Original title: "Data soared across the board, a look at Messari's fourth quarter Solana ecosystem report"

Original author: Peter Horton

Original translation: Frank, Foresight News

Key points:

- Many of Solana’s indicators maintained month-on-month growth in the fourth quarter of 2023, including market capitalization (423%), average daily number of fee payers (102%), DeFi TVL (303%), average daily DEX trading volume (961%), and average daily NFT trading volume (359%).

- The Solana Foundation's annual Breakpoint conference drives ecosystem growth, with many major announcements from teams including Jupiter perpetual trading products and token issuance, Frankendancer, Backpack Exchange, and Render;

- The JTO airdrop and BONK listing on Coinbase further stimulated on-chain activity in December 2023;

- Catalysts for the first quarter of 2024 and beyond include Jupiter airdrops, token expansion, and continued progress in the release of Firedancer and TinyDancer;

Getting Started with Solana

Solana is a public, open source blockchain designed to provide scalability and smart contract support without sacrificing decentralization and security. It does this through a timestamp mechanism called Proof of History (PoH). With PoH, the network can sort and batch transactions before processing them through the Proof of Stake (PoS) mechanism. Other Solana design goals include sub-second settlement, low transaction costs, and support for all LLVM-compatible smart contract languages including Rust, C, C++, and Move.

Key Metrics

Financial Analysis

SOL was one of the leaders of the Q4 2023 cryptocurrency market rebound, with a market cap of $43.8 billion at the end of 2023, up 423% from the previous quarter and 1,106% from the previous year.

SOL’s market cap surpassed ADA, USDC, and XRP in Q4 2023, ranking fifth among all cryptocurrencies, compared to its market cap ranking of 17th at the beginning of 2023.

Solana’s quarterly revenue in SOL terms (a measure of all fees collected by the protocol) increased 19% month-on-month, while total quarterly revenue in USD more than tripled to $13.7 million as the SOL price rose, with half of these fees destroyed and the other half distributed to block producers.

These token burns do not significantly reduce inflation at this point, so inflation at the end of Q4 2023 is 5.6% — a rate that strictly measures new tokens issued for validator rewards and does not take into account other token unlocks.

The inflation rate will continue to decline at a rate of 15% per epoch until it stabilizes at 1.5%. As of this writing, 71.5% of SOL eligible for staking is staked, meaning that these holders have chosen not to have their holdings diluted. Note that tokens held by Solana Labs or the Foundation, while not locked, do not all count as circulating. As fees rise, the annualized effective yield for SOL stakers has increased 58% month-over-month to 1.7%.

One of the main narratives related to SOL in Q3 2023 is what will happen to Alameda/FTX’s SOL (now controlled by FTX Estate), after Alameda and FTX purchased over 57 million SOL from the Solana Foundation and Solana Labs, but these tokens are subject to various unlocking schedules, with an average unlocking date of Q4 2025.

FTX Estate has already unstaked and transferred most of the unlocked SOL, and upcoming unlocks can be viewed on Solana Compass and Gelato.

Network Analysis

Usage

Network activity, measured by non-voting transactions and payers, rose as the price of SOL rose, with the number of daily payers hovering between 80,000 and 100,000 for most of 2023. The Solana Foundation's Breakpoint conference stimulated the first phase of growth in late October and November 2023. Other events including the JTO airdrop and Coinbase's listing of BONK also contributed to further growth in this data.

Overall, Solana’s average daily paying users grew 102% quarter-over-quarter to 190,000, and average daily non-voting transactions grew 65% quarter-over-quarter to 41 million.

New paying users followed a similar growth trend, reaching new year highs ignoring unusual activity in Q2. The average daily number of new paying users grew 176% quarter-over-quarter and 88% year-over-year to 32,000. The one-month retention rate for Solana’s new paying user cohort in November 2023 was the highest in all of 2023, at 25.6%.

Increased on-chain activity in December 2023 stimulated more transactions, including priority inclusion fees, so the average transaction fee increased by 175% month-on-month to 0.000025 SOL ($0.002). The daily priority fee rate reached a yearly high of nearly 69% on December 26, while the daily average transaction fee peaked on December 27 at 0.001 SOL, 4 times the average fee in the fourth quarter of 2023 and 11 times the average fee in the third quarter.

However, median fees remained stable - the highest median daily fee was 0.00000623 SOL, less than 1.25 times the fixed base transaction fee of 0.000005 SOL (the median on most days). The difference between the relative growth of average and median transaction fees suggests that local fee markets are successfully preventing global fee spikes.

Of course, Solana’s fee markets are not perfect, and discussions about improving them intensified in Q4 2023, with the community discussing a number of inefficiencies and proposing controversial solutions, including the following.

Problem: Inefficient resource pricing and allocation

Potential Solution: Base Fee Determined by Compute Units

Solana Compute Units (CUs) estimate the amount of computation required to validate a transaction, similar to Ethereum Gas Units. Each transaction requires a certain number of CUs, with a maximum limit of 48 million CUs per block and 12 million CUs per account.

