Solana

Solana is a high-performance layer 1 blockchain designed to provide fast transactions and scalability, albeit with relative centralization. It stands out in the crypto space for its ability to process thousands of transactions per second (TPS) thanks to its consensus protocol.

Its main technology:

Proof of History (PoH): Designed to address synchronization issues in traditional blockchain networks, it is a cryptographic mechanism that allows precise time recording on the network.

1.1 Advantages

Scalability: This is Solana’s greatest advantage, as it can process up to 65,000 transactions per second (TPS), surpassing most traditional blockchains, such as Ethereum. However, it currently processes an average of around 4,000 TPS.

Hype: Solana is one of the few cryptocurrencies that has seen notable growth in recent months, partly due to an explosion of MemeCoins in its ecosystem.

Development: Solana can be considered a mature network, partly due to the projects it hosts and its developed DeFi ecosystem, placing it in the top 10 cryptocurrencies by total value locked.

1.2 Disadvantages

Security: Security is one of the current main problems of the network. The most concerning aspect is that errors still occur, with the latest incident in February when the network was down for over 4 hours.

Centralization: Another significant issue with high-speed networks in the market is their centralization. Although Solana’s developers claim their network is highly decentralized, the reality is that fewer than 30 validators control more than 50% of the network, making it extremely centralized.

Regulation: As we know, there has been a push in recent months to regulate cryptocurrencies with some degree of centralization, like Solana. While I don’t consider this to be a critical issue, it is something to keep in mind.

Data storage: Another concern for many users, aside from centralization, is that several validators have chosen to store data in the cloud using services such as Google Cloud, AWS, and Microsoft Azure.

Lack of governance: Solana still lacks a fully implemented on-chain governance model. This means that key decisions regarding updates, protocol changes, and resource allocations are not made directly by SOL token holders through decentralized voting mechanisms. However, efforts are underway to implement this.

1.3 The SOL

Solana is a transaction-based cryptocurrency, so it’s tokenomics is built around this aspect. It has an inflation rate of 8%, which decreases by 15% annually until it stabilizes at 1.5%. It also features a deflationary system where 50% of transaction fees are burned. Despite this system, the token has seen the creation of 86 million tokens since its issuance in 2020. The initial distribution of Solana was as follows:

• 16.23% – Private investors (funding rounds).
• 12.79% – Founding team and development.
• 10.46% – Solana Foundation.
• 38%        – Community incentives and rewards.
• 1.64%    – Public sale (ICO).
• 22%        – Reserve for future allocations.

1.3.2 Purpose and Use Case

• Transaction Fees: The SOL token is used to pay for transaction fees on the Solana network. Transaction fees are very low due to Solana’s efficiency, and they are paid in SOL for every interaction with the network, whether it’s a token transfer or interaction with smart contracts.
• Staking (Proof of Stake): Users can stake their tokens to help secure the Solana network. By staking, they delegate their tokens to validators participating in the network’s consensus, and in return, they receive rewards in SOL.
• Payment in Decentralized Applications (dApps and DeFi): The Solana token is used across numerous projects within its ecosystem, contributing to a steady demand for the token.

1.4 Products

• Solana Blockchain: The foundation of all its technology.
• Solana Pay: Decentralized payment protocol.
• Saga Phone: Smartphone optimized for Web3.
• Phantom Wallet: Crypto wallet for Solana.

1.5 Partnerships

In recent years, Solana has been forming strategic partnerships with large companies, which I see as a significant step demonstrating trust in the network.

• Visa: Partnership for payments using USDC stablecoins.
• Google Cloud: Infrastructure and cloud data analysis (used to store network history).

1.6 Direct Competition

• Ethereum (ETH): It is the largest and most widely used smart contract platform in the blockchain ecosystem.
• Avalanche (AVAX): It is a smart contract platform known for its speed and focus on interoperability between different blockchains.
• Polkadot (DOT): It is a blockchain platform that enables interoperability between different blockchains through its “parachain” architecture.

1.7 Future Potential

I bought this cryptocurrency after the FTX crisis when it dropped to between 20 and 30 USD. At that time, I considered it undervalued. Now, with its rise to around 160 USD, I believe it is somewhat overbought. You may wonder why. The reason is that people tend to focus on the price, but if we look at its market capitalization, we can see that it is at all-time highs.

I believe it has great long-term potential, but caution should be exercised when buying at current prices. Ideally, one should try to purchase it during the accumulation/distribution that has been forming since April of this year, buying at an approximate price of 129 USD and seeing if it surpasses a market capitalization of 100 billion USD. This is likely if the market does not encounter a crisis.

Additionally, part of this rise is due to the BOOM of MemeCoins, something to keep in mind.

For now, I will open a 15% position in the Clear Value portfolio, buying at the limit price of 129 USD. I consider this operation to have a medium risk, not due to the possibility of total investment loss, but because of the potential for the price to drop and take several years to recover to the current value.