summary
Solana is a high-performance blockchain network designed for large-scale applications. Its unique consensus mechanism combines Proof of History (PoH) with Proof of Stake (PoS). Solana’s main features include:
Fast transaction confirmation: The target time for each transaction is 400 milliseconds.
Low fees: The median transaction fee is only 0.00064 SOL.
High throughput: can process over 65,000 transactions per second.
Open development ecosystem: Provide a thriving innovation environment for developers.
In early 2023, Solana rebounded quickly from the bear market and became the third largest public chain. Solana's total locked value (TVL) increased more than thirty times. Solana's decentralized exchange (DEX) trading volume in July surpassed Ethereum for the first time, and projects such as Render Network and Helium also migrated from Ethereum and its L2 to Solana.
This article will highlight some promising projects in the Solana DeFi ecosystem. Research on Solana’s DePIN will be published separately in a subsequent detailed report.
Liquidity staking and re-staking
Solana's PoH mechanism is based on PoS, but the staking situation of Solana is significantly different from that of Ethereum. Solana’s stake ratio is approximately 67.7%, much higher than Ethereum’s 27.8%. However, Solana’s liquidity staked ratio is only 6.4%, significantly lower than Ethereum’s 32.4%. This difference is primarily attributable to two key factors: Solana’s lack of minimum staking requirements and lower slashing rules lowered the barrier to entry for independent validators, and the lack of use of LSTs as a DeFi ecosystem in the past further limited access to SOL LSTs needs.
Victory
Jito is the first liquidity staking protocol on Solana to include MEV rewards, distributing staking rewards and MEV rewards to holders through its LST JitoSOL. Currently, 82.46% of validators run Jito-Solana, an open source and audited Solana validator client whose validators share MEV rewards. Jito’s MEV rewards increased JitoSOL’s annualized yield from 7.80% to 8.35%, an increase of 7.05%. As meme trading volumes surge, this additional benefit will become even more significant. The higher annualized yield attracts investors to choose Jito over other liquidity staking protocols.
The recovery of the Solana DeFi ecosystem, the airdrop of JTO tokens and good price performance, the exit of its largest competitor Lido, and the steady growth of MEV rewards have established Jito as the largest liquidity staking protocol on Solana, with $1.7 billion in TVL and 47% market share. Jito continues to erode Marinade's market share, because Marinade used to charge 6% fees, while Jito only charged 4%, and MEV earnings were not included in Marinade's mSOL, and ultimately mSOL's annualized rate of return was about 12% lower than JitoSOL.
However, over 80% client adoption, widespread introduction of MEV earnings, and concerns about excessive concentration of LST market share have limited Jito's further growth. Other competitors have also introduced measures to increase LST earnings to compete. For example, Marinade eliminated commission fees and launched The Stake Auction Marketplace (SAM), allowing Marinade stakers to receive additional rewards from validator bidding, and now the annualized yield of mSOL can reach 10%.
To address these limitations and solve the problem of over-centralization, Jito launched Jito Restaking, an open-source, Solana-tailored hybrid staking, re-staking, and LRT module. Jito partnered with Renzo to launch Solana’s first LRT, ezSOL, minted by JitoSOL. Similar to Ethereum, where the TVL of liquidity re-staking accounts for ~30% of the TVL of liquidity staking, Solana’s re-staking market is expected to have ~$1 billion in growth potential. The introduction of Jito Restaking not only expands the application of JitoSOL, but also makes it possible for Jito to become a combined entity similar to “Lido + Eigenlayer” on Solana. In addition, by transferring the management of the Jito staking pool to the decentralized Solana staking pool StakeNet, Jito can further decentralize the staking pool operations and reduce concerns about over-centralization.
JTO is the governance token of the platform, which has governance rights and has a FDV of 2.36 billion US dollars, but the circulation ratio is only 12.4%. The big unlocking will start on December 8, 2024. In the next year, the inflation rate will be 237%.
Sanctum
Sanctum is a liquidity staking protocol on Solana, positioned as the liquidity layer of SOL LST, promoting the exchange between different SOL LST. Sanctum Infinity is a multi-LST LP that supports exchange between LSTs of any size whose LST is INF. The Sanctum reserve pool contains over 410,000 SOL and is the key source of shared liquidity for all staked SOL. Sanctum Router leverages the essence that LST is a liquid version of a staking account to enable efficient exchange between different LSTs. Sanctum's positioning has resulted in a significant 40-fold increase in TVL in three months, now reaching $745 million.
