Original title: "State of Solana Q2 2024"

Original author: Peter Horton, Messari

Original translation: Peisen, BlockBeats

Editor's note:

Messari research analyst Peter Horton studied the data of Solana's various ecological indicators in the second quarter of 2024 and wrote an ecological report, including Solana's DeFi activities, stablecoin market value, liquidity staking project development and other aspects. In addition, Peter Horton pointed out that Solana network activity continued to maintain a high level in the second quarter of 2024, but meme coin activities and spam transactions caused network congestion in the early second quarter. BlockBeats compiled the selected parts of the original content as follows:

Key Insights

· Pump.fun, a gamified token issuance platform, collected a total of $48 million in fees in the second quarter. Raydium was the main beneficiary of pump.fun - its daily average trading volume increased by 77% month-on-month to $867 million, and its TVL increased by 46% month-on-month to $991 million.

· Dialect and the Solana Foundation launched Solana Actions and Blockchain Links (Blinks), enabling users to preview and execute transactions directly in various digital environments, starting with X (formerly Twitter).

· Institutional builders continue to choose Solana as a payment use case. PayPal extended PYUSD to Solana, leveraging token extensions such as confidential transfers, and Stripe announced that it will support payments on Solana.

· Several teams in the Solana ecosystem launched scaling solutions that enable users to stay on L1, including Light Protocol and Helius’ ZK compression and MagicBlock’s MagicBlock Engine.

· Spam transactions from meme coin activity and mining caused network congestion in early Q2. Agave’s update to leverage stake-weighted quality of service alleviated this issue and also introduced new structural requirements for SOL.

Key Metrics

Ecosystem Analysis

DeFi

Solana’s DeFi TVL fell 9% month-over-month to $4.5 billion, ranking fourth among the networks. However, DeFi TVL denominated in SOL grew 26% month-over-month, suggesting that the decline in USD terms may have been driven more by token price depreciation than capital outflows.

Lending:

Kamino Lend’s TVL fell 26% QoQ to $942M. This follows strong growth following the announcement of a Future Points Snapshot in March. Kamino launched its token on April 30th, airdropping 7.5% of total supply. KMNO ended the quarter with a market cap of $33M, with 10% of supply in circulation.

After significant growth in the second half of ’23, MarginFi’s lending protocol lost TVL market share in the first half of ’24. Its TVL fell 56% QoQ to $341M, primarily stemming from withdrawals of over $200M in 24 hours in April. In Q2, MarginFi also introduced a liquidity layer and improved its onboarding experience.

DEX:

DEX volumes declined slightly from peak activity in March but remained at elevated levels. Average daily spot DEX volume increased 32% month-over-month to $1.6 billion. DEX activity continued to be driven by meme coin trading, with WIF, MEW, POPCAT, and GME among the top 10 token pairs by volume in Q2.

In Q2, meme coins turned to pump.fun, a gamified token launch platform that became one of the most widely discussed applications in the crypto space. In Q2, it collected an average of $525,000 in daily fees. Towards the end of May, several celebrities began launching their own tokens on pump.fun, sparking a celebrity meme coin craze that attracted some controversy. Pump.fun’s popularity spawned forks such as Dexscreener’s Moonshot, Whales Market’s whales.meme, and Meme Royale.

Raydium became the main beneficiary of pump.fun, as all liquidity from pump.fun’s bonding curve was transferred to Raydium after the token reached a certain market cap threshold. Raydium’s average daily trading volume increased by 77% month-on-month to $867 million, and its market share increased from 40% in Q1 to 54%. Its DeFi total value locked (TVL) grew 46% quarter-over-quarter to $991 million, making it the project with the highest TVL on the Solana DeFi protocol. During Q2, Raydium also released its V3 user interface and launched a new constant product automated market maker (AMM) initiative.

Jupiter remained Solana’s primary source of trading, accounting for 51% of spot decentralized exchange (DEX) volume in Q2. However, its market share gradually declined throughout the quarter, falling to 37% in the final week, surpassed by Raydium’s 38% market share.

