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Born to Die: An Overview of the Solana DeFi Ecosystem in 2023.
Summarized by AI
Original Title: "What is Dead May Never Die: The Solana DeFi Ecosystem Overview 2023"
Original Source: blocmates
Original Translation: West, Luccy, BlockBeats
If you have held onto your faith in Solana over the past 18 months and managed to survive, then respect to you. Soylana, SBF Chain, Sam Coin, this cycle's NEO, Phantom Chain, VC Chain, and more - these are just some of the names that have emerged in the Solana DeFi ecosystem.
Overall, especially on Twitter, people tend to have a tendency to follow and obey without saying anything that goes against public opinion. It's like in an international medieval town, where residents are excluded because of different views or beliefs in the wrong god. This is not my god, so it is the wrong god.
When capital is at risk and many idiots in the village are anonymous, the tense situation becomes particularly serious. Those who shout the loudest often attract followers who agree with every word they say.
This is why narrative is particularly important in the cryptocurrency industry. Things can be taken and persisted without necessity. However, often the stronger the narrative, the further from the truth.
We saw in the previous cycle that there were idol-like figures similar to cults, who led their followers towards inevitable failure. This time, they will come back, perhaps in different forms, but human nature dictates that group mentality will accept some of these charismatic leaders. If they are given a token label, the situation will quickly become complicated.
I believe that any form of extremism is at best foolish and at worst deceitful. This is exacerbated in an extremely young and naive field where the constantly changing technologies and paradigms will not be static in the next 5-10 years. There is still much to learn, solve, and even imagine, yet some of us are considering nothing beyond the echo chamber of our algorithm-induced self-affirming beliefs.
When things start to spiral out of control, it becomes very easy to take a stand against Solana. From the perspective of investors, users, builders, and general market participants, the past 18 months have definitely tested your resolve.
We saw the rapid rise of SOL price from that infamous $3 tweet, all the way up to $259. At that time, Ethereum became difficult to use, with gas fees consistently above $100 and sometimes even reaching four digits in Gwei. The development of alternative Layer 1 solutions was well justified. Solana, BSC, Avalanche, Luna (RIP), Fantom, and others have attracted users who want to participate in DeFi but also hope to afford gas fees.
Among all these things, toxicity began to spread. For some reason, Polygon largely avoided the malicious attacks of Ethereum extremists. This may be because they are trying to convince people that they are connected to Ethereum while also being an unusable sidechain with ongoing reorganization issues.
However, Solana has become the main target of the attack. Bankless continues to invite Anatoly and other L1 blockchain founders to further their own agenda without providing any meaningful speaking time for the founders. Even if they are given speaking time, it is done so in an extremely arrogant tone.
It is sacrilegious to believe that there are other ways of doing things, rather than benefiting from Ethereum in some way. In fact, it performs well, which makes it even worse...
What I want to say is, even as someone who tries everything possible, this is completely different from anything I have tried before. Some aspects are better, some are worse. But overall, it is still impressive.
After several instances of downtime and failures, the situation began to become a bit unclear. This will only exacerbate the emotions of those who are dissatisfied with Solana. Another aspect that I noticed early on is that DeFi projects on Solana do not yet meet the standards of equivalent projects on EVM.
Completely lacking in thinking about token economics, value accumulation, stickiness, and user retention. As someone who works in the DeFi field almost every day, some things don't make sense.
任何代币生成事件（TGE）都会立即停止运行或受到严重攻击。感觉每个在 Solana 上启动的项目的所有投资机构上都有相同的名字，Alameda 似乎控制了所有与此相关的事物。
Now, I don't know if what I'm about to say is true, but enough things have happened that it's not just a coincidence.
Here's what I and others have discovered: How to issue tokens on Solana in 2021.
· On the list of investment institutions, there are Alameda and other familiar Solana investment institutions.The circulation of tokens is very low, and the unlocking schedule should be very long.
· Private placement allocation provides very low prices for seed investors.
