Solana: State Of The Network | Mert Mumtaz, Dan Smith

Mert

All right, everyone, welcome back to another episode of Lightspeed. We got a Merton Daniel roundup today, so we're recording on April 11, so we'll give you the latest happenings in the week thus far. I got a lot of to discuss. It's been a busy week. It does feel like one of those bull market weeks where 73 different things happened and they're all extremely relevant.

So it's one of the times we're building out that the pod schedule is like, all right, which ones do we pick? But good jumping off point Myrt is probably, you know, we've been talking a lot about what's broken with Solana, what needs to be fixed, and the direction it's going. But one thing we've kind of haven't touched on is, okay, well, what are the fixes actually coming to market? And the timeline question is always a tough one, especially for the engineering folk. Right?

Like, you don't want to over promise a date on delivery on these things, but do you have any eta's on what that is? So I guess two part question. One, like, what are the fixes that are going to come first and what are they actually fixing? And then. Rough ballpark timeline.

Dan

Yeah. So the tricky situation here is there's actually multiple parts to the fix or to the patches. I want to emphasize that it's not like a fix in the sense that once something is released, everything is now magically different. I think it'll be a bit more gradual than like a zero to one step. And based on what?

So maybe some context is, a few days ago, I was describing the problem on Twitter, and I basically described it as, this is an implementation error, not a design error. And the reason those things are different is because design error is very fundamental. Right? Like, if you design something wrong, you have to start basically over again. You can't really change the design.

Right. That's kind of what happened with Ethereum, right? They had to transition from being this chain that where they went through multiple phases and then ultimately ended up in this roll up centric roadmap that took many, many years. If Solana had kind of the similar, let's say, flaw, it would also take it many, many years or probably somewhat faster than Ethereum. But still, this issue, though, is an implementation error.

And what I mean by that is just to catch everybody back up, Solana uses this protocol called Quic, and it's a networking protocol, which is to say that it's the thing that controls how packets on the Internet are sent from machine to machine. When I send a transaction from my computer to the next line of block leader. It goes through a physical networking layer, like literal cables. There is software that determines how that stuff behaves. In this case, Solana has something called the quick networking protocol, but that's a protocol.

Then for Rust specifically, there's an implementation of that protocol in Rust called Quinn. It's an open source repository, open source library. And basically it kind of dies when traffic gets too hot. And I think from what I understand, the engineers at labs or Onzenau knew this, and they basically said that we probably won't get to that load for a while, so we'll come back to fix it, which is like tech debt. So it was kind of known, but then the demand with meme coins and like, these ridiculous networking spam issues kind of happened faster than people thought.

And so now what needs to happen is that library that I said, Quinn needs to get some changes to it so that it can handle this extra traffic. I presume that after that, like after the bleeding is stopped, they'll actually probably rewrite the library altogether or use a different library. But currently, the quick fix is just going to be fixing that library. And obviously it's a big undertaking. There's more than one bug, which is to say there's like a sequence of bugs to be fixed.

Maybe there's like four patches or something. The first immediate one that I saw from Rex, and Rex is the head of Dev rel developer relations at Anza now, so you should probably follow him for official information. He said there's a new patch that might actually roll out in 1.17, which is 1.17 is the current version of Solana. So that might actually be before the 15 April. So this might be any day now, we might actually get this new patch.

And for example, by the time this podcast episode is released, and that he said that that one is supposed to help with stake weight QoS. And what stake weight QoS means is, by the way, QoS stands for quality of service. It basically means that when you're talking to these block leaders, there's a validator that's responsible for producing the current block in the Solana blockchain. Everybody can make a connection to it and send transactions to it, but the ones that have stake will get prioritized first, or they'll have a more persistent connection, and that today actually doesn't really work as advertised. There's some bugs with it.

Like you can have 2 million in stake and your transactions still won't be as effective as they should be. And so now with this patch, I think the idea is that RPCs, or whoever runs a node or whoever forwards transactions that have access to a staked connection, their send transactions will be more effective than ones who don't do that. So public connections. So that's the patch. And obviously there's going to be some period where people still need to move over to these staked connections and people need to gather stake, and there's probably going to be some migration period there that's going to be non trivial, probably a few days, I would say maybe weeks.

Helios, for example, we already have a bunch of these and we have a stake network connection. So people who use us will benefit from this pretty instantly, I would say. And then we're also spinning up our own validator, etcetera. So that's the very high level idea. Now it is contentious from what I understand, because now you're bringing in the question like, hey, is a network now only for people who have stake who can land these transactions?

Is this the end game? So that's an interesting question. I don't think that's actually how it will play out, because that's not what the market wants. And ultimately you need to satisfy the market. I think at first it'll probably be a bit closer to that than I would like, but I don't think that's a permanent thing.

Like once the networking protocol is fixed, once economic incentives are added to deter spam, then maybe Qos will have a different role to play. And the other side of this, which might be interesting, is that now, as a team building on Solana, you're actually much more incentivized to run your own validator, because the validator now has a direct connection to your ability to land transactions in some sense. So let's say you're a very, for example, like a borrow land protocol, like a solent. If you're running these liquidators, liquidation bots, you really want like very, very strict guarantees, like nine fives of guarantees or something, to actually land these transactions. Maybe the way to do that is you run your own node with stake.

So that's an interesting incentive.

I try to just paint a picture there without getting too opinionated, because I think it is hard to predict how this will play out. It's an interesting experiment. I think some people, like, for example, Lucas from Jitto doesn't like the QoS for the endgame solution too much, I believe, whereas Tolly does. And then some people, kind of people fall on either side of this camp. So.

And then after that is going to be maybe a few more patches that are coming potentially with 1.18 and releasing on April 15. But obviously in engineering, depending on how long the testing goes, it might be a few days later, a few weeks later. It really depends on what they find in testing, right? If there's a catastrophic bug, then it doesn't make sense to release it at that point. If testing is fine, then hopefully we can release up perfect.