Stablecoins

Solana’s stablecoin market cap grew 8% quarter-over-quarter to $3.1 billion, ranking sixth among blockchain networks.

At the end of May, PayPal expanded its PayPal USD (PYUSD) stablecoin to Solana, making it another supported network after Ethereum. The stablecoin is issued by Paxos and has been approved by the New York State Department of Financial Services. In addition to low transaction costs and high throughput, PayPal also pointed out that the token extension function is one of the important reasons for choosing to deploy on Solana.

PYUSD has multiple extension functions, the most notable of which is confidential transfers. This feature allows the transfer amount to be visible only to the initiator, recipient, and an optional third-party auditor of the transfer. The confidential transfer function has not yet been launched on Solana because it requires further system calls to activate. PayPal also mentioned that the memo field and transfer function can enable developers to add programmable logic to transfers.

By the end of the quarter, PYUSD had a circulating market cap of $75 million on Solana, albeit with a relatively concentrated distribution. While the token has been officially launched, it is still awaiting more integrations to drive widespread adoption. Currently, there are already centralized exchanges working to integrate these token extensions to support PYUSD. Shortly after the end of the quarter, multiple Solana decentralized applications (dApps), including Jupiter and Kamino, as well as an incentive campaign, began supporting PYUSD.

Despite these developments, USDC remains the dominant stablecoin on Solana, with its Solana market cap growing 5.5% month-over-month to $2.2 billion. Circle expanded its Web3 services to Solana in June, bringing its programmable wallet and gas station features. These APIs enable developers to embed secure multi-chain wallets into their applications and pay transaction fees on behalf of users. This rollout will be phased in, with future versions supporting NFT transfers and programmatic interactions.

Liquidity Staking

Solana’s Liquid Staking Rate (i.e., liquid staked SOL as a percentage of staked SOL) increased 22% quarter-over-quarter to 6.4%. With 65% of eligible SOL supply staked, the Liquid Staking Rate needs to continue to grow to enable a yield-based SOL ecosystem.

Since launching last quarter, Sanctum has seen rapid adoption, with its Sanctum Liquid Staking Token (LST) accounting for nearly 14% of Solana’s liquid staking market share, up 3,700% quarter-over-quarter. The acceleration in adoption is primarily driven by several market structure changes, most notably Weighted Staking Quality of Service (SWQoS). To alleviate network congestion in April, a Solana network upgrade further leveraged SWQoS. SWQoS incentivizes applications and infrastructure providers to run validators and accumulate stake to provide a better user experience for their users.

As a result, multiple projects launched their own validator nodes, including Jupiter, Drift, DRiP, and Helius. These projects, and others, also launched single-validator liquid stake tokens to improve distribution and provide unique benefits. For example, DRiP distributes free Droplets to hausSOL holders, and dSOL can be used as collateral on Drift.

Currently, Solana does not support native functionality for validators to return block rewards (base and priority transaction fees) to delegators. This native functionality only applies to inflation rewards. Previously, this was not a big deal as fees typically accounted for around 1% of total validator rewards (excluding MEV). But since the end of March, this has risen to 5-10%, prompting validators to reallocate fees to compete on annualized yield (APY). To this end, many validators have chosen to use a single validator liquid stake token because its fee reallocation mechanism is simpler.

Liquid stake tokens are also experimenting with different approaches to staking reward allocation. For example, Cubik's iceSOL allocates all staking rewards to public goods funding, and wifSOL invests all staking rewards in WIF and returns WIF to delegators.

Consumer Applications

NFT

After a brief recovery in late 2023 and early 2024, NFT trading volumes are falling again. Average daily trading volume fell 56% quarter-over-quarter to $3.4 million. The trend in the NFT market reversed during the quarter, with Magic Eden recovering most of its organic trading volume share, up from 25% to 59%. Tensor, on the other hand, saw its market share fall from 71% to 35%.

In early April, the Tensor Foundation released the TNSR token and airdropped 14.8% of the total supply. Since the token launch, Tensor has a market share of 31%. At the end of the quarter, TNSR had a market cap of $73 million, with approximately 13% of the total supply in circulation. Magic Eden continues its rewards program with expected token launches in the future.