All LST deployed through Sanctum will have full access to Sanctum Router and Reserves, and will be traded on Jupiter. They are also eligible to be included in Sanctum Infinity for liquidity. Sanctum has become the issuance platform for Solana LST, and projects (protocols, CEXs, and even memes) work with Sanctum to incentivize users to use their services through their own LST. For example, bonkSOL is supported by BONK validators who use validator earnings to reduce the supply of BONK, and bonkSOL holders who hold more than 1 bonkSOL and more than 0.01 BONK can receive BONK airdrops. Diversified LST reduces concerns about over-centralization and makes Solana's liquidity staking ecosystem more prosperous. In this more decentralized and democratic industry landscape, Sanctum has become the biggest winner. The number of LSTs (such as JupSOL, INF, BonkSOL) issued by projects and validators in cooperation with Sanctum has reached 53. Binance, Bybit, and Bitget also announced that they will cooperate with Sanctum to issue their SOL LST. LST in cooperation with Sanctum has reached more than 20% market share and is still growing.
In Sanctum’s roadmap, Sanctum Profiles V2 will allow users to create personalized LST, while Sanctum Launchpad will leverage LST to support new projects and products within the Solana ecosystem. Their success will help establish Sanctum as the liquidity layer for SOL LST.
CLOUD is the governance token of the platform, which has governance rights and has a FDV of $281 million, with a circulation ratio of only 18%. Over the next year, the circulating supply of CLOUD will remain unchanged until the major unlocking on July 18, 2025, when 12.5% of the total supply will belong to the team and investors.
Solayer
Solayer is a liquidity re-staking protocol on Solana that provides native AVS services and enables native Solana dapps to securely access network bandwidth and throughput on demand. By staking SOL and selected LST in exchange for their LRT sSOL, stakers can enjoy up to 9% annualized returns. The returns mainly come from three sources: staking income, MEV, and AVS fees paid by users. Solayer uses staking-weighted quality of service (swQoS), which makes validators who stake more have a higher probability of submitting transactions successfully.
Endogenous AVS is an important innovation on Solana, so Solayer has attracted a lot of investment and participation. Binance Labs has announced an investment in Solayer, and Solayer's total locked value (TVL) has reached $168 million in two months. The current focus on endogenous AVS rather than exogenous AVS makes Solayer different from Jito Restaking and provides attractive returns for stakers. But how far Solayer can go depends on whether users are willing to pay for AVS fees. Solayer also plans to introduce exogenous AVS in the future, which means Jito Restaking will face challenges.
DEX and Aggregators
The trading volume/TVL of DEX on Solana is approximately four times that of Ethereum. Trading activity is significantly more active on Solana, driven primarily by memes. At its peak, around 100,000 new tokens were issued every day, with tokens like Bome generating significant returns. The popularity of memes, which occurs on Solana rather than other blockchains, can be mainly attributed to four key factors: the pervasiveness of casino culture (including memes and prediction markets), the huge wealth creation effect (such as Bonk, Wif, Bome, and Slerf) ), the development of infrastructure like Pump.fun and Dumpy.fun, and lower token creation and transaction costs. During this bull cycle, DEXs and aggregators on Solana that offer meme enthusiasts lower barriers to entry and smoother user experiences are most likely to expand market share and increase governance generation by receiving fees and distributing revenue. value of the currency and become a platform for launching new assets.
However, the bull run for memes on Solana cannot last forever. Currently, about 60% of the trading volume on Solana is related to Pump.fun, only 1.4% of memes created on the joint curve can reach Raydium, and only 3% of users can earn more than $1,000. The increasing number of rapidly launched memes diverts users' attention and funds, and more advanced tools intensify PVP competition. SunPump on Tron and Four.Meme on BSC also attracted meme enthusiasts to turn to other blockchains for easier profit. The daily trading volume and the number of new memes have dropped to half of the peak. DEX on Solana needs more tradable assets with deep liquidity and stable intrinsic value.