Unlike Ethereum, Solana’s base fee is not determined by compute units, but rather by the number of signatures, with most transactions having only one signature. While every transaction requests CUs, actual usage is not known until after execution. This leads to a general lack of incentives for computational optimization: transactions often require more CUs than they actually need, and developers do not prioritize computational minimization when building programs.

One proposed solution is to price transactions based on CU.

Problem: Extra-protocol additional transactions

Potential solution: 100% of priority fees allocated to validators

Half of each priority fee is destroyed and the other half is sent to leaders, unlike Ethereum, where 100% of priority fees are sent to block producers. Destroying half of each transaction fee can facilitate extra-protocol transactions with validators (such as Jito auctions).

The potential solution here is simple: give 100% of the priority fees to validators, which was formally proposed a while ago in SIMD-0096.

Problem: Existing spam transaction incentives

Potential solutions: Scheduler upgrade (V1.18) and economic upgrades (PRAW, write account EMA)

While multiple upgrades have reduced spam, they have not eliminated it. As on-chain activity increased in December 2023, much of the computation was devoted to failed transactions.

There is some debate about the best way to further reduce spam, with some attributing it primarily to inefficiencies in the Solana scheduler (block construction mechanism), while others believe that economic upgrades are necessary.

Scheduler

Solana’s scheduler has the ability to use parallel threads for sequential block construction, so it lacks a global order for transactions, making priority fees less effective in determining order.

The lack of deterministic ordering based on priority fees results in partial reliance on FIFO and differences in which threads transactions are on (network jitter). This incentivizes junk transactions to be included first.

Thus, in V1.18, an upgrade to the scheduler is planned that will increase the reliance of transaction ordering on priority fees rather than randomness, thereby reducing spam transactions.

Economic Upgrades

Solana’s parallel execution engine requires advance knowledge of user-declared dependencies. Transactions that declare dependencies on the same account cannot be executed in parallel, but transactions are not penalized if they do not end up accessing the specified account.

This leads to the spam transaction problem, where the account specified by the transaction is not ultimately used. Spam transactions make the experience worse for other people who actually access transactions to that account, and it also worsens overall network performance: the more accounts specified, the more likely it is that a replay spike will occur.

To address this, it has been suggested to introduce dynamic, per-account write lock fees (the more likely a replay spike will occur.). In the macro sense, the fee system will be an EIP-1559-style improvement for local fee markets. There is further debate about whether the pricing curve should be set by each account owner or by a global parameter.

Mango Markets developers proposed the former in "SIMD-0016: Planned Refundable Account Write Fees (PRAW)", and the PRAW proposal has been proposed for more than a year and is still under active discussion. In a recent post, Anatoly proposed the latter, a write lock fee per account, adjusted by an exponential moving average of CUs used per block.

In both proposals, at least half of the write lock fees would be returned to the writing account. In addition to reducing spam, these proposals address the question of how much sovereignty applications on a shared blockchain should have. While there is some debate that the write lock spam problem can be mitigated primarily through scheduler improvements, this does not address the underlying need to give applications more sovereignty.

Security and Decentralization

SOL staked fell by 19 million (5%) month-over-month, primarily due to FTX Estate unstacking ~20 million SOL. As the SOL price rose, total staked in USD terms grew 399% month-over-month to $41 billion, ranking second among all networks, second only to Ethereum.

FTX Estate’s unstaking hurts Solana’s Nakamoto Coefficient, as Alameda/FTX previously had stakes distributed to a wide range of validators. Solana’s Nakamoto Coefficient is 22 at the time of writing, the lowest in over a year, but still above the median for other networks.  

Solana’s Nakamoto Coefficient benefits from the Solana Foundation delegation program, which is currently staking 68M SOL, and in early December 2023, the Foundation proposed changes to the program to help participating validators become self-supporting over time.

The Nakamoto Coefficient is the minimum number of nodes required to disrupt on-chain activity, and the metric is also measured by other dimensions that are important to validator network resilience, including validator location, custodian providers, and client distribution.

The Solana network has a total of 2,020 validators in 34 countries, up 21% year-over-year, with the U.S. leading with a 30% share. Solana’s Geographic Satoshi Coefficient is just below the 33.3% threshold, so the Solana Foundation noted in its October 2023 Validator Report that it plans to address the U.S. share increase over the past year.

At the end of 2023, Superfast’s Cape Town validator node went live, which is also the network’s first node in Africa.

Solana validators are hosted in 309 unique data centers, a year-on-year increase of 10%, and Solana currently has a data center Nakamoto coefficient of 7.

As reported in the Validator Report, Solana’s hosting providers have a Nakamoto coefficient of 3, consisting of TeraSwitch, AWS, and OVH.

Solana currently has two clients: the original Solana Labs client and Jito Labs’ MEV-optimized fork. Currently, 48% of the share is running the Jito client, an increase of 51% month-on-month and 534% year-on-year. However, it does not provide the same client diversity as clients written from scratch. To this end, there are two upcoming clients that are written from scratch: Firedancer and Sig.