Of all NFT collectibles, Mads Lads was the most popular collectible this quarter with a total transaction volume of 230,000 SOL. At the end of the quarter, a single address had purchased 59 Mad Lads for a total transaction price of approximately 5,600 SOL ($800,000). Other collectibles with high transaction volume this quarter included Solana Monkey Business (104,000 SOL), Tensorians (91,000 SOL), Froganas (74,000 SOL), and Famous Fox Federation (51,000 SOL).

Most Solana’s NFTs are minted through the Metaplex NFT standard. In early April, Metaplex launched a new NFT standard, Core. Core uses a single account design to optimize cost and performance, and has a flexible plugin system that allows for further customization. The first external plugin is an Oracle plugin that enables digital assets to respond to real-world data.

In late May, Metaplex launched MPL-404, a hybrid token standard protocol developed in partnership with Mutant Labs, which pioneered the SPL-404 standard. Dubbed “Hybrid DeFi,” this token standard aims to provide more liquidity for NFTs while maintaining their uniqueness.

Other NFT-related events included SharkyFi’s launch of the SHARK token, Exchange Art’s announcement of a token offering, Artrade’s launch and Picasso sale, Garden Labs’ release of an owner-editable metadata initiative, 3.land’s open source cNFT minter, and Claynosaurz’s Collision Choice Awards finalist status.

Social & Creator Platform

Blinks are shareable links that convert Solana Actions into URLs that contain rich metadata. These links allow supported clients, such as browser extension wallets or bots, to display enhanced functionality, enabling transaction previews and extension interaction buttons in the wallet to appear instantly. Currently, only Blinks from registered partners can be expanded directly on Twitter. Users will also need to enable Blinks in the browser extension wallet’s settings to expand these links.

Many of the top Solana projects have created Blinks, including Jupiter, Tensor, Sphere, and TipLink. Blinks builders can apply for micro grants (up to $1,000 each) through the Superteam Earn track or larger grants directly from the Solana Foundation (up to $400,000 distributed in total).

Like other applications, DRiP’s user experience suffered during the network congestion in early April. To address this, DRiP released an update in mid-April. Now, DRiP only mints collectibles on-chain when users claim them, rather than distributing every collectible by default. As a result, its average daily number of cNFTs minted has decreased by 90%.

Games

Some on-chain games are built entirely on the Solana mainnet, while others have chosen scaling solutions for increased customization and performance. In Q2, multiple projects announced game scaling frameworks based on Solana:

MagicBlock: In mid-June, MagicBlock launched MagicBlock Engine, a framework that enhances performance and virtual machine customization without sacrificing composability.

Sonic: In mid-June, Sonic announced the completion of a $12 million funding round led by Bitkraft and launched its testnet. Sonic is a Layer-2 stack that supports game-specific rollups that share a sorting network and settle on Solana.

In early May, Solana Labs partnered with Google Cloud to bring its Web3 game development API GameShift to Google Cloud game developers. After the end of the beta last quarter, GameShift added several new features this quarter, including asset production, in-game token support, and developer wallets.

DePIN

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

Major events in the second quarter include:

Helium licensing program: In mid-June, Helium Mobile announced a licensing program for its technology stack, allowing third-party manufacturers to produce and sell hotspot devices.

Shaga funding: Shaga, a P2P gaming computer network, announced the completion of a $1 million funding round led by Arca in late June.

Io.net’s token launch and criticism: In mid-June, decentralized GPU aggregator io.net launched its token IO, launching it with Binance Launchpool and a community airdrop.

Ambient Fundraising: In May, Ambient announced the closing of a $2 million seed round led by Borderless Capital.

Teleport in Austin: After launching in its first city (College Station, Texas) last quarter, decentralized ridesharing protocol Teleport went live in Austin, Texas in late May.

Roam Migration: In early April, decentralized WiFi network Roam announced its migration to Solana. Subsequently, the Roam app was launched on the Solana Mobile dApp store.

Payments

With low transaction costs, sub-second finality, and a network of thousands of nodes, Solana promises to help drive mainstream payment flows — Visa said it will expand its USDC settlement pilot to Solana in Q3 2023.

