long hacker house mtndao was announced, taking place in Salt Lake City during the month of February 2024.
• Solana Crossroads announcement: Step Finance’s ambassador program Solana Allstars announced the second annual Solana Crossroads conference, taking place in Istanbul in May 2024.

Closing Summary

Solana closed out a bounce-back year with a strong Q4. Solana Foundation’s annual Breakpoint conference helped drive growth, featuring many big announcements and launches from teams including Jupiter perps and token, Frankendancer, Backpack Exchange, and Render’s migration. JTO’s airdrop and BONK’s Coinbase listing further spurred onchain activity in December.

All said, Solana’s market cap increased 423% QoQ, average daily fee payers 102% QoQ, DeFi TVL 303% QoQ, average daily DEX volume 961% QoQ, average daily NFT volume 359% QoQ, and stablecoin market cap 21% QoQ.

Upcoming catalysts in Q1 will include Jupiter’s airdrop, token extensions, and continued progress on the launches of Firedancer and TinyDancer.

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