Firedancer is being developed by Jump Crypto using the C language. At Breakpoint, Jump announced that a version of Firedancer called "Frankendancer" is now live on the testnet. Frankendancer runs new C-based code to implement "transaction propagation" functions, such as sending transactions and verifying signatures between validators. It maintains the original Solana Labs client code for Runtime V2 (transaction processing) and consensus mechanisms.

The team also discussed the mechanics details of one of the first components required for Firedancer to reach 8 million TPS. Firedancer previously maintained over 1 million TPS in a test environment, while the Solana Labs client had a TPS of about 55,000 in a similar environment.

Outside of Firedancer, the Syndica team discussed details of Sig, a fourth validator client that optimizes RPC reads to reduce slot latency — the delay between two blocks completing. In other words, Sig aims to reduce latency by making certain types of user requests flow more smoothly from users to validators. It also focuses on readability and simplicity, hoping to be easier for developers to use.

As the release of Firedancer draws closer, discussions around its impact on client diversity are heating up. Some believe that Firedancer can bring either client diversity or higher throughput in the short term, but not both.

Anatoly and others believe that if more than a third of validators run Firedancer as the primary client and the Solana Labs/Jito client as a secondary client, this will benefit client diversity without sacrificing Firedancer's performance benefits. Secondary clients can verify downloaded blocks, which is easier than running a full data propagation node. If the Firedancer client has an error or failure, the validator can fall back to the secondary client. Therefore, it will bring the security benefits of client diversity. But to increase liveness, another high-performance client is needed. A lightweight client, TinyDancer, is also in active development. TinyDancer will allow users to verify state without running a full node themselves, thereby increasing the trustlessness of the network. "SIMD 64: Merging of Transaction Receipts" brings the development of lightweight clients one step closer near the end of October 2023. SIMD 64 inserts a mechanism into the core protocol for verifying the state of confirmed transactions, eliminating the need to trust RPCs.

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

Performance, Upgrades, and Roadmap

As of December 31, 2023, the Solana network is in its longest streak without network outages, with a total of 309 days. This streak is the result of new technical features introduced over the past year, such as QUIC, staking-weighted QoS, and local fee markets, as well as improvements to the network upgrade process. While this does not mean that Solana will never go down again, it is worth recognizing the successful work done by developers in improving widely criticized issues.

After Solana successfully upgrades to V1.16 at the end of Q3 2023, it plans to launch the V1.17 upgrade on the mainnet in Q1 2024, which will bring further ZK support, possibly including Poseidon system calls, as well as resilience and performance updates such as better estimation of computational units.

In addition to Firedancer and potential fee market changes, other upcoming features include token expansion, program runtime V2, and potential consensus/execution optimizations achieved through multiple concurrent leaders and asynchronous execution.

Token Extensions

Token extensions are part of the new SPL token standard and provide a set of configurable features for token issuers. Their design is primarily based on feedback from discussions with enterprises and financial institutions, but they also have use cases in more crypto-native DeFi and consumer applications. There are more than a dozen extensions, in particular:

Confidential transfers: Confidential transfers have generated most of the buzz related to token extensions. If a token creator enables this extension, the source address, destination address, and tokens of a transaction will remain public. However, the transfer amount is hidden from everyone except the source address, the destination address, and the optional third-party auditor that the token can add;

Transfer fees: Token issuers can add protocol-enforced fees to each token transfer, with options including fixed fees, variable fees, and a fee cap for each transfer, which has been implemented through tokens such as Bonk Earn (BERN);

Transfer hooks: Transfer hooks add more programmable logic to transfers beyond transfer fees. They allow token issuers to add conditions for successful token transfers. Examples of the above logic can be whether an account holds a KYC token (which in turn can be created through the NFT extension), whether it is on a certain compliance-related list, whether it has been traded before 2023, and so on;

Perpetual delegation: The perpetual delegation extension provides token issuers with full authority over tokens, and they can destroy or transfer any number of tokens at will, even if the token is held by another account. This extension is best suited for tokens that represent off-chain assets or data for which the token issuer must comply with regulatory requirements. This extension could potentially be used maliciously, but infrastructure providers have added functionality to warn users if enabled;

For more information on other extensions, see Solana’s documentation and Helius’ blog;

The functionality enabled by these extensions is largely achievable on other networks, but currently requires developers to build the infrastructure themselves or obtain a permissioned environment. Therefore, implementing them directly into the token layer has several advantages:

Infrastructure support: All major wallets, applications, and other infrastructure providers will support token scaling. It will be more difficult for projects building their own solutions to achieve this level of ecosystem infrastructure support.

Composability: Tokens and applications that would otherwise have to be isolated in a permissioned environment can coexist with the existing permissionless token experience on the Solana mainnet. Users do not need to cross chains, and applications and infrastructure providers do not need to support another network.