Major events from Solana-native payment infrastructure companies and applications this quarter include:

Stripe Crypto Payments: During its 2024 keynote, Stripe announced that it will be re-enabling crypto payments support in the summer. Initial support will be for USDC payments on Solana, Ethereum, and Polygon.

TipLink Update: The TipLink Wallet Adapter creates an in-browser wallet associated with a user’s Google Account, eliminating the need for traditional wallet browser extensions and seed phrases.

Sphere Update: In May, Sphere launched the Offload Wallet, enabling users to instantly withdraw USDC by sending it to a wallet address tied to a connected bank account.

Helio Shopify Pay Plugin Update: In April, Solana Labs shut down credit card payments for Solana Mobile Chapter 2, and payments are now only accepted through the Solana Pay Shopify plugin.

Coinflow Labs Financing: At the end of May, payment infrastructure provider Coinflow Labs announced the completion of a $2.25 million financing led by CMT Digital.

Infrastructure

Notable infrastructure-related events in the second quarter include:

ZK Compression: At the end of June, Light Protocol and Helius launched the extension primitive ZK Compression. ZK Compression is like a compressed NFT: it stores account data in an off-chain Merkle tree of ledger data and publishes its root on-chain. However, it works for any token or account, not just NFTs. In addition, it uses SNARKs to compress Merkle proofs, making verification more efficient.

Squads Funding and Fuse Launch: In mid-June, Squads Labs announced the completion of a $10 million funding round led by Electric Capital and the public beta launch of Fuse. Fuse is a mobile-first smart wallet that replaces seed phrases and single key pairs with multi-factor authentication.

Modularized SVM: SVM is gaining adoption as an alternative to EVM in L2, application chains, and other environments. In late June, Anza released a new SVM crate that makes it easier to use SVM outside of the Solana mainnet. This crate modularizes the SVM, decoupling the underlying SVM components from the rest of Agave’s validator runtime.

Introduction of Bonsol: In late April, Anagram launched Bonsol, an open source verifiable computation system.

Introduction and funding of Arcium: In May, Arcium (formerly Elusiv) announced the completion of a $5.5 million funding round led by Greenfield Capital and launched its private incentivized testnet.

Growth

Funding in the Solana ecosystem is picking up again after a long bear market. In Q2, 47 projects built primarily on Solana announced funding rounds, a two-year high. In total, these projects raised $113 million, down 19% year-over-year. From Q4 2023 to Q2 2024, Solana projects raised $309 million, compared to just $39 million in the first three quarters.

Hackathons and Accelerators

After its Q1 debut, Colosseum hosted its first hackathon, Renaissance, from March 4 to April 8. The hackathon attracted over 8,300 participants from 95 countries and received 1,071 submissions.

Colosseum also operates an accelerator program with a venture capital arm, and participants must win one of its hackathons to qualify. In mid-May, Colosseum announced the 10 Renaissance winners accepted into its first accelerator program.

At the end of the quarter, Colosseum announced it had raised a $60 million fund to continue supporting early-stage Solana developers. The Solana Foundation also sponsored a Renaissance Continuation track for the Bonkathon, offering a total of $50,000 in prizes to developers who extend their Renaissance submissions.

Q2 Events

Solana Crossroads: A conference in Istanbul hosted by Step Finance with over 3,000 attendees.

IslandDAO: A month-long coworking space in Greece.

Solana Summit: A summit for Solana founders and developers in Malaysia.

Others: Hacker Houses in Dubai and London, Superteam Malaysia’s Startup Village, Superteam UK’s Startup Village, Solana Summer Kickoffs in 60+ cities, NFTNYC and Consensus spinoffs, and SolVan.

Network Analysis

Usage

Network activity continued at a high level in Q2 2024, a trend that began in Q4 2023 and Q1 2024. Daily average paying users increased 51% month-over-month to 900,000, and daily average new paying users increased 114% month-over-month to 247,000. Daily average non-voting transactions remained flat month-over-month at 70 million.