Raydium
Raydium is the largest DEX and the first hybrid AMM on Solana, providing on-chain liquidity for OpenBook's central limit order book. In addition to traditional standard AMMs, Raydium also offers centralized liquidity market makers (CLMMs), allowing liquidity providers to specify their liquidity and the price range that is actively traded in the pool. High-volatility long-tail assets are often created in standard AMMs, and burning AMM's LPTs encourages trading because it means that some liquidity will not be reduced. AMMs that coexist with both provide pool creators with a variety of options, especially on Solana, where a wide range of low-market-cap memes are more popular on standard AMMs. This flexibility is a key reason why Raydium has been able to grab market share from competitor Orca, which only provided CLMMs in the past (Orca introduced Splash Pools that support a full range of positions in August 24).
According to Raydium's documentation, the minimum creation fee for protocol development and operation is only 0.435 SOL, which is very suitable for meme enthusiasts to create new tokens to capture popular culture (such as $FIGHT and $KAMA during the 2024 presidential election). In addition, the most popular meme issuance platform Pump.fun now provides Raydium with a direct and huge injection of users and transaction volume. Users can create memes through Pump.fun and its joint curve, and memes with a market value of $69,000 on the joint curve can be transferred to Raydium's AMM, and Raydium will charge an additional 4 SOL as a listing fee. As of August 22, 2024, Raydium's average daily transaction fee is about 19 times that of 2023, which has brought Raydium's market share to more than 60% and stabilized at about 45%.
RAY is a governance token with governance rights, value accumulation, and staking income, with $833 million in FDV and a circulation ratio of 47.5%. The locked RAY mainly comes from mining (34%) and partnerships and ecosystems (30%), while the RAY belonging to investors, teams, and communities has been unlocked. The transaction fee of AMM is 0.25%, of which 0.03% is used for RAY repurchase, while CLMM and CPMM also have similar repurchase mechanisms. As of August 22, 2024, Raydium's average daily repurchase fee is about 27 times that of 2023, and about 5.9% of the maximum supply will be repurchased each year in 2024. Healthy cash flow and continuous repurchases alleviate the team's selling pressure and enhance the intrinsic value of RAY.
In addition to the decline of the meme craze on Solana discussed earlier, Raydium’s low barrier to entry is easily imitated and its position as the leading DEX may be challenged. The prosperity of low-cap memes also fails to provide Raydium with lasting liquidity depth. The introduction of Splash Pools, PYUSD liquidity pools, and improved pool creation processes has caused Orca’s market share to begin to recover, and Pump.Fun and Jupiter are also likely to build their own DEXs and seize Raydium’s market share. Raydium must introduce new trading counterparts or new businesses (such as launchpad) to protect its hard-earned market position.
Jupiter Exchange
Jupiter is the largest DEX aggregator on Solana, providing a variety of DeFi services. Compared with Ethereum, Uniswap occupies about half of the DEX market share, and Curve is the concentration of stablecoin exchanges. The competition landscape of DEX on Solana is not yet stable, and liquidity is not concentrated enough. Therefore, achieving the best price, low slippage, and efficient transaction execution through aggregators is particularly important on Solana. DexScreener and other tools have also helped Jupiter establish a leading position through meme trading. Now, about 40% of DEX trading volume comes from Jupiter, which is almost twice that of the largest DEX Raydium. Although DEX competition on Solana remains fierce, Jupiter, the largest aggregator, will still benefit from the revenue growth brought by the growth of trading volume across Solana DEX.
Diversified and continuous product launches have expanded Jupiter's usage and enhanced user stickiness. Jupiter is more like the center of the Solana ecosystem, just like Binance in CEXs. The following are Jupiter's main DeFi services:
Limit orders, DCA, and VA provide more investment tools.
JupSOL issued through Sanctum can obtain staking income and MEV rebates from Jupiter validators without paying fees. JupSOL shows that Jupiter has entered the field of liquid staking, which will help keep SOL in Jupiter. JupSOL's market share has risen to 10% in just 4 months.
Perpetual contract trading expands Jupiter into the derivatives market, making Jupiter the largest sustainable DEX on Solana, with OI now reaching $180 million. At the same time, the Jupiter Liquidity Provider (JLP) pool acts as a counterparty to sustainable traders, and its LPT$JLP holders can earn additional income from traders' PnL and 75% of transaction fees by providing up to $700 million in TVL. The value of perpetual trading is captured directly by $JLP, with an annualized yield of 27.46%.