Mert

So there's a lot to unpack there. I want to rewind to the first piece, but the QoS stuff I think might be even more interesting. But when you were talking about the Anza team, they're building their own client now, separate from labs. And you'll have the Anza client, and then eventually you'll have fire dancer, and then Jito builds on top of the existing client to add their block engine. When you think about client diversity, if supposedly jump has rebuilt the networking stack for their new client.

Not supposedly. That's true. I don't think that this is the supposedly part. They're not going to have a lot of the issues we're seeing today in this new networking stack. If you're Anza and you're like, we implemented quin today, it's not great.

We could put some patches on it, but it's probably not our long term solution. Would you be interested in just basically taking the jump networking stack, since it doesn't face these problems? Or would you want to rebuild something entirely separate, so you do truly have two separate clients that you could run, that don't have any overlapping pieces of code? I'm curious, from a client diversity standpoint, what makes more sense in your mind?

Dan

I think client diversity is a very interesting topic that I feel has almost been politicized, maybe even like, dei'd in a sense. Like, you must have these, like, inclusion of the clients.

I mean, I don't have any strong opinions on this, but, you know, maybe my first shot of it is I'd rather the client that's by far like the most efficient for the network be the primary client. And then if the concern is liveness, have a backup running for failovers and just have that mechanism iron out a bit more. But I don't see the point of something being 50% this, 50% that, or like, I personally don't like that. That's probably a hot take, I guess. But now, okay, the question is, can Anza take what fire dancers implemented and then put it in their stack?

And it's like, that's an interesting question. I'm not sure how, I haven't taken a look at the code itself. Obviously one is in c and one is in rust, and so it's not going to be like that easy to do, right? I don't know, maybe with chassispt these days. But I think the interface, as long as that's clear, which I think the spec is being worked out anyways as the client process gets rebuilt.

But I think they could also rebuild it in something in rust as well. So I'm not sure what they're going to do, but I'm fairly certain that the approach is going to be patches first to stop the bleeding and then maybe look at a rewrite. Yeah, that makes sense. Yeah, I know the Ethereum community definitely prioritizes this client diversity notion, but if you have one client that is significantly more performant than the others, it does kind of leave you with the feeling that like, hey, why wouldn't we all run this much better client? Which is what it seems like fire dancer will be.

Mert

Of course it's still in the process of being built, but I think it's a paradigm team is actually building Reth or they're rebuilding the geth client for Ethereum in rust. And it'll be interesting when that hits the market because that's going to be much more performant. I think they've been pushing some of the early testing numbers. I know they're working with the base team as well, trying to get that client up and running on the op stack so they can help juice the throughput of base. But it'll be interesting once that's production ready and how the, that changes this view of client diversity.

Dan

Right. If you have one much better client. So I like the approach of like having the primary client and then the backup client, but then you get into like if you're running two clients at the same time, what does that do to your hardware requirements? So it is an interesting debate, and since Solana has an history of having outages, so almost like lean into that and like on the QoS side. So one of the interesting points that I think Tolle has talked a ton about is, you know, the validators don't necessarily need to be profitable.

Mert

You can run, if you have a very successful business that happens to be doing some service on chain, then you can run a validator as an operating cost, right. That's just a line item on your income statement and you'd still be very interested in doing it, right? If I'm making a billion dollars a year doing, providing some service or creating some good. And it cost me, you know, let's just make up a number. One hundred k a year to run a Solana validator, then I'm very happy to take that loss.

That's just a casual and everyday business operation. With the QoS stuff, I feel like that goes hand in hand. So it doesn't surprise me that you mentioned he's a fan of the QoS stuff. If I get better service from the chain that my business is built on by having a validator and it accruing stake, that goes hand in hand with the vision that he has there of, of validators being more than just like this profit mechanism and actually providing a service to a business. Yeah, and it is, there's kind of a double whammy there because not only do you get more, let's say, quality of connection, the more stake you have, you also make more money from the validator the more stake you have.

Dan

Right. And especially now, I think, like Solana validator, profitability, at least from the validators I've talked to, has been much better than in the past due to the increase in fees that the network is generating. Now. It is generating those relatively falsely, I would say, because people are overpaying for the fees. But you can kind of at least gauge the market demand, right?

Even if it's not technically necessary. I could also argue that ethereum fees are not necessarily need to be that high. Right. If you made the runtime a bit more efficient, maybe those fees would be better off, they'd be more isolated so that everybody doesn't need to afford the same cost for the unrelated state. So yeah, it is super interesting, the QoS stuff.

I mean, this is kind of like the interesting problems you start running into when you have continuous block building as opposed to the discrete approach that pretty much everybody else has taken, because the continuous at its end game allows the ultimate result in performance, like the lowest possible latency, things are just flowing, right. And, you know, assuming that Tolle's original vision holds true in some, you know, sense of in some grand times scheme of Nasdaq on chain, that's going to be important. But it's a very, very difficult thing to accomplish, which is particularly why I get like quite angry when people are like talking about like, oh, like your chain doesn't even work. It's like, you know, this, like, this is a radically different approach than anybody else has taken. And it's not good for everybody that this is being pursued right now because it teaches everybody so many things like, maybe Monad will take some of this or maybe another l one will.

Right. Maybe Ethereum will at some point. And it's like, if you wanted the, if you wanted to maximize the probability of success for the crypto industry as a whole, why would you not want these different paths to be taken cover the most services you can. Right. And so I think it's super difficult.

And so it's very easy to dunk on for Twitter, but it's also, like, very important that we do this. And so, yeah, it's especially in crypto. Maybe we can go into Marginfi now. But, like, I think this is, like, a good segue of, like, whatever you do, you will get absolutely crucified. Like, you will be crucified by everybody on the Internet.

And there's people kind of take that for granted. But, like, it's pretty bad. I'll let you kind of maybe give, give a recap of the situation and. But, yeah, I'll stop there. Yeah.

Mert

People will come at you for anything you do, good or bad, that just, I don't know. I think a byproduct of that is this industry running pretty heavily on Twitter. And Twitter just kind of being, it's not like a toxic place by nature, but it has very toxic qualities to it. I'll kind of frame it that way, let's say. But margin fi.

