Solana – Practical Primer

I’ve been spending the last few months getting deeper in the Solana ecosystem because of the explosion of new projects, attractive yields and step function better crypto experience enabled by faster speeds (65,000 transactions per second) and lower cost (fraction of a penny). The goal of this post is to give new users a starting point on Solana.

The recent price movements in $SOL have drawn a lot of attention to Solana although this is a lagging indicator of all the cool stuff that has been built on the platform over the last few years. Solana has added almost $5bn in total value in the last two months to its ecosystem.

Source: Defi Llama (September 7 2021)

I think there is space for multiple chains to co-exist in the future depending on their intended use cases. However, there seem to be more and more high quality projects and great development teams innovating on Solana and this will lead to more users and more money moving to the ecosystem.

The graphic below is a good summary of the different chains and supports the case that Solana may be technically superior to alternatives. I won’t go into details about the blockchain trilema (decentralization, security, and scalability) in this post but plan to write more about this later.

Source: RareLiquid

People are drawn into crypto and new L1 blockchains for different reasons: technology, financial returns, cool stuff (collectibles, art) and community. Each of these can bring in new users and developers into the ecosystem and these folks can cross-sell into the other products which creates a halo effect.

I started playing around on Solana because it was so fast and transactions were basically free. It was an order of magnitude faster than Polygon which was in turn an order of magnitude faster than Ethereum. It felt like I was just using the internet today over a dial up connection on my 486 dx2 in the 90s in Mombasa, Kenya (which was pretty slow). I then started yield farming because of the attractive returns and only recently discovered some of the NFT projects. I came because of the technology and then cross sold into DeFi and then NFTs.

Here are three excellent articles on Solana if you want to learn more:

I’ll summarize some of the tools, DeFi and NFT projects that I’ve used as well as share some thoughts for the future.

On Ramps & Tools

One of the first things you’ll need to do is figure out how to buy Solana and figure out how to get money into the ecosystem.

  • Wallet: If you want to engage on projects in Solana you’ll need a wallet (like you use MetaMask on other chains). You can just send $SOL from whatever place you choose to buy it. My favorite wallet for Solana is Phantom which is a Chrome extension – it’s fast, intuitive and well designed. You can also “stake” your $SOL with validators for 8% yield if you just plan to hold.
  • On-Ramps: If you want to bring other currencies to Solana like $USDC, you’ll need to use an exchange like FTX.US that lets you send $USDC to a Solana wallet. You can’t do this from an Ethereum wallet or Coinbase (yet).
  • Portfolio tracker: It’s really useful to pick a tracker to visualize all your positions or it can get super confusing. I use Step Finance and I like it. You can view your investments by investment type and also claim tokens, swap and visualize your NFTs. A decent alternative is Sonar.

Once you’re set up with some $SOL and $USDC in your Phantom wallet you can do a lot and that’s when the fun starts.

DeFi

The yields on Solana are very high right now, with many pools paying 40%+ APR for credible projects. I only farm on projects that I think have long term potential. Here is the process I usually go through before investing in a project. Make sure you understand the risks of Impermanent Loss (IL) when farming assets that are not correlated as large price deviations can adversely affect your returns over just holding the asset directly.

  • Raydium: Raydium is one of the oldest DeFi projects on Solana. It’s been more battle tested than the others on this list. They have a cool feature called “AccelRaytor” which is a place for new projects to launch. Users who stake Ray get special access to these projects.
  • Orca: Orca is a decentralized exchange designed for normal people, not programs. I first heard the team talk on the Solana Podcast and they are an ex Google/Stanford team that is very thoughtful about UX and product design. I’m excited about what they will build. They recently launched their “double dip” pools which pay out multiple tokens as rewards (including STEP-SOL). I stake SOL-USDC and I’m comfortable with the impermanent loss (IL) risk even as the price of SOL goes up, given the high farming yields.
  • Saber: Saber is built to provide liquidity across chains. I typically only stake stable pairs (high or perfect correlation pairs with no IL issues) in their liquidity pools e.g. USDC-DAI and wFTT-FTT. The founders are brothers Dylan and Ian who previously worked at Pipe in product and engineering and they raised $7.7M from Social Capital, Jump, Solana Foundation and Multicoin Capital.