Token scaling already exists in Solana's open source code, but the Foundation and Labs are waiting for final steps, such as security audits, before recommending its use. Token scaling may be officially launched in mid-January 2024, although the privacy transaction extension will require further upgrades in 1.17 and 1.18 to be fully enabled.

Some tokens and applications have already experimented with token scaling. As mentioned above, BERN charges a 6.9% fee on each transfer, which will go to BERN holders, burns, developer funds, and BONK DAO. FluxBeam is a DEX that supports token extensions. It also features a Telegram bot service FluxBot and a UI tool for creating and managing extensions. Another Hyperdrive project, The Vault, uses token extensions like transfer hooks to create staked SOL derivatives where staking rewards are separated from derivative tokens.

Finally, major infrastructure providers, including Phantom, Solflare, Metaplex, and Helius, added support for token extensions in Q4 2023 in preparation for the official launch in January 2024.

Runtime V2

In short, Solana Program Runtime V2 is part of the Sealevel Virtual Machine (SVM) that allows Solana validators to execute programs (smart contracts). At Breakpoint, Solana Labs engineers demonstrated Program Runtime V2. The upgrade of Runtime V2 is mainly to improve cost and API accessibility through software optimization.

As the average cost of executing a program decreases, the design space of the program increases. Engineers can put more instructions into a program call, thereby increasing the complexity of the program. The increase in maximum program complexity brings greater freedom to application developers.

Multiple Concurrent Leaders and Asynchronous Execution

Solana developers and researchers have also been working on long-term plans to further increase throughput and reduce latency. Solana co-founder and Solana Labs CEO Anatoly Yakovenko recently shared the future projects he is most excited about, including:

Multiple Concurrent Leaders: Slot leaders are responsible for producing blocks in a time interval. Right now, each slot has a leader. Anatoly suggests that having multiple leaders per period will reduce average latency, MEV, and censorship risk. There are still some open questions, including how to allocate bandwidth between leaders and handle forks;

Asynchronous Execution: Asynchronous execution aims to simplify transaction processing by decoupling execution from consensus. Currently, slot leaders manage transaction execution and scheduling (building and propagating blocks). Instead, period leaders can focus solely on scheduling. Non-slot leader validators can also forgo immediate execution. A subcommittee of validators will only reach consensus on fork choices. Removing execution from the critical consensus path reduces block times, improves efficiency, and alleviates issues such as latency spikes associated with execution. Validators will execute transactions asynchronously at set time intervals (such as epochs). Full nodes are still able to execute transactions in real time to serve end users. To learn more, see Anatoly's recent article. He believes that asynchronous execution is a rare design with "almost no trade-offs";

Ecosystem Analysis

DeFi

Solana DeFi TVL increased by 303% month-on-month and 505% year-on-year to US$1.5 billion, of which the TVL of lending protocol MarginFi increased by 1404% month-on-month to US$337 million, jumping from sixth place in TVL to first place. When the points program was launched on July 3, 2023, MarginFi's TVL was only US$3.2 million. In Q4 2023, it launched several UX upgrades, including a PWA and a simplified UI, and it also teased YBX, an upcoming stablecoin backed by LST.

Lending protocol Solend saw its TVL grow 323% QoQ to $242M, with a 5% QoQ increase in market share. Season 1 of the points program launched in August 2023 and ended in early December with a preview of Season 2. Unlike MarginFi, Solend already has a native token, so its points program was and still is tied to SLND tokens, along with other rewards, rather than potential airdrops. Solend also launched a native Android app, available for download on the Solana DApp store.

Kamino joined the lending fray in Q4 2023 with its 2.0 upgrade that includes a new lending protocol. Since launching in mid-November 2023, Kamino Lend has amassed $139M in TVL. Its TVL roughly doubled in the days after Kamino announced plans to launch a points program for future airdrops. Kamino 2.0 also brings a one-click leverage tool for SOL staking yield (revolving xSOL/SOL) and long/short tokens against USDC. Its initial liquidity treasury product ended the year with a TVL of $88 million (but is not included in Solana's data to avoid double counting).

DeFi volumes also grew significantly, with daily spot DEX volume up 1116% month-over-month to $359 million. Of the Q4 2023 volume, 45% used liquidity from Orca, followed by Raydium (with a 29% market share). Orca and Raydium ranked third and fifth in Solana TVL, at $190 million and $133 million, respectively.

While Phoenix accounts for 0.8% of the DEX TVL market share on average daily, it accounts for over 9% of the DEX volume market share — Phoenix is a fully on-chain limit order book DEX that has been praised for its capital-efficient design.

BONK-SOL ranked fourth in token pair volume in Q4 2023, behind only SOL/stablecoin and stablecoin/stablecoin pairs. The token’s trading pairs had a total volume of nearly $1.3 billion in Q4 2023, up 11,000% month-over-month. BONK is a mem that was airdropped to Solana developers as a Christmas gift in 2022. In mid-December 2023, Coinbase listed BONK, with first-day volume reaching $238 million, the 12th-highest in the exchange’s history.