Towards the end of Q1 and the beginning of Q2, the network was experiencing congestion issues due to spam transactions from memecoin transactions and Ore mining. Transactions were being discarded at a higher rate and were taking longer to process than usual. Since these discarded transactions are not visible on-chain, it is difficult to measure the total number of transaction requests and their landing rate. Therefore, the above data only includes processed transactions (both successful and failed). The congestion issues appeared to ease in mid-April, when Ore paused its mining program and the network upgrade was rolled out. For more details on the root cause of the congestion and how to fix it, see the Performance, Upgrades, and Roadmap section below.

The increase in network activity has driven up transaction fees, though Solana’s fees are still cheaper than most other ecosystems with real activity. Average transaction fees increased 47% month-over-month to 0.00014 SOL ($0.022). Median transaction fees increased 35% quarter-over-quarter to 0.00001 SOL ($0.0016).

Security and Decentralization

SOL staked decreased by 5% in Q4 2023 and by 7% in Q1 2024, primarily due to unstacking after the FTX property unlocked. However, at the end of Q2, the amount of SOL staked rebounded, increasing by 5% quarter-over-quarter to 378 million SOL. This was likely due to the re-stacking of SOL sold by the FTX property.Staken SOL in USD terms fell 27% quarter-over-quarter to $53 billion, second only to Ethereum, due to the depreciation of the SOL price.

The Satoshi Coefficient is the minimum number of nodes that break liveness. The metric also measures the resilience of a validator network across other important dimensions, including location, hosting providers, and client-side stake distribution.

The Solana network’s 1,504 active validators are spread across 41 countries, up 11% month-over-month and 32% year-over-year. Solana’s stake in the U.S. was nearly 33% at the end of last year, but has now fallen to 21%. The U.K. accounts for 13%, giving Solana a geographic Satoshi Coefficient of 2. Solana validators are hosted in 304 unique data centers, down 5% month-over-month. However, its data center Satoshi Coefficient increased 33% month-over-month to 8.

With the rise of retail DEX trading, the opportunity for malicious Maximum Extractable Value (MEV) has also increased. Different players in the stack — validators, delegators, RPCs, and applications — are working to mitigate this impact. Notably, Jito Labs announced in early March that it would suspend mempool services in its validator client, which was run by 80% of the network stake. Since then, private mempool services have begun to emerge in an attempt to recapture this opportunity.

In June, the Solana Foundation announced the removal of a group of validators who participated in a private mempool mempool attack from its Solana Foundation Delegation Program (SFDP). The SFDP is designed to onboard new validator operators and increase the decentralization of the network by matching external stake 1:1 up to 100,000 SOL and covering voting costs for the first year (100% coverage of costs for the first three months, 75% for the next three months, 50% for the third three months, and 25% for the last three months). Validators must pass an application, including KYC, and be outside of the super minority (top 1/3) of stake to qualify.

As of mid-June, SFDP contributed 48M stake (13% of total stake) to over 1,100 participating validators (71% of total validator count). While these validators are no longer eligible for SFDP stake, they can still run on the network and earn stake from other delegators. Overall, the move redistributes approximately 0.5% of the total network stake.

Performance, Upgrades, and Roadmap

Junk transactions from meme coin activity and Ore mining caused network congestion issues in late Q1 and early Q2. Anza released the V1.17.31 update in mid-April to mitigate the issues. One of the main changes is the utilization of Stake Weighted Quality of Service (SWQoS). The feature enables validators to allocate the majority of their bandwidth to staked connections. The "virtual stake" acts as a quality signal to the leader, helping it determine which connections to listen on. SWQoS was implemented in 2022, but the V1.17.31 update made several changes, including classifying nodes with less than 15,000 SOL staked as "unstaked." While this solution has potential centralization issues and is beneficial to RPCs and exchanges, it also introduces a new structural need for SOL tokens and aligns incentives for applications built on the chain.