I’m playing around on Sunny, Marinade Finance and others but top three are good starting points with attractive yields and intuitive UX.

NFTs

NFTs only really started picking up on Solana a few weeks ago, so are still pretty new and there are a lot of new projects launching every week so this section will get out of date quickly.

If you’re going to mint NFTs I’d also recommend setting up a different wallet for minting without any NFTs and a small amount of money in them. Solana transaction confirmations are harder to parse and this will prevent any bad actors from stealing your stuff.

Projects

My favourite projects are:

  • Solana Monkey Business (SMB): One of the original NFT projects on Solana with 25k Twitter followers. I joined the MonkeDao Discord, which is a community owned and operated DAO for SMB holders and found it to be an inclusive and knowledgeable community on Solana.
  • Degenerate Ape Academy: I think these 3D apes are fun and cool. Mine looks like “The Dude” from the Big Lebowski. They have 48k Twitter followers and a solid discord community. Lots of folks have these Apes as their profile picture (PFP) which is just one signal of their community.
  • Aurory Project: The Aurory project plans to make a game and by releasing NFTs to users, they start to build a community and a player base for this game. They have 76k followers on Twitter and just announced that they will be dropping free NFTs from the game to all Aurory holders, which was a cool community development move and not something I’ve seen before.

I’m also tracking some of the generative art projects like Rox, Abstratica and Frakt to see which ones have a community form around them and ship innovative work.

Marketplaces and Tools

All the marketplace are fairly new and have their fair share of teething issues. I imagine there will be a lot of improvement on all these platforms over the next few months (addition of bidding, UX improvements etc)

  • Solanart: Probably best marketplace on Solana for NFTs right now. They curate and verify the projects so it’s a “safer” place to get started and buy some NFTs. You can buy Degenerate Apes and Aurorys here.
  • Digital Eyes: Digital eyes has a wider variety of projects than Solanart and worth browsing to see the breadth of projects in the ecosytem.
  • Solanalysis: This is a great tool to visualize price and volume movements for NFTs across the ecosystem. They even have a section for upcoming drops which is handy if you want to mint anything.
  • Metaplex: Metaplex is building the “Shopify for NFTs” on Solana and allows creators to host their own storefront and mint NFTs etc on their site.

The Future

I’m going to continue to track the new projects on Solana and am particularly excited about projects that unlock new use cases that were previously impossible or prohibitive without the speed and cost effectiveness of Solana. A few areas in no particular order:

  • Global payment rails: There is a lot of whitespace for simplifying the UX and accessibility for global payments. On and off ramps into crypto as well as regulatory landscape are still the biggest barriers to entry this, but Solana seems like a viable place for more innovation here.
  • New financial products: Many financial products require real time execution (or low cost) or multiple dependencies to be viable like call/put options, derivatives or auctions e.g. Zeta Markets and Soleon.
  • New mental models in gaming: I think gaming will bring in an entirely new audience into crypto (and much larger than the collectibles wave). NFTs which are composable, tradeable and have utility are going to change the way we think of gaming completely. Star Atlas is an exciting project with a credible team and nice concept art, but we still have to wait and see if the game is fun. Axie Infinity is a great case study of innovation in “play to earn” on Ethereum and Ronin as well (podcast episode on Colossus).
  • Empowering creators: We’re moving to a world where creators are becoming more empowered and will have a more direct relationship with their audience and can capture more of the value that they create vs. giving a large portion to platforms, agencies and investors. I expect a lot of innovation in this area.

Overall, we’re still at the start of everything and it’s going to be a lot of fun to have a front row seat on this ride. 🍿


Note: As usual, nothing in this post is financial advice. Please do your own research.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s