On average, 57% of DEX spot volume is conducted through the Jupiter trading aggregator, and it was one of the most watched DeFi protocols in all cryptocurrencies in Q3 2023. Its announcement of Breakpoint and the interest it generated were followed by the launch of a new GMX-style perpetual trading product (launched shortly after Breakpoint), a new SOL liquidity staking token-backed stablecoin (not yet launched), and airdrops. It plans to conduct the first of four airdrops (equal to 40% of total supply) in January 2024, and the criteria for the airdrops are finalized after multiple refinements based on community feedback.

Since launch, the Jupiter perpetual trading product has averaged $53 million in daily trading volume. Another major player, Drift, was one of Solana’s fastest growing DeFi protocols in Q3 2023. And it continued to grow in the fourth quarter of 2023, with daily average trading volume increasing by about 10 times to $23 million. During the Breakpoint speech, Drift announced a $23.5 million Series A financing.

After being relatively flat for most of 2023, Solana's stablecoin market value increased by more than $300 million month-on-month, mainly due to the increase in USDC supply in December 2023. USDC liquidity and interoperability on Solana should continue to grow through Circle's Cross-Chain Transfer Protocol (CCTP).

CCTP allows USDC to be transferred across networks without wrapping USDC. It was launched on Solana's development network in early November 2023, and the mainnet is expected to be launched in the first half of 2024. Circle also launched its Euro-backed stablecoin EURC on Solana in mid-December 2023. Towards the end of Q4 2023, Paxos announced plans to expand its NYDFS-regulated USDP stablecoin program to Solana in mid-January 2024, making Solana the second network to support USDP after Ethereum.

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

Liquidity Staking

With 72% of eligible SOL supply already staked, liquidity staking protocols are critical to enabling an ecosystem built on yielding SOL. Incentive programs have recently been successful in increasing the total amount of SOL staked for liquidity staking - the growth rate is up 49% month-over-month, but still relatively low at 4.3%.

Jito has been driving the growth of Solana liquidity staking, and after launching a points system in mid-September 2023, 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 fewer than 10,000 eligible wallets and allocations skewed toward smaller addresses, the minimum airdrop amount is close to $10,000 based on JTO’s price at the end of Q4 2023. JTO was listed on Coinbase the day of its launch and was the exchange’s most traded new listing since APE in March 2022 (before being quickly surpassed by BONK). The Jito Foundation also released its charter, which proposes, among other things, the governance framework for the JTO DAO.

Jito’s TVL (in SOL) grew 164% month-over-month to 6.4 million SOL, and its market share grew 85% month-over-month to 38%, second only to Marinade. Jito’s growth benefited from Lido shutting down its Solana service — Lido’s market share was 24% at the end of Q3 2023, falling to less than 2% by the end of Q4.

As mentioned above, Jito’s MEV Solana client has also seen growth, with a market share of 48%, up 51% month-over-month, and MEV has also recently rebounded as on-chain activity has increased.

At Breakpoint, Jito launched StakeNet, an open source protocol for decentralized Solana staking pool operations. Currently, all Solana staking pools are managed by centralized participants who store historical validator data from on-chain snapshots and off-chain sources in their own off-chain servers, and 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 on-chain, introducing a network of guardians that run validator histories and stewards. The Validator Histories store up to three years of cryptographic validation data for each Solana validator on-chain. Stewards manage delegation logic and validator scores to operate the stake pools. With everything on-chain, delegation logic and parameters can be adjusted through on-chain governance. When it goes live, Jito will adopt StakeNet and hopes other staking pools will do the same.

Marinade’s TVL in SOL still grew 26% month-over-month despite a 12% drop in market share. Marinade already has a native token, MNDE, but in Q3 2023 it launched a rewards program to compete with the growth of newer tokenless protocols. In Q3 2023, Marinade also launched Marinade Native, a native staking product to complement Marinade’s liquidity staking service.

Marinade Native, a staking automation platform that routes stake to over 100 top performing validators without paying performance fees or introducing any smart contract risk, has reached $416M in TVL.

Towards the end of 2023, Marinade launched Protected Staking Rewards (PSR). Under the PSR, validators are required to stake SOL to be eligible for Marinade staking. If a validator experiences downtime or encounters other performance issues that impact its staking rewards, the staked SOL will be used to cover any losses of Marinade stakers.

Blaze continued its ongoing BLZE airdrop, which began in August 2023, and its TVL in SOL grew 344% in Q4 with a market share of 12% after growing 1234% quarter-over-quarter in Q3 2023.

MarginFi launched its own liquidity staking protocol at the end of the third quarter of 2023. LST distributes equity to three validators run by the MarginFi team. Its liquid staking TVL in SOL increased by 1886% month-on-month, ranking among the top five liquid staking protocols. As mentioned above, the MarginFi team is ready to launch a liquid staking stablecoin backed by SOL.