After a phased rollout, the V1.18 update reached a supermajority of validator stake in mid-June. The main new feature of V1.18 is an expected update to the Solana transaction scheduler, which is responsible for building blocks. The previous implementation had limitations that led to non-determinism in transaction ordering and inclusion. In other words, there was no guarantee that transactions with higher priority fees would be ordered in order or have a higher probability of block inclusion. Instead, the ordering and inclusion components rely on variance and first-in, first-out (FIFO), which incentivizes spam. To address these issues, a central scheduling thread was introduced that receives incoming transactions and assigns them to one of four threads for processing. Since enabling the optional scheduler update, several validators have reported block rewards above the cluster average.

In addition to improvements to the Agave client, the network will also benefit from an upcoming client written from scratch. Notably, Jump Crypto is developing Firedancer in C. Its first iteration, Frankendancer, went live on the testnet in Q4 2023 and will begin a $1 million bug bounty program in mid-July. Frankendancer uses Firedancer’s code for network functionality, while still using the original Labs client code for runtime and consensus mechanisms. Firedancer engineers noted that Frankendancer solved the network issues Solana faced and shared their findings with Anza to improve the Agave client. In mid-May, Syndica announced that it had completed the gossip and account database rewrite of its upcoming client, Sig.

While Solana core developers have historically focused primarily on performance and scalability, several teams are beginning to address verifiability. Community validator operator Overclock began rolling out Mithril, a full node client designed to reduce the hardware requirements needed to validate blocks. Currently hoping for 16 GB of RAM — low enough to validate at home. The Tinydancer team is also working on a light client for Solana. In mid-May, it launched its Simplified Payment Verification (SPV) client on the Solana testnet.

Financial Analysis

SOL’s market cap fell 25% quarter-over-quarter to $68 billion in the second quarter, in line with the cooling trend across the market. It still ranks fifth in market cap among all tokens, behind only BTC, ETH, USDT, and BNB. Solana’s total economic value (a measure of all transaction fees and MEV given to validators) increased 41% quarter-over-quarter to 967,000 SOL ($151 million). Of this, 56% came from transaction fees and the rest from MEV tips.

Currently, 50% of Solana’s transaction fees are burned, with the remaining half distributed to block producers. The burned tokens reduced Solana’s annualized quarterly inflation rate from 5.2% to 4.9% in Q2.

However, at the end of May, SIMD-0096 was passed, which proposed to distribute 100% of the priority fee to validators, while continuing to burn 50% of the base fee. The rationale was to prevent extra-protocol transactions with validators. Since the end of 2023, priority fees have accounted for the vast majority of transaction fees. Therefore, the amount of SOL burned will be significantly reduced after the implementation of SIMD-0096, which is currently awaiting testnet activation.

As mentioned above, validators currently have no native functionality to share transaction fees (base and priority fees) with delegators. By default, most validators only share inflation rewards and MEV tips. SIMD-0123 was proposed in May, aiming to implement a native transaction fee distribution function.

SOL saw several notable extra-protocol events in Q2, including the token sale of FTX Property and the application for the SOL ETF.

Summary

Solana continued to be one of the main hubs of crypto activity in Q2. Its total economic value (transaction fees and MEV) grew 53% quarter-over-quarter to $151 million, driven primarily by retail DEX trading. Pump.fun, the platform’s gamified token, collected $48 million in total fees and was one of the most discussed applications in crypto.

However, the surge in activity led to network congestion issues in late Q1 and early Q2. An update to leverage Stake-Weighted Quality of Service (SWQoS) released in mid-April alleviated the problem, and a transaction scheduler upgrade in mid-June further increased its transaction processing capacity. Several ecosystem teams also introduced solutions to help Solana scale and keep users on L1, including ZK compression from Light Protocol and Helius and MagicBlock’s MagicBlock Engine.

While Solana has been the network of choice for retail users, it is also slowly gaining institutional adoption, especially for payments use cases. PayPal extended its PYUSD to Solana, leveraging token extensions like confidential transfers, and Stripe also announced it will support payments on Solana.

Towards the end of the quarter, Dialect and the Solana Foundation launched Solana Actions and Blockchain Links (Blinks), designed to change the way users interact with the blockchain. The solution enables users to preview and execute transactions directly in a variety of digital environments, first running on Twitter.

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