Original title: (Why does Solana need Network Extensions instead of Layer 2 solutions?)
Original authors: Dr. Yugart Song, Stepan Soin, Qinwen Wang, Lollipop Builders
1. Background
The rapid development of blockchain technology has positioned Ethereum (EVM) and Solana (SVM) as two dominant design philosophies, each leading in its respective domain. Historically, Ethereum has dominated the total locked value (TVL) of EVM chains due to its unique philosophy and approach, while Solana holds a dominant position in non-EVM chains. However, with the increase in activity and the development of new chains, Ethereum has begun to cede its dominance to faster EVM chains and has shifted towards Layer 2 (L2) scaling solutions. In contrast, Solana's monolithic architecture has avoided this fragmentation through unique technological innovations and significant performance reserves, albeit at the cost of requiring higher bandwidth and speed.
Meanwhile, the concept of Rollups presents an important opportunity for dApps: creating customizable runtime environments. However, this has led to an interesting phenomenon: L2s have fragmented Ethereum's liquidity and user base, while L2/L3 application chains have exacerbated this split. Solana adheres to the concept of a monolithic ecosystem, but the benefits of providing customizable environments for different use cases cannot be ignored.
2. Catalysts for the Birth of Network Extension: Layer 2 - The Path to Fragmentation
From Plasma in 2017 to Optimistic and zk-rollups, Ethereum's scaling journey clearly demonstrates the necessity of solving scalability issues. However, it is worth noting that part of Ethereum's L2 TVL is supported by bridged ETH, which remains on L1.
However, these scaling solutions also expose a significant risk—the fragmentation effect of liquidity and users, known in the blockchain space as the 'vampire effect.' The sharp decline in Ethereum's fee revenue after the implementation of EIP-4844 is a testament to this. Analysts, including Justin Bons from Cyber Capital, point out that Ethereum's fee growth is being captured by L2.
Figure 1: ETH Supply Dynamics Source: ultrasound.money
This indicates that when users leave L1, the fees remaining on L1 significantly decrease, leading to a reduction in the burn rate. This should have been evident from the beginning. Now, usage and revenue are being captured by L2s aiming to earn rent! This is precisely what makes them greedy, as only a small portion of the fees returns to L1, with the rest retained by commercial entities. At the same time, these entities have contributed to lobbying for maintaining the limited block space of ETH L1. A chart published by Unchained Pod even shows that for every $1 fee paid on L1, Optimism (OP) can earn $300 in revenue.
Figure 2: Fees earned by L2 for every $1 paid in L1 fees Source: GrowThePie
Therefore, it is evident that L2 exhibits a 'vampire effect' on transaction activity and economic attractiveness of L1. Shifting towards independent application chains (Appchains) further exacerbates this situation.
This viewpoint is supported by Anatoly Yakovenko, who tweeted: 'If the Solana ecosystem undermines L1 execution optimization to support all user transactions and relies on a generic L2 stack of 'arb/op', it will create a parasitic effect on Solana's mainnet. This is easy to understand. When L2 captures more prioritized transactions from the base layer instead of adding new ones, they become parasitic. Since the mainnet will continue to maximize its throughput, 'L2' or any other SVM will struggle to compete with it economically. User fees should not be superior to the mainnet.'
Kyle Samani, managing partner at Multicoin Capital, expressed a similar viewpoint, stating: 'Anything that could happen on L1 but happens outside of L1 is, by definition, parasitic. This is why I am not interested in EVM/SVM rollups. They are fundamentally no different from L1. I am very skeptical that these copy-paste L2s will succeed on Solana because L1 is already good enough.'
In this context, Solana's core method of preserving network characteristics by maintaining a monolithic architecture and a unified ecosystem concept is highly attractive.
But how to avoid a scenario similar to Ethereum L2? Let's delve into this.
3. The Rapid Rise of Solana and Its Core Advantages
Compared to traditional blockchain systems designed around the Ethereum Virtual Machine (EVM), Solana blockchain showcases a new architecture.