Sanctum further strengthens the liquidity staking ecosystem, providing liquidity and stability to Solana's liquidity staking and DeFi ecosystem. In early December 2023, Sanctum launched 2.0, bringing new products such as single-validator LST, upgraded multi-LST liquidity pools, and zero-fee flash loan programs.

As LST grows in the Solana DeFi protocol, LST liquidity will become increasingly important, especially as users leverage them against SOL. This dynamic became apparent in mid-December 2023 when a user sold approximately $8 million worth of Marinade mSOL, causing its price to fall below SOL. While Sanctum provides a liquidity pool that unifies LST, mSOL is still in the process of integration. The temporary unpegging also sparked a debate among several lending protocols about best risk management and liquidation practices.

Consumer Applications

NFTs

Average daily NFT trading volume on the Solana network increased 356% month-over-month to $4.8 million. Excluding Bitcoin, Solana’s market share of NFT trading volume grew from 9% to 26% quarter-over-quarter.

While Magic Eden regained majority share by the end of Q4 2023, NFT marketplace Tensor grew its market share to over 80% in early December compared to Magic Eden — from just 1.2% at the start of 2023.

Series with the highest total trading volume in Q4 2023 included Mad Lads (613,000 SOL), Tensorians (510,000 SOL), and Claynosaurz (171,000 SOL), all of which represent PFP NFT’s shift toward brand building and real-world applications.

Mads Lads is launched by the team behind the Backpack wallet and exchange, which was announced during Breakpoint and will open for registration in November 2023. Pyth, Dymension, Wormhole, and Monad have announced or previewed airdrops to Mad Lads holders, and holders can also expect to receive the Backpack Exchange airdrop;

Tensorians is a native project of Tensor, providing benefits to holders, such as expected Tensor airdrop points and benefits from partner projects;

Claynosaurz has been experimenting with intellectual property, creating content, and launching merchandise, similar to Pudgy Penguins on Ethereum;

Many notable Solana NFT series saw significant increases in their SOL-denominated floor prices month-over-month, with Mad Lads’ on-market cap increasing 142% month-over-month to 1.3M SOL ($135M) and Tensorians increasing 517% month-over-month to 800K SOL ($80M) — these two projects are currently the top projects on Solana by market cap by floor price.

Social and Creator Platforms

Compressed NFTs (cNFTs) are the first successful use case for state compression, launching in early Q2 2023. State compression provides a cost-effective method for on-chain data storage by hashing data into a Merkle tree and publishing its root hash on-chain. Depending on the level of composability, the cost of minting and storing 1 million cNFTs ranges from 5.3 to 63.7 SOLs, compared to 24,000 SOLs without compression.

cNFTs enable new use cases across consumer, DePIN, and other sectors, with DRiP being the most important example of a consumer application that can only be achieved with cNFTs. DRiP works with artists to provide free NFT art minting, with collections much larger than the normal 10,000. DRiP minted over 35 million cNFTs in Q4 2023, with an additional 4 million minted by Dialect, Helium, and other projects.

In early Q4 2023, DRiP launched Droplets to power its in-app economy. Initially Droplets were distributed to users based on varying levels of engagement and automatically spent when users received collectibles from the platform.

In early December 2023, DRiP improved the system with the launch of Droplets 2.0, where 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 using tokens or fiat currency (powered by Sphere), and finally users can gift Droplets directly to creators for potential benefits.

Droplets are converted into USDC and paid to creators, and DRIP paid $143,000 to creators in the fourth quarter of 2023, and $84,000 in December 2023 alone.

Other notable events include:

Access Financing: Access Protocol, a creator monetization platform, announced a $1.2 million seed round of financing;

Nina Protocol V2: Digital native music platform Nina launched V2 in mid-November, allowing artists to register with an email address and sell or distribute music for free. Nina uses Arweave and Solana to store music versions and facilitate transactions, with artists receiving 100% of sales;

Boba Guys Passport: Boba Guys, a bubble tea chain, launched a loyalty program based on Solana, minting cNFTs with the help of NFT tool company Crossmint, and has minted 8,124 cNFTs so far;

SolLinked Masquerade: SolLinked added the “Masquerade” feature, which is a chatroom where users can prove their on-chain assets in a privacy-preserving manner through Elusiv;

Solarplex’s “In-Post Minting”: Web3 social media platform Solarplex added the “In-Post Minting” feature, which allows users to easily create NFTs and embed them in posts, and anyone who likes the post will automatically collect NFT;

Gambling

Gaming as a Solana-specific main narrative has quieted down, but there is still a lot of discussion and some updates on Breakpoint.

Star Atlas is a game built on Solana, and at Breakpoint it announced game features and a demo of the upcoming 2.2 version. Star Atlas launched a 2D open world game SAGE Labs at the end of Q3 2023, and Star Atlas accounted for about 8% of Solana's total transaction volume in Q4 2023;

Open source on-chain gaming framework Magicblock detailed its vision for Solana’s native game engine (you can read about how they work and why they matter here);

Other discussions at Breakpoint centered around the evolution of the gaming space and mechanic design, as well as strategies for maximizing user acquisition;

In mid-December 2023, Magicblock co-hosted the second Solana Speedrun, a gaming-themed hackathon with Lamport DAO and the Solana Foundation, offering prizes of up to $10,000.