Bridge Comparator supports Allbridge Core, Mayan, deBridge and Onramper, bringing more funds from other blockchains and fiat currencies to Jupiter.
APE is Jupiter's attempt to stabilize and expand meme transactions.
LFG Launchpad is Jupiter's first community-driven launchpad, providing a reliable way for large on-chain projects to launch tokens on Solana. Memes Wen, cross-chain interoperability protocol deBridge, liquidity staking protocol Sanctum, and other diverse projects have all been launched on it. Project proposals, candidacy, voting (by JUP holders), and final launches can all be done transparently in the Jupiter community. A key mechanism of Jupiter LFG Launchpad is a unilateral, joint curve-based Meteora DLMM pool, which allows project teams to precisely determine the price curve and allocate liquidity according to their preferences (such as a negative exponential curve to incentivize early adopters). LFG Launchpad gives JUP holders greater governance rights and provides a fair price discovery mechanism. Projects launched by LFG Launchpad also tend to airdrop their tokens to JUP holders. In addition, projects launched by LFG Launchpad generally have a good working relationship with Jupiter, and their tokens are more attractive than tokens with high valuations but low circulation ratios. Jupiter’s LFG Launchpad has the potential to become a super traffic entry for Solana and comparable to Binance Launchpad in CeFi.
JUP is a governance token with governance rights, staking income and airdrop qualifications. After the supply reduction proposal is passed in August 2024, the FDV is 7.3 billion US dollars and the circulation ratio is 19.9% (JUP burn reduction will be carried out within 6 months). The team manages 50% of JUP, another 50% is reserved for the community, and 20% for the team will be unlocked from February 2025 for two years. Active Staking Rewards (ASR) allows JUP holders to receive rewards when staking JUP and voting.
Perpetual Contract Exchange
Drift protocol
Drift is a decentralized exchange built on Solana that offers a variety of features including spot trading, leveraged trading, sustainable contracts, lending, and yield harvesting. Drift is the second largest sustainable DEX on Solana with $365 million in TVL. Trading on Drift is supported sequentially through three liquidity mechanisms:
Just-in-Time Auction Liquidity: When the taker submits a market order, a personalized Dutch auction is automatically triggered, with a specific starting price, ending price (starting price ± slippage), and duration (about 5 seconds). The earlier the market maker requests an order with a lower profit, the more likely it is to be traded. Just-in-Time auctions allow market makers to compete, providing transactions with lower latency and greater trading depth.
Virtual AMM (vAMMs) Liquidity: If no market maker intervenes after the initial window, the taker can complete the transaction on Drift's vAMMs. vAMMs provide a transparent price discovery mechanism and balance trading depth with slippage risk.
Decentralized limit order liquidity: Keepers listen, store, sort, and fill valid limit orders by compiling all valid open orders found on the chain and organizing them into each Keeper's own off-chain order book. Keepers listen for trigger conditions, match orders, and charge fees for each trade.
The trading volume of spot on DEX is about 10% of that on CEX, but the open interest (OI) of sustainable contracts on DEX is only 3% of that on CEX, indicating that this area has significant growth potential. DEXs and aggregators that already have mature spot operations, such as Drift’s biggest competitor Jupiter, have an easier time expanding into the sustainable contract market. However, compared to CEX, limited trading depth remains a major challenge for DEX in increasing OI.
To increase product diversity, Drift launched the prediction market BET in August. Prediction markets are expected to gain traction in the U.S. presidential election year as demand for betting on political events increases. Leading prediction market Polymarket has reached $100 million in TVL on Polygon. Drift has a natural advantage in entering the prediction market: Drift's TVL is four times that of Polymarket, and the strong interest of meme enthusiasts in gambling on Solana is highly consistent with the prediction market. In just half a month, BET's total betting amount has reached $23 million.
DRIFT is a governance token with governance rights and fee payment functions (based on DRIFT staked in the vault, providing fee discounts), with $456 million FDV and 21.3% circulation. DRIFT's emission plan is for five years, after which all tokens will be fully circulated and 53% will be used for ecosystem growth.