Solana uses Proof of Stake (PoS) as a Sybil attack prevention mechanism, while also introducing its core innovation—Proof of History (PoH) algorithm. PoH is a verifiable delay function (VDF) used to order and timestamp transactions transmitted across the network. Additionally, Solana stands out for utilizing high-performance hardware, a memoryless transaction forwarding protocol (Gulf Stream), supporting parallel processing with Sealevel, and a design different from traditional blockchain account models (similar to a file system in Linux).
Solana follows a monolithic design philosophy, achieving significantly higher scalability through its unique consensus mechanism, technological innovations, and ongoing architectural optimizations, enhancing speed and throughput.
Solana also benefits from a strong developer community: over 2,500 developers are actively involved. This has driven significant growth for Solana. Solana's TVL has grown from $210 million in 2023 to $7.73 billion currently in 2024, nearly a 35-fold increase. Compared to November 2022, Solana DEX's trading volume has increased by 200-300 times, and since the summer of 2023, DAU has grown fivefold. By November 14, 2024, Solana's trading volume has exceeded Ethereum's by more than four times. The number of active wallets is also continuously growing, peaking at 9.4 million active users on October 22, 2024.
Figure 3: Solana DEX trading volume and active wallet dynamics Source: Dune, Artemis
Therefore, Solana is a powerful ecosystem with a large and active user and developer community, experiencing exponential growth in both user base and activity. This trajectory underscores Solana's importance as a leading non-EVM chain, particularly in its dynamic expansion.
Figure 4: Comparison of Non-EVM Blockchain TVL. Source: DefiLlama
Decentralized applications (dApps) on Solana significantly enhance their functionality by improving acceptance and user-friendliness. It is evident that Solana is becoming a super system with outstanding features. However, some applications, such as Zeta Market, plan to launch their own instances (L2) to achieve the same purpose.
One fact stands out—SVM performs exceptionally well in isolated environments. This has been well proven by applications like Pyth Net and Cube Exchange that leverage SVM to support application chains, which is also called the Solana Authorized Environment (SPEs).
Despite the use cases for independent 'specific application' SVM chains, these chains do not significantly differ from standard Solana clients, and we believe that native Solana extensions (vanilla Solana forks) as Layer 2 have limited value. This approach could still lead to a replay of Ethereum fragmentation.
It is clear that Solana needs an independent approach to avoid undermining the characteristics of its monolithic architecture. This is also why Lollipop developed Lollipop Network Extensions, which will significantly change the landscape of the Solana ecosystem.
4. What does Solana need? — Support for off-chain runtime environments for monolithic architectures through a modular approach
4.1 Core Concepts of Network Extensions (NE)
The above factors have prompted the Solana community to begin discussing the necessity of moving some computation tasks elsewhere. Scaling is not a new phenomenon for Solana. As early as 2022, Token Extensions emerged, providing new features such as Confidential transfers, Transfer hooks, Metadata pointers, etc.
Thus, when enhancing Solana's functionality and scaling dApps, proposing the concept of 'Network Extensions (NE)' is logical. In addition to enhancing Solana's capabilities through expansion, Network Extensions (NE) introduce modular elements to the ecosystem—different environments within NE can be customized based on specific needs and shared across multiple dApps and protocols.
Based on insights and discussions within the Solana ecosystem, we have identified several fundamental principles that should define the architecture and functions of Network Extensions (NE). These principles are intended to ensure seamless integration with the Solana network while preserving its core architectural advantages:
· Does not cause 'fragmentation' of liquidity
· Does not cause 'fragmentation' to the user base
· For users, the interactive experience is the same as when directly using Solana
· Unified technology stack
· Network Extensions (NE) directly send transactions to Solana validator nodes
For NE, Solana is a true settlement layer where capital flows occur at this level. Network Extensions serve as a true execution layer, not fragmenting with the main chain and directly interacting with accounts and programs at that layer.