DePIN

Solana is becoming a hub for DePIN applications, hosting DApps such as Helium, Hivemapper, Render, Teleport, and GenesysGo.

Notable events include:

Render Migration: In early November 2023, the decentralized computing network Render successfully completed the migration of its core on-chain infrastructure (including native tokens) from Ethereum and Polygon to Solana. The Render Foundation stated that Solana provides new features for the protocol, such as live streaming, dynamic NFTs, and composability with on-chain order books;

Helium Mobile $20 Phone Plan: In early December 2023, Helium Mobile partnered with T-Mobile to launch a $20 per month nationwide phone plan, providing unlimited data, calls and text messages. It also released indoor and outdoor Helium Mobile Hotspots, allowing users to help create wireless network coverage in exchange for MOBILE rewards;

Hivemapper Update: Hivemapper, which aims to create a decentralized global map, has announced that it has begun licensing map data on behalf of paying customers. Later in Q4 2023, Hivemapper released Scout, an open source UI toolkit for real-time monitoring of street locations using Hivemapper dashcam images, with potential use cases including monitoring construction work zones, gas station prices, and billboards;

Teleport iOS App: Decentralized ridesharing protocol Teleport launches iOS app in late October 2023 and will begin operating in cities with at least one local ridesharing operator and enough drivers and passengers;

Io.net Public Beta: Decentralized GPU aggregator io.net launched a public beta during Breakpoint, aggregating GPUs from Render, Filecoin, and its own network to build a decentralized cloud specifically for machine learning needs, and plans to launch its own token in the first quarter of 2024;

IoTeX Integration: Sensor network platform IoTeX integrates its W3bstream SDK with Solana. W3bstream uses zk-proofs to connect IoT devices equipped with specific use case sensors (such as Hivemapper dashcams) to on-chain contracts;

Nosana's AI Pivot: In mid-October 2023, decentralized GPU network Nosana announced a shift from CI/CD use cases to AI reasoning. Its platform is currently in beta with more than 100 GPU nodes and 47,000 Completed inferences;

Payments

With low transaction costs, sub-second finality, and a network of thousands of nodes, Solana is expected to help drive mainstream payment processes - Visa said it will expand its USDC settlement pilot to Solana in the fourth quarter of 2023. In addition to Visa's announcement, another major win is the integration of Solana Pay into Shopify. Payment platform Helio announced in December 2023 that it would take over operations of the Solana Pay Shopify plug-in.

Other notable events for Solana native payment infrastructure companies and applications this quarter include:

Sphere Early Access: Solana Summer Camp Hackathon winner Sphere launched an early access version of its payment solution in early December 2023, with features including withdrawals, on-chain subscriptions, universal checkout, etc. It has already powered the payment processes of multiple Solana ecosystem projects, including Squads, io.net, DRiP and Helium Mobile;

Code Open Source: Payment application and protocol Code is now focused on building micropayment solutions and open sourced its entire codebase at the end of November 2023;

Elusiv Payroll Application: After launching a private token swap, Elusiv opened its private payroll application for registration;

TipLink supports IRL events: TipLink allows users to send or claim Solana assets using a link or QR code. On Breakpoint, more than 15 teams used TipLink to distribute more than 5,000 claimed assets. TipLink also supports NFT distribution through QR codes of "artists in residence" at Art Basel Miami Beach;

Infrastructure

Notable infrastructure-related events in the fourth quarter of 2023 include:

Squads' V4 version, financing, and Fuse: More than $2.5 billion in assets are protected in Squad's multi-signature protocol. In early Q4 2023, Squads launched its V4 version, bringing a UX redesign and new features, including the browser extension wallet SquadsX. Soon after, it announced a $5.7 million strategic financing led by Placeholder. At the Breakpoint conference, Squads Labs also announced the smart wallet Fuse, a PDA wallet powered by the Squads multi-signature protocol, which is expected to be launched in the first quarter of 2024;

Pyth Airdrop: Pyth is the main price oracle of the Solana DeFi protocol. In November 2023, it conducted a retroactive airdrop, and more than 86,000 addresses in 27 blockchain networks were eligible. Instead of creating a claim contract on each blockchain, Pyth airdropped all tokens on Solana. Although there were some problems due to lack of liquidity, the Solana network performed relatively well;

Solana Mobile Update: The Solana Mobile team announced several updates at Breakpoint, including new generalization features so that any chain can integrate Solana mobile. The updates also introduce wallet apps that integrate directly into Safari via extensions, as well as new game SDKs for Unity and Unreal Engine to enable easier integration of feature phone wallets. Solana Mobile’s Saga phone had previously had disappointing sales, but as the price of BONK soared, it quickly sold out and people realized that the BONK airdrop available to Saga phone users was worth more than the cost of the phone. Since then, several other projects have airdropped to Saga phone users;