· Tokens that follow this blueprint are eligible for listing on FTX.· If Alameda invests, the Perps of the token will be listed.
· When Perps go online, investors can short to hedge their still-locked positions.· The interests of retail investors will be harmed.
This is not the way to build a strong community or user base. If you want users to stick around, you must give them opportunities to make money. This is not feasible when your only counterparties are low-cost venture capitalists.
Anyway, based on the way FTX/Alameda prices its investment project assets at current market prices, such as MAPS, OXY, SRM, etc., even if their assets may not be tradable in the next few years, I believe my point of view is justified.
Perhaps they are trying to exaggerate their actual holdings through this method to demonstrate that they have full payment ability, but in reality, this is not the case.
Anyway, after that, FTX crashed, and naturally, the trial of its association with Solana also occurred. This is another test of faith for holders, users, developers, and supporters, but it also provides an excellent opportunity to buy SOL at a price of $8. Salute to those who bought it.
In short, in the nine months since then, it seems that the dust has settled, and those who once hoped for the demise of Solana are now licking their wounds, as it has been one of the best-performing assets among the top 50 cryptocurrencies so far this year. The fact is that dealing with the situation is an excellent driving force for growth.
What exactly has changed?
Solana's downtime issue. The last failure occurred in February and was attributed to cluster instability. Since then, everything has been going according to plan for the past six months.
Backpack (a new wallet on Solana) held their xNFT release: Madlads, which was a huge test for the Solana network. The xNFTs have unique designs, high demand, and are very popular.
xNFT, or executable non-fungible token, is a new type of NFT that can run code. The "X" stands for executable, meaning the tokenized code grants the owner the right to execute it.
However, due to the extremely low fees and high throughput of Solana, many Solana NFT issuances have been attacked by bots attempting to spam the contract to ensure they have a higher chance of minting than regular users.
Due to a large number of transactions flooding the network and minting contracts, the team had to delay the minting by about 24 hours.
Here are the comments from the founders of Backpack and Madlads on their first attempt.
https://twitter.com/armaniferrante/status/1649226410903437314?s=20
Now, even suggesting that similar situations may occur on other chains is foolish due to reasons such as throughput, fees, and delays. Firstly, it is not cost-effective to do so. That being said, there has been no downtime on the network, despite a few RPC crashes, and overall it has performed very well under the immense demand and pressure on the network.
For me personally, the most impressive thing is seeing the operation of the local fee market. I will try to simplify it as much as possible and not delve too much into the details, as I don't want to bore you, but this is actually how it works.
On Ethereum or most other EVM chains, transactions are sent to the mempool, sorted, and then submitted to blocks. Searchers and builders will see these transactions and propose the highest value blocks to validators, which are typically confirmed and submitted to the blockchain.
Anyone caught in the middle by Jared should blame this mechanism, as they suffered significant slippage on their own purchases of counterfeit coins. By raising the gas price, Jared would buy before you and then sell before you. If you use automatic slippage or forget to reset it to normal slippage tolerance, you will buy at a higher price and he will continue to sell in the next transaction.
These gas competitions are absolutely insane in the encryption industry. Even if you don't know that NFTs are being issued somewhere on Ethereum, you can always tell by the fact that users are trying to pay high gas fees to prioritize the confirmation of their issuance transactions.
So, what happens when this happens and Aave must liquidate the loan? Well, due to the skyrocketing gas fees, but Aave must quickly liquidate the collateral to obtain the best price, the cost of liquidating the collateral may increase, and the protocol may bear bad debt.
Now for the interesting part... How do you separate the cost so that the NFT issuance happening is not affected by the liquidation of collateral on Aave? This is the problem that Solana successfully solves through its isolated fee market.
It is possible that a Gas war is happening in the NFT issuance, while users in the DEX and Token markets are unaware.
This is also because some upgrades have been made recently:
· Priority fee - This allows users to express their desire to set their transactions as a priority. The fee is determined by the user and will be added on top of the base fee. · QUIC This is a new implementation that allows validators to effectively limit spam-like transactions sent from specific IPs.