Lending Platform
Kamino Finance
Kamino is the first protocol to unify liquidity, lending, and leverage into a secure DeFi product suite. Although it was founded during the bear market of 2022, Kamino quickly became the largest lending and market-making protocol on Solana, with a market size of $1.7 billion, cumulative debt of more than $1 billion, and more than 60% of the lending market share. As a leading lending protocol, Kamino plays a key role in many important projects on Solana. For example, the sixth largest stablecoin PYUSD, with a market value of $840 million, 42% or $350 million of which is managed through Kamino's services. The following is a brief overview of Kamino's main business operations:
Lending: Kamino Lend V2 builds on the base layer V1, leveraging a modular design in the market layer to create markets with arbitrary asset combinations and risk configurations. In addition, the single-asset lending library in the Vault Layer automatically aggregates liquidity across markets. By combining these features with a more powerful liquidation engine (including limit orders and liquidation auctions) and risk management architecture (isolated mode, cross mode, and interest rate premium), Kamino Lend V2 can become the cornerstone of "DeFi Lego" on Solana. It supports a wide range of use cases such as RWAs, long-tail assets, P2P lending, and order book lending on the Solana network. When the market is up, lending will be the most direct way to increase leverage in the Solana DeFi ecosystem, allowing Kamino to benefit from the growing demand for composable lending services.
Liquidity: Kamino’s Liquidity Vault provides an automated liquidity solution that enables users to earn yield on their crypto assets by providing liquidity to CLMM. Automation of the entire LP process, including automatic position rebalancing, automatic compounding of transaction fees, and additional incentives, improves capital efficiency while reducing impermanent loss and price volatility. Depositors will receive yield-generating, easily liquidated LPT kTokens that can be used as collateral for K-Lend, creating diversified strategies to earn money, such as executing yield cycles and delta-neutral strategies by staking or rotating their LP positions.
Leverage: K-Lend uses a single liquidity market to centralize liquidity and improve efficiency, while the “eMode” mechanism enables higher leverage when lending or borrowing within a specific asset portfolio.
KMNO is Kamino's governance token, which has governance rights and staking income, with a FDV of $482 million, but only 13.5% in circulation. The circulating supply of KMNO will remain unchanged until the continuous unlocking starting on April 30, 2025. From that day on, 2.2% of the total supply of KMNO will be cliff unlocked every month and distributed to key stakeholders, advisors, and core contributors until April 30, 2027. The remaining 37.5% of KMNO is allocated in the community and rewards (27.5%) and liquidity and treasury (10%) to incentivize Kamino builders and long-term users.
Save Finance
Save, formerly known as Solend, is the third-largest lending protocol on Solana with a TVL of $242 million. The rebrand to Save coincides with the launch of new DeFi products, including LST saveSOL, stablecoin sUSD, and meme coin shorting platform dumpy.fun.
SLND is Save's governance token, which has governance rights and liquidity mining income, with $72 million FDV and 40.1% circulation ratio. The mechanism of dumpy.fun means that shorting assets will help expand the scale of Save's lending services, but the introduction of a new governance token DUMP may directly capture the value of the platform, which may weaken the position of SLND.
Cross-chain interoperability
Wormhole
Wormhole is one of the largest underlying cross-chain interoperability platforms, with a universal messaging protocol at its core, providing developers with access to liquidity and users on more than 30 mainstream blockchain networks to build various applications on top of them. In November 2023, Wormhole raised a total of $225 million from Coinbase Ventures, Multicoin Capital, Jump Trading and other well-known venture capital firms, with a valuation of $2.5 billion.
The core of Wormhole's organizational structure is based on the Proof of Authority (PoA) mechanism and consists of 19 Guardians, who are well-known trusted entities backed by capital and reputation. These Guardians form the off-chain Guardian network, which serves as the oracle of Wormhole. Each Guardian independently signs the Verified Action Approval (VAA), and these signatures are eventually combined into a multi-signature, and the signature is considered valid when at least 2/3 of the Guardians (for example, 13 out of 19) sign the same message. The core contract receives cross-chain requests from source chain applications, sends messages to the Guardian, and verifies the VAA on the target chain. The relayer is responsible for transmitting the VAA to the core contract on the target chain. The Guardian network operates as an "external validator", providing high scalability and wide applicability while avoiding single points of failure (SPOF). However, its security depends on the unified and fraud-free verification of the Guardian, which can be a potential vulnerability in cross-chain messaging and asset transfer.