So, yeah, they've had an interesting history, and this kind of came to a boiling over point with one of the co founders leaving the project as of yesterday, seems like he formerly has left the project, said something to the effect of, I'm walking away. The lawyers are kind of figuring things out, but I'm not interested in taking any of my tokens or equity package or any of that with me. I just want to walk away, and that'd be that. How we got here is they've been building for around a year or so now, and they're building a lending market on Solana. And it was becoming one of the top projects in this space and kind of like this promising rebirth of Solana Defi alongside the, the folks like Jito.

And they started a points program in July of last year. So about nine months. Nine months and one week probably, ago. Yeah. So to be fair, you can kind of start to resonate a bit with the community because they are, they're in uproar about this.

They've been farming for nine months. And when you're farming points, you're not guaranteed a token. But that is, like, what you expect as the user on the other end of that, if I'm depositing and you're racking me up this number that says points in the top right corner, I'm expecting a reward for that.

It's been about nine months and they've had some interesting run ins with the community over the token. The team has been rage baiting or mocking to some degree, and been like, they're, like, they're aware they've been running this very long points program. But I will say I do not envy being a us resident and having the pressure of launching a token. There's some uniswap news we'll get into after this, but that is not a fun position to be in. However, there are plenty of teams doing it, so there is precedent to do it, which, if you were in this camp, they're like, hey, I don't think this is the right thing for me to do now.

It's additional pressure. So I do kind of sympathize with them. Um, at the same time, it's like, well, then why'd you run the points program? So tldr here is marginfi. Building a DeFi protocol kicked off a points program for nine months ago and has still not launched the token.

And the, the community who has been actively farming this thing for. For quite a while now, is very upset. There's a bit of entitlement here, but there's also been like a, hey, guys, look, it's been nine months. Where, where is my, where's my token? Now we've reached this boiling over point where a co founder has walked away and some question marks around what's next.

They've seen over $200 million in outflows in the last 48 hours. So the users are kind of like, you know what? Let that be that. And it's a little TBD on where we go from here, but I'm curious how you view this standpoint. Yeah, this is very, I mean, the tl, okay, there's so many different views on this that I'm sure I'll get canceled regardless of what I say, but.

That'S kind of how I felt like, I feel like you defend either side here, you're going to have the opposite side pissed at you. Yeah, I mean, look, so they were one of the first ones. I don't think they were the first one, but they were one of the first to launch points. And I think this was somewhat before, like you, if you launch points, you have to release a token. I do think that they launched that point stuff pretty much before most people such that the expectations weren't quite what they are today.

Dan

In the last two months, if you did points, you're launching a token that's expected. But I think there's some argument to be made that since they were so early, it's like, is that the case now? I don't have a doubt that they want to release a token. They're a borrow land protocol. They want to be decentralized.

This is obvious if you also look at Edgar's replies. I saw one of the comments was something like, the token hasn't been released. I'm paraphrasing here because of lack of execution along the organizational side. So it seems like reading between the lines here, and he also commented in his resignation post about internal disagreements. So it does seem like there is some internal disagreements.

Now, if that's within the co founders, if that's within the investors and the founders, I don't know. Right? Like, it's some. Something is wrong or some. There were some disagreements there that the CEO of the company couldn't get clearance for.

Generally, if the CEO can't get that, that means it's actually quite. It's probably gonna be an investor, like, cap table thing, or the other co founder has some kind of disagreements with that. And, like, some people will say, like, oh, well, you're CEO. Why not just, like, use your power and do this? And it's like, that's not how it works, right?

If you do something where the entire team just hates you, that's not going to function. You're going to botch everything. And by the way, you might not have a legal right either. So the one thing I want to point out is there was clearly some internal stuff that didn't work out that nobody here knows of. We're all just saying, basically, the community in, let's say, our point of view is, okay, there's margin finance.

They have Mac, who is very, very aggressive on Twitter, not unlike me. And then we have Edgar, who's also spicy on Twitter. Maybe not as aggressive, but he's spicy. And then you have a community that wants a token, and then you have these interactions between community and founders. And it also doesn't help that there's other protocols that are trying to launch, like a, you know, Soland and Camino.

So it's actually kind of an adversarial environment.

And then, so I think the catalyst here was Soul Blaze, which is a validator on Salana and also has their own liquid staking token. I think it's called be soul blazoul. They made, like, a post about margins practices for how they interact with the soul blaze, and it instantly got, like, a lot of likes, I think, like, 700 likes or something. And, you know, my guess to what happened is Edgar Price saw that and was like, okay, why is everybody already siding with this person before they even know our side of this? That seems a bit like.

Like, bullshit. Like, we didn't even do this, etcetera. And then he probably just. I don't know. He probably just broke down after that, which I can kind of relate to right now.

The shitty thing about Twitter is, if you break down, it is public, okay? If you're having a breakdown or. I'm not gonna say he was having a breakdown. It just seemed like it to me. Maybe I'm wrong, but, like, his responses did not seem like him normally.

And so, in Twitter, though, once you have that, people are taking screenshots of you, trying to dunk on you. The dunks are getting amplified in group chats, which are then getting posted to inverse bra or all possible channels. Your investors are seeing your mom's prize, seeing it, and it just keeps cascading on top of that. I mean, I know I started my group chats, right? And that's just a lot of pressure.

And so, you know, I can see how a founder, with the pressures of legal regulation, plus disagreement, plus community dissent, plus Twitter dunking all combine to just, you know, lead to him residing, in a sense, or just being, okay, this is not really worth the health downsides. It. And so, you know, the one thing I'll say, I mean, and I did say this on the tweet, is like, you know, if people want to criticize the business and the business decisions and the team and the execution, go ahead, right? That's totally fair game. Could they have done it better?

Of course. Obviously. Right? The one thing I wasn't a fan of is kind of dunking on a person who is, like, publicly having a meltdown, right? Like, that person is already going through some shit, okay?