Someone described it as switching from a public mailbox where anyone can send you letters and spam emails to having a secretary who tells you who is calling before you answer the phone.
Of course, this will reduce spam emails from individual sources and prevent extreme levels of trading surrounding the expected NFT issuance.
· Equity Weighted Linkage This is a method that allows those with greater SOL weight to have more links to the "leader", the validator who is deterministically selected to submit the next block.
Therefore, this means that when you have more weight, you can establish more connections with validators. Of course, the opposite is also true. Those who want to have more connections and increase their chances of having their transactions included in blocks need to buy SOL and stake it. This creates an additional financial barrier that will discourage traders who want to bombard the network.
Madlads' ultimate success and how they achieved it:
Using Madlads NFT issuance as an example... Every time a user attempts to mint an NFT by sending a transaction, Solana's base fee will remain the same, although users can pay additional priority fees to increase their chances of minting.
If this happens on Ethereum, everyone is increasing gas fees to try to queue up, while at the same time a large holder is liquidated on Aave, then those liquidating bad collateral on Aave will have to compete with those using priority gas fees, which may not be included in the block. This could lead to the accumulation of bad debt in the protocol, as we saw during market crashes such as LUNA and UST.
The isolation fee market of Solana allocates a certain space in the next block for specific contracts, so once the limit is reached, availability can still be provided for other important transactions. Now, protocols, users, and applications no longer need to compete for gas priority with unrelated activities happening elsewhere on the network.
In addition, with the implementation of QUIC, sending spam emails to specific contracts by robots will be limited by the actual number of transactions sent. Typically, this large volume of transactions can cause some trouble for validators, leading to network downtime in the past.
In short, over the past few months, Solana has implemented some very impressive upgrades in throughput, infrastructure, user experience, and overall stability.
Honeypot Project BITCH
The team also cunningly deployed a honeypot minting contract, which absorbed about $250,000 worth of SOL. The bots sent spam to the network, attempting to "mint" non-existent NFTs through their transactions... The founder returned the funds to those who attempted to mint fake NFTs. I support these measures.
Anyway, this is a brief history of how we got to where Solana is today. Now, let's take a look at the exciting rebirth that all degens have been waiting for: the new Solana ecosystem evaluation.
Solana Ecosystem Assessment
I will try to explain things in a simple and actionable way. I may miss some details, but I will do my best to keep this article up-to-date to provide you with information.
Solana Getting Started: Wallet
Solana currently does not support Metamask. There are currently two main wallets available.
Phantom is my preferred wallet, mainly because it is an excellent product and I have been using it for the previous cycle. Recently, it is undergoing a brand refresh, which I think is great. The Chrome browser extension and mobile app are both outstanding. Currently, the download volume in the Chrome store has exceeded 2 million users, and it has recently added support for Ethereum and Polygon, allowing users to manage all their content in one application. I look forward to adding custom RPC support for other L2 ecosystems in the future.
This is the wallet I mentioned in my very long and verbose introduction. I have used it and purchased some Madlads on the Tensor market. Backpack is very user-friendly and supports xNFT. I am very excited to see more innovation coming from this team. Backpack also supports Ethereum, allowing you to consolidate all your content in one application. It is very difficult to choose between the two, so I recommend trying both.
2023 Solana Ecosystem Beginner's Guide: Deposit/Withdrawal Channels and Bridging
Any well-known centralized trading platform will support Solana's deposit/withdrawal channels. It's as simple as buying SOL or USDC on the trading platform and then sending it to your Phantom or Backpack address. If this is your first time using it, there will still be a small gas fee (SOL) on the chain. Therefore, it is best to buy SOL to bridge the deposit from the centralized trading platform. The tricky part is the EVM-Solana bridging. If you are an EVM supporter and all your assets are on Ethereum or L2, how do you choose?