Wormhole has launched four main products: the universal messaging protocol "Messaging", the cross-chain bridge tool "Connect", the Cosmos-SDK chain "Gateway", and the cross-chain query tool "Query". In addition, the Wormhole Foundation has launched a number of programs to promote project development, including the xGrant program, Base Camp, and the Cross-Chain Ecosystem Fund (CCEF, with a total value of US$50 million). These programs provide funding, guidance, and resources to support the growth of the ecosystem. As of August 31, 2024, Wormhole has sent more than 1.047 billion messages, 7.7 times more than the second-ranked LayerZero. Wormhole's roadmap points out that Wormhole Institutional will be launched in the future to provide enterprise-level interoperability solutions for global enterprises and financial institutions.
W is a governance token with governance rights, with $2.1 billion FDV and 25.8% circulation ratio. W was initially launched as a native Solana SPL token and will enable ERC20 functionality through Wormhole's Native Token Transfer (NTT) after launch. W holders can stake their W and participate in proposals on different chains through Wormhole's NTT. Multi-chain governance will gather capital and users from different chains to build a larger community and consensus. If W holders can participate in relevant DeFi activities and earn income from the protocol, the intrinsic value of W will be more solid.
Oracle
Pyth Network
Pyth Network is the third largest oracle with $4.85 billion TVS, providing real-time price data from more than 100 trusted first-party published cryptocurrencies, stocks, forex pairs, ETFs, and commodities for more than 350 protocols on more than 55 blockchains. Pyth's core team members have worked at Jump Trading. Delphi Digital, HTX Venture, Multicoin Capital and other well-known venture capital firms have invested in Pyth.
The core mechanism of Pyth is the pull oracle update model. Unlike push oracles (such as Chainlink), pull oracles only update on-chain prices when requested. Users can request the latest prices from off-chain services, and anyone can submit updated prices to the on-chain Pyth contract, which verifies its authenticity and stores it for later use. Pyth empowers and incentivizes the original owners of financial data to contribute data directly to Pythnet, a dedicated blockchain operated by Pyth's data providers. Pythnet then securely combines the prices provided by data providers into a single Pyth aggregate price to be fed out, and communicates the price to other chains through the Wormhole cross-chain messaging protocol. The price server Hermes constantly monitors Pythnet and Wormhole, stores the latest price messages, and provides them to Dapps and smart contracts. Pyth provides an active price retrieval mechanism with high resolution and high fidelity transparent data, as well as low latency and high frequency updates (every 400 milliseconds). The collaboration with Wormhole enables Pyth to easily scale to different chains through Wormhole’s universal messaging protocol. Pyth is well suited for use in financial scenarios, especially those where market volatility is high or fast transaction execution is critical, such as derivatives and margin trading.
PYTH is a governance token with governance rights, with a FDV of $2.7 billion and a circulation ratio of 36.2%. 52% of PYTH is allocated to ecosystem growth, and 22% of PYTH is allocated as publisher rewards to encourage accurate and timely price data. Every May, there will be a large-scale unlocking of PYTH for about a month, which will last until 2027. Therefore, it is necessary to be cautious in increasing positions during this period.
Summarize
Compared to Ethereum, Solana provides a more dynamic and innovation-driven environment. Its high throughput and low fees have significantly improved the efficiency of decentralized applications (dApps) and attracted a variety of diverse projects to join its ecosystem, promoting rapid growth. The Solana Foundation plays a key role in promoting a product-focused, decentralized, and democratic environment that accelerates Mass Adoption. Innovative projects like Blink, Pump.Fun, and dumpy.fun quickly emerged and evolved to meet the changing needs of the market. As capital and talent increasingly converge on Solana, its ecosystem presents compelling investment opportunities upon technological breakthroughs or favorable market conditions.
However, the positive correlation between Solana and its ecosystem is more pronounced than that between Ethereum and its ecosystem, indicating that Solana’s ecosystem is still in an earlier stage of development relative to Ethereum.