Figure 5: Simplified flowchart of Lollipop Network Extensions (NE)
These features distinguish Network Extensions (NE) from rollups, sidechains, subnets, various L2 variants, application chains, and other scaling solutions. Compared to similar solutions, Lollipop aims to develop a technical framework for Network Extensions (NE) that allows developers, consumers, and end-users to interact seamlessly with Solana's liquidity and user base at the Solana layer.
4.2 Comparative Analysis
Currently, Lollipop is the first solution to provide direct connection to the Solana mainnet without causing fragmentation of liquidity or users.
Lollipop's native environment can serve as a foundation for new products or support the migration of existing dApps without severing the connection to the Solana ecosystem and liquidity. For existing dApps, this will enhance their speed, stability, and expand their functionalities.
Figure 6: Comparison of existing solutions on Solana
Key differences from L2, subnets, and sidechains:
· L2: L2 collects transactions and sends proofs to L1. Execution and settlement actually occur within the rollup, while L1 (like Ethereum or Solana) is used for proof verification. Network Extensions (NE) directly send transactions to Solana's validator nodes and programs.
· Sidechains: There is no direct connection between sidechains and the main chain. While sidechains can anchor data to the main chain, the gap between ecosystems is significantly larger than between L1 and L2. In fact, sidechains are completely independent networks.
· Subnets: In the current implementation, subnets may establish independent ecosystems within subchains, concentrating liquidity and users in different spaces.
The projects most aligned with the concept of Network Extensions within the Solana ecosystem are Getcode and Sonic SVM (based on HyperGrid). However, Getcode only serves as a fund transfer layer, similar to Bitcoin's Lightning Network, and does not support the deployment of complex environments. Although Sonic has a latency of 10 milliseconds and can delegate programs deployed on Solana to its instances, it focuses more on the gaming domain and lacks the flexibility and customizability envisioned by Lollipop.
Network Extensions (NE) work directly with Solana liquidity, avoiding the formation of different chains, spaces, and communities.
Network Extensions (NE) can provide infrastructure solutions for Solana and its decentralized applications (dApps) and support the operation of these dApps themselves. This concept is somewhat similar to the ideas of application chains (appchains) and L2. Many dApps are transitioning to their own dedicated instances to improve performance, scalability, and user experience.
In L2, there are many such solutions: OP-Stack, Arbitrum Orbit, Polygon CDK, StarkEX, zkSync Era, Termina, etc. These toolkits have enabled numerous L2 projects to successfully launch, significantly boosting the scalability and usability of blockchain networks.
However, as we have seen earlier, the current hierarchical model and fragmented environment practices are not suitable for Solana's monolithic architecture.
4.3 Market Demand
The aforementioned cases and narratives reflect a broader trend: decentralized applications (dApps) are creating independent instances. This allows them to optimize operations and functionalities, providing better services to users. These applications can include DeFi dApps, games, verification and identity protocols, privacy protocols, institutional and enterprise solutions, etc. These environments are primarily built on different rollup implementations.
As previously mentioned, rollups have a vampire effect on the base chain. Lollipop aims to address this issue while introducing modularity to Solana without undermining its monolithic architecture.
The revolutionary significance of Network Extensions (NE) for Solana includes:
· Custom execution logic: Whether developers need unique governance rules, specific reward structures, or decentralized computing environments, NE can meet all detailed requirements. Developers can deploy modified SVM instances in NE, adjusting parameters such as latency, block time, and block size, which may enable real-time performance for running instances and create other currently unclear use cases.
· Direct settlement: Although NE operates independently, all transactions are still settled directly on Solana. This maintains the unity of liquidity and user flow within the blockchain without causing fragmentation or vampire effects.
· Economic flexibility: NE leverages Solana's efficiency to introduce innovative economic models. For example, dApp users might enjoy a gas-free economic model based on subscriptions.
· Non-fragmented flexibility: Unlike L2, NE does not create isolated spaces. Everything remains unified—it can be seen as similar to Token Extensions.