Like, there's no. Nothing to be gained by just shitting on. And that's coming from me. Like, I love dunking on people, but, like, the. Even, like, this is just.

I think there's, like, a limit. And what I'm interested, actually, now, because margin, the Twitter account in Mac, et cetera, did announce that it's. They still care about the users. They're gonna. They have new products coming out, etc.

Etcetera. So it seems like they're actually not going away anywhere. It seems like Edgar resigned. So I'm very interested to see what happens, because usually when a CEO leaves, the company is not quite the same. But then there are exceptions.

Obviously. I don't want to give the example of Microsoft because that's a totally different ballgame. But purely from an organizational perspective, there are cases when the CEO leaves and another one joins the company could still be just as good, if not better. I'm super interested to see what happens with that, especially because they have a strong cap table with, like, multicoint. You bring up great points around, you know, being people, just being like, oh, you're the CEO, you can do anything.

Mert

Like, yeah, that's just not quite how the world works, my friend. That's, I wish it was, but that's not the case. And I agree with you on the dunking on the people stuff, right. That there's a difference between, like, you know, getting in a zinger and just being a dick. Like, two very different things.

So. But that's kind of the downside of Twitter, right? People can just sit behind a keyboard and yap away, and there's, like, no repercussions to doing so. So you're gonna, I mean, that's inevitable, right? We just had this meme coin escapade not too long ago on Solana where people are putting, you know, very profanitive things on meme coins.

Right. That's just like, what people do. People suck as the TLDR there. But it's interesting to even see the competition kind of getting in on the action. Right?

So marginify is a lending protocol, and there's other lending protocols on Solana. Notably, Solend and Camino have been doing well. Soland specifically, they put out a couple tweets here. Solend will airdrop to users who withdraw from Marginfi and deposit into solent. The airdrop will be proportional to the dollar value migrated over.

Funds have to stay deposited for a period of time to qualify. More details to be shared soon, which is interesting. Right now you're seeing, like, these vampire attacks kind of come in because it was a hot ball of capital. They're actively farming, and so opportunity is abound for some of these competitors. Yeah, I believe Reuter even, quote, tweeted, like, vampire style.

Dan

Like, he's just being very upfront about it. They had a lot of beef, though, to be fair. They were, like, even going back to the LST Oracles and debate there. That happened. We actually had both of the, both teams on for a podcast on Lightspeed, I believe.

Yep. We had Reuter and Edgar on for a small little debate. And I like both guys. Good teams. Disclaimer.

I'm an investor in sue lend, the sui version of soul ends. And, yeah, I mean, personally, I think stuff like that is super fun, right? Like, literally vampire attacking in public. I think that's, like, takes. It's because, like, that's kind of, you know, it's.

It's not inherently offside, I don't think. I think it's a little on the edge, which I think is what makes it interesting. But. But, you know, the one thing also, this kind of just reminds me, I I seen two different cases of this this week. One was there's this guy retired, Chad Dev or something.

I think that's his actual name. Probably changed that name, man. I really don't like saying that, but, and I think he was farming, like, the tensor airdrop or something, and he wasn't, like, happy with the input given by the team or the instructions given by the team to what he actually received. And then Rex, who's 89 reals on Twitter, started, like, insulting the hell out of him, and they started going back and forth. And so that was a big thing.

And then I also saw today the tensorian NFT prices kind of go down, like, a lot and a lot of also people calling them names and stuff, the founders. And it just reminded me of this tweet that I made few months ago now, which is like. And I got some heat for this. But basically it was something like, I can't believe the industry decided to bribe people to pretend to use their stuff and thinks this is a good strategy for PMF. And this is why I said this, right?

Because you are paying people, in a sense, a lot of money to basically beta test your products. Okay? You're not even really tuning it to help you with, like, PMF or something. It's really, it seems like to me, to test your product, in a sense, right. Because that's how the incentives have been lined up.

Like, you just, people are using it or they're pretending to use it, they get some reward for it. They expect to get some reward for it, which is the important part. And then when they don't get the exact reward that they think they would have gotten, which is going to happen to everybody, they get mad at you. And now your brand actually has a worst reputation. So I think that everybody who's done this has done it.

I disagree with how they've done it personally. I haven't done it myself, so I'm not. Anyone say I could do better but I think, for example, Jito did it really well. And by the way, I'm an investor in Jito and tensor. But, for example, Jito, I was just sticking with them because I was like, I want mu revenue.

Right? Like, why not? And then they were like, we're doing an airdrop. I was like, oh, shit, that's awesome. And then now they're doing governance proposals.

I'm like, oh, actually, I have some. I'm now interested in seeing if I can make an impact here. So that. And there was no, like, I'm only doing this to farm a few coins. Like, it's.

That incentive just seems super broken to me. That's not to say airdrops are bad or that incentives are bad. It said, I think the execution of them currently has been too, let's say, unoriginal. Okay. I think they've been way too.

Like, it's almost like there's a playbook. Like, you just say, hey, we're gonna do points. Expect to get tokens, farm it this way in multiple seasons, and then afterwards, we'll get you something. Okay, well, what happens after that? Okay.

Hopefully the beta testers gave you something that now you can use to get additional PMF and more users, because if you didn't, you're kind of done. Or at least you are very handicapped against others who can also now do the same thing to you. So, you know, if you're a founder, you really need to. And I say this, by the way, there's other airdrops coming, right? I think there's parcel coming pretty soon.

Zeta is coming soon. I believe drift will come at some point, since they announced points a while ago, and Madge Keeden seems like they'll be doing one.

I think those are the ones I can think of. I'm sure there's more that I forgot, but should be interesting. And now there's almost this precedent set that if you do points and you don't do a token, outrage will happen. Right? We just got to see this live with.

Mert

With marginfi. And I don't know. You bring up good points there as well, though. Like, on the tensor note, people were upset that the NFT didn't get the airdrop that they wanted. Right.

And so you just, like, if you pull up the tensor price, the tensorian price chart, you can kind of see the anger reflected there. But the other thing is, this is where the entitlement thing comes in to me, because, like, you're doing. You're. You're. You know what?