Phantom cross-chain exchange: Phantom launched a service that allows users to transfer and exchange tokens through Solana, Ethereum and Polygon directly in the wallet. The cross-chain is supported by Li.Fi and several other protocols, and the exchange function is supported by Jupiter and 0x;

Wormhole financing: The cross-chain protocol Wormhole announced the completion of US$225 million in financing, with a valuation of US$2.5 billion. Wormhole is one of the leading protocols for cross-chain connection with Solana;

Helius update: Developer tool company Helius made several updates in the fourth quarter of 2023, including the launch of transaction Websockets and priority fee APIs, and support for fungible tokens (SPL, Token extensions, cNFTs and inscriptions) in its digital asset standard API.

Backpack Exchange and Wallet Update: The Backpack Wallet team launched the centralized exchange Backpack Exchange in mid-November 2023. The exchange's wallet is located on Solana, which enhances transparency. Backpack also added an NFT collection locking feature, launched mobile wallets on the Apple and Google Play stores, and open-sourced the Backpack Wallet extension app;

Underdog embedded wallet: Underdog Protocol is an API for NFT-related needs. In late November 2023, it launched an embedded wallet tool, which allows users to claim and manage NFTs using social login without first creating a Web3 wallet;

Other progress: Light’s ZK Anchor, Armada’s release, SolanaFM’s release of Quantum, “create-solana-dapp” tool update, Google Cloud BigQuery support, Ironforge’s RPC Gateway, Vybe token page, MPCVault integration, Trezor support, Space Operator public beta, SNIPER upgrade, and Eclipse testnet launch, etc.;

Ecological growth

Grants, hackathons, accelerators, and other initiatives by the Solana Foundation and independent organizations such as Lamport DAO and Superteam further fueled the ecosystem’s growth.

Notable events this quarter include:

Breakpoint: The Solana Foundation hosted its annual conference in Amsterdam from October 30 to September 3, 2023, with over 3,000 attendees and 100+ presentations. Many teams used the opportunity to make big announcements (see this report for details), and Breakpoint 2024 will be held in Singapore from September 19th to September 21st, 2024.

Hyperdrive Hackathon: The Solana Foundation’s online Hyperdrive hackathon concluded in mid-October 2023, with the winners announced at Breakpoint, with the AI-powered Telegram chatbot Fluxbot taking home the overall first prize ($50K). Other track winners ($30K each) include:

Mobile Consumer Track: SolLinked, a pay-to-access, people-as-a-service that starts 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;

Games and Entertainment Track: Solciv, a fully on-chain strategy game inspired by Civilization;

Finance and Payments Track: Starport (formerly Alexandria), a merged limit order book where orders can be filled with multiple assets while avoiding transaction fees caused by multiple hops;

Physical Infrastructure Networks Track: Shaga, a P2P network for gaming computers;

DAO and Network State Track: Pubkey Link, an open source Discord verification bot service;

In total, over 7,000 participants submitted 907 projects, a record number for a Solana Foundation hackathon.

Solana Labs Incubator: Solana Labs has launched an incubator for existing Solana projects or Web2 and Web3 projects considering Solana, which provides support for development, fundraising, marketing, etc.

Hong Kong Hacker House: The 2023 Solana Hacker House Tour ended in mid-November 2023 with the Solana x Circle Hong Kong Hacker House, where 13 teams participated in the VC Pitch and Demo Day, bringing the event to a successful conclusion;

RetroPGF Round 1: OpenBlock Labs partnered with the Solana Foundation to launch the Solana Retroactive Public Goods Grant (RetroPGF) with a prize of $250,000. The biggest winners include OpenBook, Cubik, and SOLfees, among others;

MtnDAO V5 Announcement: Announced that it will be held in February 2024 The fifth hacker house mtndao was held for one month in Salt Lake City in January;

Solana Crossroads Announcement: Step Finance’s ambassador program Solana Allstars announced that it will hold the second annual Solana Crossroads conference in Istanbul in May 2024;

Summary

Solana ended the year’s rebound performance with strong data in the fourth quarter of 2023. The Solana Foundation’s annual Breakpoint conference also drove growth, including many major announcements and releases from teams such as Jupiter perpetual trading products and token issuance, Frankendancer, Backpack Exchange and Render migration. The airdrop of JTO and the listing of BONK on Coinbase further stimulated on-chain activities in December 2023.

In summary, this quarter, Solana's market value increased by 423% month-on-month, the average daily payer increased by 102% month-on-month, DeFi TVL increased by 303% month-on-month, the average daily DEX transaction volume increased by 961% month-on-month, the average daily NFT transaction volume increased by 359% month-on-month, and the stablecoin market value increased by 21% month-on-month.

Upcoming catalysts in Q1 2024 will include the Jupiter airdrop, token scaling, and continued progress on the Firedancer and TinyDancer launches.

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