· Providing end-users with a seamless UI/UX: Unlike subnets or L2/L3 solutions, NE offers a superior user experience. Users do not need to switch networks, use cross-chain technologies, or worry about address issues; they interact directly with Solana.
· Reduced program deployment costs: Currently, if a developer needs to deploy an independent program on Solana with minimal dependencies on other programs, they need to pay 1-3 SOL or more in deployment fees, depending on the size of the program. NE provides the possibility of deploying complex multi-component programs in different environments through delegation and agency, which is much cheaper than direct deployment on Solana.
NE may also encompass use cases related to AVS (Automated Verification System) based on re-staking protocols. These use cases include decentralized oracles, co-processors, verifiable computation, decentralized ordering, rapid finality, etc. All of these benefit from the adaptability of the NE environment.
Another important scenario for NE is to create gas-free economic systems within environments that can be implemented similarly to EVM account abstraction. This is particularly useful for protocols that can generate a large number of transactions—such as high-frequency trading (HFT), gaming, rebalancing protocols, and dynamically pooled protocols with concentrated liquidity.
Therefore, Lollipop proposes the following key directions for the use of NE:
1. Gaming: Imagine a game without gas fees—players enjoy a seamless experience, and developers adopt a subscription-based model for stable revenue. This brings new Web3 component development methods for game development—interacting with wallets or markets without leaving the gaming environment.
2. DeFi: Build high-frequency trading platforms using session-based fees instead of gas fees charged per transaction, making transactions faster and cheaper. New logic is formed through off-chain execution order books and settlement designs. Higher execution speeds allow protocols to use more leverage.
3. AI Models: Directly settling each transaction on Solana while deploying compute-intensive AI environments using GPUs. This can be applied in various scenarios: security assessments, routing, arbitrage, implementation of various intent models, etc.
4. Enterprise Solutions: Tailored environments for enterprise and institutional clients, with strict management, policy, compliance, encryption, and governance rules.
5. PayFi: Providing programmable environments for complex financial challenges, such as supply chain finance, cross-border payments, digital asset-backed corporate cards, credit markets, etc.
6. Decentralized Computing: Enabling advanced decentralized GPU or TEE (Trusted Execution Environment) computing—suitable for cryptography, co-processors, AI models, or data-intensive tasks.
7. Trusted Environment: Deploy trusted environments for use cases such as oracles, decentralized storage (DAS/DAC), verification systems, decentralized physical infrastructure networks (DePin), etc.
Therefore, the primary task of the Lollipop team is to ensure that dApps and protocols can create customized environments within the Solana ecosystem and connect directly with Solana. In other words, conceptually, execution seems to occur as off-chain operations within Network Extensions (NE), but all actions settle and are finally confirmed on Solana.
Meanwhile, the user's wallet itself should reside within the Solana block space. After a long and in-depth R&D process, the Lollipop team has ultimately reached the current Lollipop design.
5. Explanation of Lollipop Technology
Lollipop allows projects to modify the Solana client in an off-chain execution environment and seamlessly transmit execution results back to the Solana mainnet, avoiding the need to create separate chains. Solana itself does not have a global state tree, which is crucial for ensuring the secure settlement of off-chain execution results. Lollipop addresses this issue by introducing Sparse Merkle Trees (SMT) to cryptographically verify execution results within its Network Extension.
Key technical features:
· Off-chain execution environment: Lollipop allows dApps to process their complex logic off-chain while ensuring that the results of each operation can be cryptographically verified through sparse Merkle trees, ensuring security and integrity.
· Sparse Merkle Tree (SMT): SMT is a special type of Merkle tree used to verify the existence of data without storing all data. It allows Lollipop to efficiently and securely verify the results of off-chain execution, ensuring that these results can ultimately be reliably settled on the Solana mainnet.
· Seamless connection with Solana mainnet: Lollipop achieves a direct connection with the Solana mainnet through its Network Extension, avoiding the fragmentation issues of traditional L2 or sharded chains, ensuring the unity of liquidity and user base.