You're doing, right. If you're just like, okay, if we're using tensor as an example, if you're just picking a random NFT and trying to, like, market, make a small, you know, hundred dollar, uh, bid, ask there. Like, you, you know, you're farming. You're not doing that because you want to make this market. Um, and so if you don't get the reward you want, you just got it.

Like, to me, when I happens to me, I'm like, ah, damn that. I could have used my time better back to the drawing board like that. I don't know. When you just start demanding more money for free is, is interesting. I don't quite get it, because crypto has a super powerful engine of having a really easy way with tokens to incentivize user action.

And that's a very broad statement, but you can do interesting things. You mentioned jitos. I think part of the reason why that one was so successful is they gave 10,000 people a new car. That's hard to not be upset about. But they had a very specific action, which is growing the size of jito soul, the amount of deposits to grow their share of the network stake, and they incentivize users with, hey, if you do this, we will reward you.

The question is, how do you do that on an ongoing basis? That's the challenge, because if you look at like, a percentage basis of token distribution, if your airdrop is 60% of your total supply, all right, well, now you've only got 40% of your supply for the rest of time being your community now owns 60% of your token, and you've kind of like shot your shot. But if you say, make that 5%, and then you do, like, another 55% in ongoing rewards, you have the same amount of rewards, but spread over a longer time horizon, where today your action might be one thing that you need to incentivize, but in a year or two, it could be a totally different action. So I don't know. I find, like, I love airdrops.

Who doesn't? It's free money. But if I'm, like, looking at it from the other side of the table, being like the company or the protocol, I'm giving away some governance rights or some form of ownership or revenue share, depending on the protocol, I'm giving away these rights to my users, which is powerful. But if you make a map to the traditional world, which isn't perfect and tokens aren't equity today, there needs to be a legal world around this that isn't there but if you just made this analogy, and again, reasoning through analogies is never the best. But let's just bear with it.

If, like, you view the tokens as the equity and the protocol as the company, you're selling your equity for action. And is that a good idea? Is that a bad idea? It's kind of like TBD. The other cool thing that you mentioned was, is the vampire tax being like, edgy and fun.

And like, the reason why I think that I would agree with you is they don't always work. So it's not just like this silver bullet that you can shoot and, like, you kill the other protocol. Sushiswap, uniswap. Sushiswap tried to attack Uniswap, failed miserably. Uniswap is a kingmaker today.

It's probably a good segue, actually, to jump into the Uniswap news. So Uniswap has received a wells notice from the SEC, and a quick one too, on what a wells notice is. It's a formal communication from the SEC notifying the recipient of the SEC staff intends to recommend enforcement action against them. So this basically gives the recipient the opportunity to respond to the allegations the SEC is bringing forth to them, kind of present their case, and make a decision on what the enforcement plan will be going forward. And so I think if you were like a traditional company and you got this wells notice, you'd cease operations and then basically come up with a plan to present your case to the SEC, and then you'd go from there.

But granted that Uniswap has deployed these contracts onto Ethereum, mainnet and other chains, but let's zoom in on Ethereum here. There is no, like, killing them or turning them off, right? Like, these are effectively run by the Ethereum validators. Every time a new block gets produced, there's Uniswap trades in it. Like, Uniswap Labs cannot stop these contracts.

Hayden put out a tweet. That was a pretty long tweet. I recommend everyone reading it. Just granted, the industry is really rallying behind them now. But part of this tweet was, I'm confident in the products we offer are legal and that our work is on the right side of history.

But it's been clear for a while that rather than working to create clear, informed rules, the SEC has decided to focus on attacking long time good actors like Uniswap and Coinbase, all while letting bad actors like FTX slip by. I think he has a great point here. There are layup scams in this industry and going after Coinbase and Uniswap is just going straight for, like, these people who are trying to do the right thing. And that seems weird to me on two notes. One is, like, the moral side of that, of, like, dude, like, there's actually people getting rugged and convicted criminals running scams using crypto.

Like, let's go after those people. That's like the moral right thing to do. But also from, if you were the SEC and you really just, like, hated this shit and you wanted to take down crypto, that is also where I would start, right? I'd go after these obvious scams, put them in, get enforcement action against them, create precedent that what they're doing was illegal, and then go after the big guns. Now that I have, like, these court like, or what is treated as precedent in court.

So it doesn't really make much sense to me that they're, they went straight for the big guns. I don't know. So I think the one point where I might disagree is if I were the SEC, I would go for the obvious scams first. If I were to maybe steal, man. Their perspective, what I assume to be their perspective, I don't actually have.

Dan

I have no idea. They're very bad communicators, probably. It's something like, I think I'm right. I think crypto is bad, and I think they need to obey by my rules. Therefore, I'm going to go after the two biggest first, make an example out of them, and then everybody else will be too scared to do anything.

That's probably what they're thinking, is my guess. I mean, what else could they possibly be thinking? Like, hey, we're not going to lose. We're not going to win this anyway. So let's go after the best ones.

Seems like it would be, or at least maybe their thing is more like, let's just drag this out for many years such that we can say we made somewhat of an impact. Now, of course, the problem with this is I don't think they've done the work required to have a meaningful opinion. Okay? I don't think they've studied the crypto industry well enough to understand what we're actually doing here. And we're actually most of our, I don't say most of us, actually, but a very fair chunk of the founders and teams and startups are here to actually improve the existing systems and not to make a few bucks from a scam and just do that at infinitum.

Okay? So I think, like, crypto, it's I think there's like the. And maybe this is orthogonal, but there's actually like, crypto is a pretty large image problem. I would say, like every time you see it on tv, it's somebody using bitcoin for ransom. Like, that's kind of the public perception of crypto, which is not great.

Like, we talk about this stuff, like Solana and Altoos and stuff. Nobody has any idea what this stuff is, okay? Like, all they know is there are these coins that go up and down in price. I can make money using them. They're also brought up a lot in scams on tv.