This is the product of Wormhole, which allows you to bridge between Solana, BSC, Avalanche, Ethereum, and Arbitrum. Users only need to connect their wallet, such as Metamask (Ethereum), then connect to the target wallet, such as Phantom, and then select the asset you want to bridge. The advantage is that the operation is really simple. It only took about 1 minute to transfer from Solana to Arbitrum. The disadvantage is that transferring in the other direction may take up to 18 minutes, and it may take a long time to bridge from a centralized trading platform to any asset you want, especially if you are waiting for confirmation from Arbitrum. BSC, Avalanche, or Ethereum have not been tried yet. The deposit time from these chains to Solana may be faster.
Currently, I have not yet used deBridge. The project recently integrated EVM-Solana and has received positive user reviews. The bridging from Avalanche to Solana by deBridge appears to be very fast (due to both chains having super-fast finality). In any case, if you are looking for a fast, simple, and affordable bridging solution, then deBridge is worth a try.
2023 Solana Best Decentralized Exchange (DEX)
Okay, let's get familiar with the best asset trading platform on Solana. I'll introduce some, but for me, there's one standout product.
Raydium is a true pioneer in Solana DeFi. In the past, if I wanted liquidity for any token, it was here where I would choose to trade. It is an AMM trading platform, and if you have used Uniswap, you will be familiar with Raydium. For those who want to provide liquidity, you can also check out Raydium's centralized AMM, which seems to have made great progress recently.
Smol alpha: The annual interest rate for SOL-USDC LP is currently around 30%, while the annual interest rate for stSOL-SOL LP is 17.28%.
I have always liked Orca and its very user-friendly interface. The "Text Trading" feature on the taskbar is also cool. A few weeks ago, Orca gained huge trading volume and LP fees in BONK and RLB trading.
Jupiter is the best in my opinion. No matter which chain I'm on, I always use Jupiter aggregator, which is the leader on Solana DEX. I always go directly to Jupiter for trading, and recently I also joined the on-chain limit order. You can even use DCA strategy to set time limits for effective buying or selling.
2023 Best Lending & Borrowing Market for Solana
Another typical DeFi product is the lending market, which refers to borrowing and lending agreements. Aave, Compound, and the upcoming Tapioca will become blue-chip stocks familiar to everyone on the EVM chain.
On Solana, there are several products that are similar to those you are familiar with and love. Let's take a look at some of them.
Solend is one of the earliest protocols to offer deposits and loans for multiple assets. They also provide permissionless liquidity pools where users and/or protocols can set their own parameters and a basket of assets. This reminds me a bit of Rari. In the FTX incident, they did run into some issues which resulted in loans collateralized with nearly $100 million worth of SOL dropping to liquidation prices without any action taken to repay the loans. In this case, an emergency governance vote was conducted to allow the team to take over their positions, but only 1.3% of the voters were in favor and 0.3% were against. However, the team continued to build during the bear market and low point of Solana, which is commendable.
This is one of the projects I mentioned when talking about Solana's revival. The project is currently running a reward program where users can deposit and borrow to earn points. These points will be calculated and exchanged for airdrop rewards. Given the protocol's meticulousness, I believe there must be some excellent token design behind it, which is an advantage we see on Solana. In the later LST section, I will introduce a strategy using Marginfi.
2023 Solana Best Yield Optimization Protocol
Francium is a very good product, with a total locked value of over $425 million during the peak of the previous cycle. The protocol provides lending products, as well as opportunities to earn leveraged yield farming on specific unilateral assets and LP assets. These new products launched on Solana will provide some great earning opportunities.
Hubble is a product for Ethereum enthusiasts, similar to Abracadabra's CDP protocol. Users can deposit various assets and mint their USDH stablecoin product. Hubble has an active USDC-USDH LP pool managed by Kamino.
Kamino is a centralized liquidity management protocol, similar to Arrakis, where anyone can deposit funds into their reserves on Orca and Raydium.
2023 Solana Ecological Liquidity Staking Project
It is obvious that the mobile collateralized derivatives are the biggest theme of 2023 in the encryption industry, as the Shapella upgrade happened on Ethereum a few months ago. Now users can extract their ETH from the beacon chain, causing protocols like Lido, Rocketpool, and even Coinbase to significantly increase their market share in the ETH staking market. So what about the mobile collateralized derivatives on Solana? Lido has long supported stSOL, and many people may expect Lido to also become a market leader on Solana.