The advantages of this technology:
· No need to create an independent chain: Projects no longer need to create additional chains or ecosystems, but can modify the Solana client through Lollipop and achieve off-chain execution. This reduces development and operational costs while ensuring close integration with the Solana mainnet.
· Decentralized and secure: By using sparse Merkle trees for cryptographic verification, Lollipop ensures that the results of off-chain execution cannot be tampered with or inconsistent.
· Adapted to Solana dApps: Lollipop enables decentralized applications on Solana to better scale their functionalities while avoiding performance and security issues that may arise from off-chain environments, making it an ideal choice for Solana dApps.
Lollipop's approach provides an innovative solution for Solana, enhancing scalability and operational efficiency without introducing fragmentation, making it an indispensable part of the future Solana ecosystem.
Figure 7: Lollipop Schematic
The Lollipop architecture consists of several key components:
1. Network Extensions Layer (NE Layer)
2. Programs on Solana Layer
3. Polkadot Cloud Layer
Lollipop is built directly on Solana, leveraging its parallel execution capabilities and unique transaction data structure. The parallel processing ability of SVM (Solana Virtual Machine) relies on the Solana client itself. By modifying the Solana client, Lollipop maximizes the performance improvements brought by Solana's native advantages.
This architecture allows decentralized applications (dApps) to seamlessly migrate from Solana's L1 to Lollipop's NES without modifying their program code while consuming fewer resources under the same tools and developer tech stack as Solana.
It is particularly important to emphasize that the parallel execution of SVM is based on Solana's unique transaction data structure. In each transaction, the initiator pre-declares the account information to be read and written. This allows SVM to efficiently process a batch of transactions in parallel sequencing based on this account information, ensuring that parallel executing transactions do not read and write the same account simultaneously. In other words, simply transplanting SVM into other execution frameworks does not yield the advantages of parallel processing.
Lollipop aims to become a trusted supercomputer for Network Extensions, providing permissioned and non-permissioned environments, multi-core execution, global consistency, customizability, and cost-effectiveness. The Lollipop network provides complete infrastructure for NE deployments, including shared sequencers, validators, and stateless validated contracts.
By leveraging Polkadot Cloud, Lollipop can also implement it as data availability (DA). Each contract runs on dedicated cores, supporting parallel synchronous execution across validators, sequencers, and DA, ensuring efficient processing capacity.
Figure 8: Lollipop Architecture Diagram
6. Conclusion
Lollipop's Network Extensions (NE) represent a significant advancement in enhancing the functionality of dApps and protocols within the Solana ecosystem. By offering a new way of development for dApps and protocols within the Solana ecosystem, Lollipop ensures seamless integration with the Solana mainnet while maintaining a monolithic architecture and avoiding chain fragmentation. Unlike traditional Layer 2 solutions that typically create isolated environments and lead to liquidity fragmentation, Lollipop ensures liquidity and user base remain unified across both layers through direct connection with Solana.
Lollipop's Network Extensions (NE) provide developers with a universal framework to create customized runtime environments to meet the specific needs of different use cases. In particular, Network Extensions (NE) can provide more efficient operations for perpetual decentralized exchanges (Perp DEX) by deploying a speed-optimized SVM instance. They can also reduce user interface and user experience friction for decentralized applications (dApps) within the Solana ecosystem by introducing intents and account abstraction. This capability could become a catalyst for the growth of Web3 gaming on Solana.
NE instances and Solana's configuration independence further pave the way for enterprise-grade products, institutional solutions, PayFi applications, and even niche application scenarios like insurance products.
Ultimately, Lollipop's design provides a forward-looking solution for dApp scalability on Solana, laying the groundwork for a new era of high-performance blockchain environments. As the Solana ecosystem continues to grow, Lollipop's unique architecture positions it as a key driver of future innovations, empowering developers with the tools needed to build secure, efficient, and sustainable applications.