That's their mental model. So that's bad. Shout out to Coinbase for helping with some of the marketing material to actually improve that. Certainly need more of that. But I think the much more interesting part of this is you are not going to stop crypto by suing USA companies.

Right? All you're going to do is slow down the progress that USA founders have to make in crypto. Okay? You are just going to hurt. The US is maybe a more succinct way of putting this, because the US is founded on being risk takers, entrepreneurs, founders.

Right? The culture itself is risk taking. Right? Like, you're encouraged to do this. This is not the case.

Maybe you don't know this. This is absolutely the opposite of the case in most countries where you have to go to school in a certain place. If you try to start a business and fail, people just laugh at you and you're shunned from society. This is more common in the eastern cultures, okay? In the west.

That is not the case in the west. You keep starting companies, just do it until you succeed, basically. Right? Like Silicon Valley, that ethos. And so now what you're saying is actually, let's actually give the east a chance to catch up here so that they can be the ones who take risk and start these companies.

And the governments actually work with them to build these new things that actually improve systems. Because at the end of the day, technology is not about zero sum about like taking somebody's value and then transferring it to yourself. It's about creating new value. Right? Entrepreneurs, at the end of, they create value for everybody else that benefit from, you know, what they've built and they capture some percent of that, right?

That's a very common saying in like, Silicon Valley, which is like, wealth is inherently positive. Some you create it, it's not finite. And the US just seems to take a very. And by the way, it doesn't seem like it's everybody in the US, to be fair. Right?

Like, SEC commissioner, one of them, Hester, I believe. I forget. Yeah. Hester Pierce. Yeah.

Like, she seems very anti gensler and pro crypto. A lot of people, actually, I'm not gonna say a lot, but a fair number of people also seem to think this way in the US. And so I guess my thoughts can be summed up as, doing this will not hurt crypto, really. It will hurt the USA. And I am interested to see what the dynamics are there.

It's impossible to reason about these things, in my view, because of the sheer number of nonlinearities present. But it does seem like the one safe thing that you can take away from it is that if this keeps up, innovation in the USA is going to slow down relative to other places, which doesn't sound great. Yeah, it's a shame. I think it was Banteg, one of the yearndevs put out a chart that was, like, the US's involvement with crypto, or the percentage of crypto developers that were in the US, and it was like they took, like, two samples. I forget the exact dates.

Mert

Let's say it was like, 2015, 2018, in 2022, or something of that nature. It was, like, a substantial decrease. And if you created a linear projection based off those two points, it's like, by 2035, that will be zero. And quite honestly, it feels like we're on that pace, which is a shame. As somebody who lives in the US and enjoys this country, it is like we, you know, we want.

I'd want to see us, like, path. Leading the path here, instead of kind of trailing behind the pack. Yeah. And one of the things that interests or is interesting to look at or reason about is, in my experience, at least when I go to, like, a Defi website that I haven't been to before, it'll give you, like, a disclaimer. And the list of countries is, like, Iran, North Korea, like, Egypt, Cuba, and then it's the USA.

Dan

And I'm like, okay, one of these is quite clearly not company you want to be in. And so, like, if that doesn't make you rethink something that's off about the regulation, I'm not sure what will, honestly. Because that's, like, very clear. Like, I think Europe is known for is. Northern Europe is known for relatively draconian laws, even they have a more friendly attitude.

Like, I'm just very confused, but. And then now the issue becomes political, right? Because, like, some of the candidates have expressed, at least in their revealed preferences, like, for example, Trump has, like, a what, like a NFT collection on polygon or something like, that's pretty hilarious, I think. And then like, his wife Melania has one Solana in Polygon. Meanwhile they're trying to abandon every single one on the other part of it.

So I wonder, like, I don't think there's any signal there, but it is interesting to reason about. Yeah, yeah, I mean, I think you're completely right on it. Getting politicized, even if not quite at the candidate level. It seems like even everybody in the space is like, I don't know. Jason Yanowitz put out a tweet yesterday about, about crypto and somebody respond like, who'd you vote for?

Mert

And it was like, already the political angles. Actually, Martin Screlly who responded. Other exciting news to move on to is fast chains are good. Fast chains are good. Monad raised at a.

They, I don't know what they raised that, but they raised $225 million, led by paradigm. I'm sure paradigm put in a large portion of that 225 million. But it's really interesting. Monad is built around optimizing the EVM. They wanted to fix what was wrong with it, which is its inability to reach high throughput largely due to state growth.

And that's really over summarizing there. They've also added parallel execution at the execution layer and they've tweaked the consensus mechanism as well. So interesting to see this come live. It's got a lot of attention. They've absolutely crushed branding.

They've had key partnerships with other protocols, launching tokens like wormhole, for example. So like Monad Discord users got a portion of that. They've built a pretty strong community. Their branding is crushing. I think they're using the new Delphi labs arm to do some of that marketing.

And all the content they're pushing out is really good. And ultimately the question is, is their product going to be that good? And if it's what it says it is, feels like it's a better Ethereum. I don't know if that's a hot take at all, but like, and I also don't know what the validator hardware requirements are going to look like personally. So I'm curious how you like when you look at Monad and what it's doing.

Like, does that get you excited? If you were Ethereum, would you be nervous? How do you gauge this? Sure. Yeah.

Dan

So first, I'm an investor, so just, but by the way, one thing I want to, like, I get this a lot, which is like, oh, you say this, because you're an investor is like this common way of thinking on Twitter, but it's actually the total opposite way. It's like I'm an investor because I like the thing to begin with, right. Otherwise I wouldn't spend my money on it, right? Like, so that's, I think the causality there is generally quite bad backwards. Okay, now to the actual things.

So one is, I don't think it's a better ethereum, because I think Ethereum has changed so much at the base there that they're even trying to be like an l one, or at least, I mean, certainly not an integrated l one. They're like a semi modular l one in a sense, like where they have specific things on the l one only to support rollups. And so it's like, okay, they're not going to scale tl one. They've kind of, it seems like they've basically, I mean, with the exception of maybe raising gas limits, some x amount of periods, it seems like they're kind of done there. And one of the things I really didn't like was Vitalik's latest block, or not latest, but one of the latest blog posts was something like, we're on the declining end of the, or the decelerating end of the s curve, such that he doesn't expect many large things to happen on the al one anymore.