Marinade Finance is the top-ranked DeFi application on Solana, with a total locked value of over $162 million. Its mSOL product has stood the test of time and has been implemented in multiple occasions. Similar to stSOL on Ethereum, mSOL can be deposited into many of the aforementioned protocols.
If I were a gambling person, I would bet that Jito will surpass Lido or Marinade in the next 12 months. Jito is an excellent product made by a very talented team.
These teams provide a liquid staking product that captures MEV flowing on Solana, which can bring greater returns to their depositors.
Alpha: If you can time it right, you can deposit SOL into Jito to receive jitoSOL, and then deposit jitoSOL into marginfi. Both projects have not yet issued their native tokens, which are expected to be released in the near future. During this time, you can hold SOL for the long term and receive staking, lending, and MEV rewards.
Another emerging liquid staking product is BlazeStake, which uses bSOL. Similarly, this is a new liquid staking derivative of SOL that allows users to earn Solana staking rewards.
Derivatives
Hxro Network serves as a liquidity layer on Solana, allowing users' deposits to be used in all applications built by Hxro.
Derivatives built on Hxro:
Hxro ecosystem is developing rapidly, with new projects starting to build every week, including perpetual contracts, options, futures contracts, hedging bets, gambling, trading robots, and anything else you can think of. So I am investing heavily and trying to lock in funds as much as possible. To learn more about Solana, especially Hxro, please watch our interview with Gunny, the founder of Hxro Labs.
https://www.youtube.com/watch?v=Gc_KGPn3oVk
Pepper DEX
Pepper DEX is a decentralized perpetual contract and futures trading platform built on the Hxro Network, benefiting from the token circulation mechanism of PEP and HXRO stakers. Solana has introduced option tokens for the first time, such as oPEP, whose token design seems very comprehensive, which is a choice for farmers and DeFi enthusiasts.
Flowmatic is one of the coolest things I've seen recently, and it's only possible on Solana. It has a rich set of tools, APIs, and trading terminals, and will become the toll booth for almost every project on the Hxro Network.
Other than LSDs, chat trading bots on Telegram and Discord have become the biggest new trend of 2023. Many people believe that these things are just a temporary meta-trend, but I believe they are a solution to the conflict between cryptocurrency entry and user experience issues.
Account abstraction, smart contract wallets, and mobile-first applications are at the top of my 2024 watchlist. Those who solve the user experience issues of cryptocurrency will be the winners in the future. I believe there will be significant progress in the next 12-24 months to onboard the next wave of users onto the blockchain. Therefore, Base is attracting Coinbase's 100M+ verified users. Chatbots are another way to solve this problem, bringing trading bots to where end-users are and providing them with excellent products. These bots are likely to exist in the long term.
Recently, a new project has emerged and is expected to be launched soon. SpedX is a CLOB-AMM hybrid DEX for perpetual contracts that utilizes the liquidity of Hxro Network through Dexterity. It is impressive to see how many projects are being built on the infrastructure/liquidity layer of Solana. "We enable you to trade without worrying about unexpected price fluctuations" - SpedX landing page.
There are many other projects being developed on Hxro, and we may provide separate article coverage for them on blocmates.com.
On August 8th, Cypher was attacked. Despite this, Cypher has a very impressive product that I hope can solve all problems, because I know many people are locking SOL to get expected airdrop opportunities. Cypher offers cross-margin trading and allows users to deposit funds into the trading platform for use as leverage.
Other interesting protocols:
Ellipsis Labs and Pheonix
Translation:Ellipsis Labs and Pheonix
I can't find more information about Ellipsis Labs and their product Pheonix, but I only see that it will be a CLOB DEX on Solana.