And that is offloaded to the altus. Okay? That is just what they've done. I'm not going to judge that, but so that's why I think it's maybe not. I can't really reason about Monad by comparing it to Ethereum in that sense, but yeah, so, like, everybody on Twitter at least seems to be focusing on the parallel EVM side in saying, like, this is the thing that's going to really crush everything out of the water, and then you will get the very fair responses that the EVM is actually not as bad as people say it is.

You can only do so many things with parallelization, et cetera, et cetera. And I actually agree with maybe the latter camp. I actually don't think paralyzing the EVM, it's obviously a big bonus that it's going to be better than not having it. But I don't think that's like the one thing that you just add and then now, boom. Okay, it has to be in a system.

A system is comprised of many parts. All the parts need to be tuned in line relative to each other to achieve that smooth performance. Right? Like in a car, if you have a really the best engine possible, but then you have, like, bicycle tires. It's not going to go very far.

Okay, you, the entire car needs to be built with performance in mind. And that's what I like about Monad, which is that one. They like the idea of scaling at the l one, which I strongly believe in, the TLDR. Why I believe in it without getting too long is because I think crypto is still super early. And it makes much more sense to optimize at the lowest level possible because you can always stack layers on top of that later on.

But you only really get to do the all one once in a risk free way. After that, it becomes super risky. So if crypto is going to be around for a thousand years, this is day one, okay? And so why not optimize now? The things that you can optimize.

And so the thing I like about Adam is the ethos of building the l one for performance in mind. The parallel EVM is just an implementation detail of that. And really, it's probably just a go to market strategy more than anything to get people who already have applications that are written with compatible stacks to build on top of them, because Solana has that problem where it's like, somebody will want to build on Solana. I'm an infant provider on Solana, and I'm like, you can't really use the EVM tools that we have today. You're probably going to need to rewrite this if you want the best performance possible.

We probably lost hundreds of teams to that alone. Now, we've also gained some teams due to that, but Solana already fills that gap. Okay, so now Monad can come in and be like, okay, we're super performance, but also you can pour your application here. So that's a good GTM flywheel. Like, it's a good inertial.

It's a good weight to overcome inertia. And so that's how I think of it. But it, for its own self, is not that impressive in the grand scheme of things. But then they have other things, right? They have different, the reasoning databases, for example.

It's unclear, obviously, some of the requirements and stuff, what that looks like. But the thing I like is the ethos of performance with being number one. And then obviously the other thing they've done really well is the go to market in the community and the branding aspects. The one thing that I think almost all l one s except for Solana, new l one s except for Solana have gotten wrong or not wrong, but maybe not optimal is this corporate approach to partnerships and building a developer ecosystem. It's very top down.

We're going to give you money, you're going to come to our chain, we're going to run out of money. You're going to go to another chain. That's been the strategy. Whereas Monad is actually, we're going to first do the evangelizing of individual parties from the bottom up. They're going to emanate some sort of values.

Other people will see those values, come join them, and then we will kind of start spreading that way. And they've done a good job of that. They have. I mean, they have, like, a few, like, full time meme guys, right? Like, that's how you know they're serious.

If you have full time meme guys before the product was launched, you're serious about community, and that's underrated. And I think most people like a Sui and Sui and aptos. I don't think they can even relate to that because it's so foreign to them. They've spent their lives at Facebook. They've learned great engineering, but maybe they're not as familiar with the DJN community nature of crypto from the ground, whereas the Monad guys are.

That's an edge. And so you combine those two things, and you kind of see this in their round, right? I mean, they included, like, pretty much the entire app and the cap table. You can see that's what interests me there, right? I always think I tweeted this during the reason the Polygon Solana war things started on Twitter was a few years ago.

I commented after they made the Starbucks deal, I was like, polygon pays people to use their chain, and they're not upcoming about it or front coming about it or forthcoming about it. And then. But Solana gets paid for people to use their chain. And then I made, like, a post of, like, funding and whatnot. And Sandeep commented, ryan commented.

The co founders all blocked me, etcetera. And then it went, like, pretty viral. And that's kind of like the start of that. But it turns out it was actually kind of correct, because Polygon, now, not most of those deals are standing, right. The Starbucks one isn't standing.

The fanduel thing turned out that they're paying for them, et cetera, et cetera. Now, I don't think it's, like, an inherently bad thing, and I think Polygon, by the way, has changed a lot since then. So, like, I'm actually a pretty big fan of them at this point. But at that time, I think people weren't agreeing that that was a good thing to do, like bottom up brand building, which was what salon did with like hacker houses and kind of like the pit vipers and like the memes and stuff. But I do think it is the more in demand thing from the market, which is generally people that resonate more with that.

Mert

Yeah. On the first point about parallel execution probably not being the biggest unlock for Manad in the EVM in general is pretty interesting. But I think why again, it comes to how you sell yourself and sell your story, and people understand what execution is because they process transactions that conceptually makes sense, very easy to digest and ahead of, hey, I send transaction time, blockchain executes transaction. I'm happy. Very simple.

And then everybody knows what parallel means. So now I'm doing it at the same time. Cool. Awesome. Faster.

And I think that is like, so basically when you say parallel processing to someone, they're like, oh, that means it goes faster and be like, yeah, but we also had to like, you know, rewrite our DB and we also had to like, tweak consensus. But hey, like, everyone's like, whatever. Like, especially on the DB side of things. I know avalanche is releasing firewood here pretty soon and, or some benchmarks on firewood. And they've like, re, this is the second time they've rewritten the database.

And that's because, like, they can juice performance by doing so. But, like, when you're reading through, like, what they're doing, who like that, you gotta be, you gotta be ready to take a couple walks in between, which, quite frankly, that's how I feel about a lot of the Solana networking stuff. Like, I am not a networking engineer, so I don't know, it's like, it's fun to, like, learn high level of what's going on, but, like, if you really want to take it ten steps deeper, you got to be like a true networking engineer. But not to go too far out of line here. I think what you mentioned about the community focus is super important because the users of today are very much that degen on chain crowd, and they like the memes.

That's the people that are here today.

So there's two reasons why you wouldn't, like, spend a lot of time onboarding that crew is, a, you were just blind to it and, like, weren't aware that was the case, which is certainly possible, but b, would be like, you're more focused about onboarding the next wave or generation of users who you think won't be that, that style of person. It's probably more so the former for a lot of teams and just like, not spending time talking to their customers. I know you're loud about that, and I think it really is a problem of what people do is just like, go build this thing. And if I, if I build it, they will come. But again, going to telling your story and selling yourself, that's, like, critically important.

You mentioned Swe there as well, and they actually just had an interesting announcement. Here to close us out is they're building a handheld gaming device very similar to the idea behind the Solana saga phone is like, hey, if we get this device that is in some way, shape or form connected to the our chain, that's how you bring users on chain is put the device in their hands. Smartphones are like everybody's lifeline today. You take someone's phone away, drop them in a city. I mean, good luck to the average person.

And so the saga phone makes a ton of sense to me. And I think Swe is taking a pretty similar look at that and saying, hey, we know we want to lean into gaming. And this device angle is super, super interesting. That is how people interact with games. I know David on effort capital from the blockworks research team.

He's our in house boomer. He cracked over 30. So he's the in house boomer. He always says, like, if you're building an on chain game and it's on the desktop, he's like, forget about it. What are you doing?

Like, everybody's on mobile. It's like, you want me to go sit down in front of my computer, in front of my wife and kid and play a desktop game? Not happening. He's like, I'm not a loser. I'm not doing that, man.

Of course, me, like, I like gaming, so that's totally normal to me. But I find it super interesting from his viewpoint of like, yeah, dude, you give me a device, I'll play that shit all day. Which is true, like, everyone we grew up with, like, Game Boys and PSPs and Nintendo DS, now the Nintendo Switch, it's a pretty interesting angle. I'm curious to get your scope on this new sui gaming device. Yeah, I don't think this should surprise anybody, but I'm a huge fan of the move.

Dan

I think it's a bold move, but I think you need to take some of those. And this is a bold move. I mean, you know, hardware is difficult. You don't really make money on hardware unless you have a really wild distribution effect. Like an apple or.

It's very integrated with an in house. So it's. It's a bold move. It's a risky move, and I love it. I think it's awesome.

And, I mean, I'll pick one up myself, for example. For sure. Yeah, I don't, you know, I've personally never been, like, a Nintendo Switch, PSP, game Boy kind of guy. I like doing everything on one machine, so I do like pc gaming, but I don't see why now. Like, there's a huge market for that, and even I'm going to get one.

I am curious to see exactly what the suite integration will be like. Is it, like, only games that are on the suite blockchain? Like, is it sui, like, keys that you interact with for the device? Like, you know, I'm not sure what that exactly was. That.

So I can't really comment on technicals, but the high level idea of you being a team trying to push crypto forward and you see an opportunity to market gaming and you go after it full force with something as risky as a device, and you announce it and you have good materials be alongside it, I think that's great. So. And I think, yeah, like what? Like, you can't really make triple quad a games on devices. Like, you know, I mean, you can, but it's.

You're not Nintendo, right? Like, those games are kind of a different breed. So I think if you can just make, like, give me flapping bird. Just give me that, like, fun, addicting game that's like, yeah, I don't need, like, you know, Legend of Zelda or something. But the, granted, that's on, like, mobile as our dedicated device, I guess you wouldn't really call that mobile, right?

Mert

Like, you can play Zelda on a Nintendo Switch, and it's, like a good experience. Yeah. So I think, like, something like that or, like, a Pokemon, like a stripped down version because I know they have, like, their sweet Pokemon things. I think that could be cool. Like a racing game.

Dan

Like a horse racing game. I don't know. Like, just earn some money or put some real stake into it anyways. Yeah, I'll pick one up. It seems awesome.

Yeah. Solana went really wide with it. With a mobile phone. Right. And displacing a user's everyday, like, lifeline, that is no small task.

Mert

I got the privilege of messing around with one. The editorial team at Blockworks got to demo one out while I was in New York, and it's slick. I enjoyed the experience, but there's a high bar for me to replace my iPhone. There just is. But the gaming device is different.

I think you're taking a risk on going really, really narrow on one vertical of gaming. But it's an easier one for me to be like, yeah, this will be my only gaming device. Like, why not? I haven't touched my switch in months. I'd be more than happy to pick up a new.

Absolutely. So that's pretty interesting. The probability of success, I think, is much higher for the Sui device than this alon device, if I'm being honest. Again. Yeah.

Dan

Because there are entire armies dedicated to building the best phone you can get that compete within themselves with, like, Apple and Samsung. Unless you put those same armies there, it's gonna be hard for you to compete. So there needs to be some sort of software edge there, which they do have. But, like, it's unclear how much of a moat that is. But with gaming, I don't even have one right now.

I don't have to replace anything. It's a new addition to my life or my routine that I can fuck around with maybe if I'm on a plane. Right. So it seems like the probably success for that. And obviously I'm a huge flauntable, but I think that's a better move by them for that specific market.

Mert

You said it again. That's a better move, pun intended. If you get that joke, go touch some grass this weekend. It's probably a good place to call it. Always a pleasure, man.

And to the listeners, we will see you all next week. Cheers.

Solana: State Of The Network | Mert Mumtaz, Dan Smith | Lightspeed

Primary Topic

Episode Summary

Main Takeaways

Episode Chapters

1. Introduction to Solana's Challenges

2. Technical Deep Dive

3. Strategic Decisions

Actionable Advice

About This Episode

People

Companies

Books

Guest Name(s):

Content Warnings:

Transcript