The document mentions: "High-throughput blockchains have already enabled the creation of new financial primitives. Ellipsis Labs is building Phoenix, a decentralized limit order book that is fully based on blockchain, non-custodial, and does not require central server intervention, built on Solana."
Despite this, Serum (now OpenBook) seems to have left a big gap after leaving. One clear advantage of Solana is that it can build a truly centralized limit order book with real-time settlement.
As a practitioner in the encryption industry, I would like to see a real on-chain order book in operation, especially in the innovation of AMM DEX, particularly on Ethereum with Uni V4, Trader Joe, Maverick, and Ambient Finance.
For a name that represents a certain revival, Phoenix is also quite appropriate.
Tensor is an excellent NFT marketplace that is suitable for both regular users in Lite mode and professional NFT traders in Pro mode. I can only think of the advantages of Tensor and hope to see its success. The official has just released their Tensorians NFT series, which may contain some valuable information.
I have been following NEON Labs since the flourishing development of Solana in 2021. It provides a fully compatible EVM environment, but only runs on Solana. Therefore, it is now possible to deploy and scale Dapps that have already been built on Ethereum or other EVM chains, and enjoy the benefits of Solana. This is a very cool product and I look forward to seeing projects built on Neon.
Solana L2s
Aside from having one of the best websites in the cryptocurrency industry, Eclipse also allows users to build their own blockchain in their own way, enabling them to construct a Roll-Up using Solana, Ethereum, Cosmos, or any technology they desire. This is part of the emerging concept of "Roll-Ups as a Service" (RaaS).
https://www.youtube.com/watch?v=Y8MKq7IuOn0&t=4s
If you are a DeFi enthusiast, then these teams may be worth your attention.
Their website summary is like Cosmos' Solana virtual machine. Sei Network recently released an announcement about how Nitro supports Cosmos-based applications and the advantages of Solana's execution time, throughput, and fees.
I won't delve into it here, but if you're interested, you can read their post link.
If Ethereum enthusiasts weren't excited enough, Anatoly previously mentioned in a series of tweets that Ethereum can serve as Solana's second layer.
Compared to this situation, it is probably more likely for Bitcoin SV to receive Satoshi Nakamoto's return and recognition, but this is an interesting thought experiment, even if only to stimulate Anthony Sassano's emotions.
Fire Dancer
If you think Solana's performance is already good enough, then you may not have much in common with the people at Jump Trading. Fire Dancer is Solana's second validator client, making Solana the only chain besides Ethereum with another client.
So, how much more optimization can it have?
During the Breakpoint event, the team demonstrated that they can process over 600,000 tps (transactions per second) using off-the-shelf hardware, which is very impressive.
It is reported that two clients will continue to run simultaneously to increase additional security, as the original Solana client can run afterwards to verify whether Fire Dancer transactions have been confirmed. This also increases the reliability of Solana, as the possibility of transaction failure on one client is greatly reduced if it fails to process on another client. It is expected that this will be applied in the actual working environment in early 2024.
Token 2022
Currently, a new token plan is under review that may supersede the existing SPL token standard. This is similar to Ethereum's change to the ERC-20 standard. The reason for this change is due to some limitations in the token functionality of the current SPL format on Solana.
Extra use cases and extensions for these Tokens in 2022 will bring unprecedented dynamics to DeFi.
Some of the use cases include:
· Compressing, decompressing, and recompressing NFTs.
· Confidential transfer
· Interest-bearing collateral and liquidity pool expansion (similar to rebasing tokens)
· Forced execution of memorandum transfer (similar to bank transaction).
· CPI protection, where tokens must be verified by representatives.
If you want to learn more about Token 2022 and when it will be used in the DeFi field, you can watch this short demo by Breakpoint.
https://www.youtube.com/watch?v=Gr0cSdqIjD4
Summary
I hope this helps clarify what is actually happening with Solana. I think people are overlooking the big picture and only doing surface-level research. In fact, I have been accumulating SOL tokens and have finally finished accumulating them and am ready for the next round. In my opinion, SOL at $8 is like ETH at $80 in the last bear market cycle.
Original article link
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