12/7/23, 3:42 PM Solana Thesis – The Fastest Horse Rises From the Ashes — Syncracy Capital

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Solana Thesis – The Fastest Horse Rises From

Key Takeaways

• Solana is a redesign of blockchains from first principles that has the potential to become
foundational alongside Bitcoin and Ethereum. Its technical architecture, inspired by cellular
networks, features several new technical components that work together to maximize the
potential of hardware and unlock unmatched levels of performance, giving Solana the
highest probability of ushering in the next crop of breakthrough applications. Accordingly, as
Solana’s onchain economy accelerates, we believe SOL is best positioned to accrue a
monetary premium alongside BTC and ETH.
• While the smart contract platform landscape features extreme power law dynamics, it is
highly unlikely a single ecosystem can support every application. Blockchains have trade-
offs – despite many blockchains marching towards a similar technical endgame, path
dependence plays a critical role in determining product-market fit for different use cases.
There is a massive opportunity for Solana to eat into Ethereum’s dominance through offering
a differentiated, integrated solution, and bootstrapping a sufficiently large developer
ecosystem.
• Solana’s current trajectory is reminiscent of Ethereum’s rise from the ashes following the
2018 post-ICO boom crash. Despite the Solana ecosystem having bottomed and being on a
path to recovery following the collapse of FTX, SOL remains too harshly penalized. As
technical upgrades continue to push Solana forward and developer momentum among
enterprises and crypto-natives accelerates, SOL is increasingly mispriced at ~13% of
Ethereum’s valuation.

It is not often we come across a project that unlocks new possibilities at a scale comparable to
Bitcoin and Ethereum. We know this because we purpose built Syncracy to back such
generational winners and understand intimately how rare it is for a project to meet this criteria.
However, after years of research and monitoring, and months of patiently awaiting an attractive
entry, we believe we have found one of those rare opportunities in Solana – the first blockchain
we’ve identified with the potential to become a foundational platform alongside Bitcoin and
Ethereum. As such, in Q2 2023, Syncracy built a large position in SOL.

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Following the collapse of FTX, Solana faced an existential crisis that purged the ecosystem of all
but the most committed. Sentiment plummeted to extreme lows leaving in its wake a generational
opportunity over the subsequent quarters. While the Solana ecosystem took time to stabilize in the
aftermath, it has now found a new foundation from which activity has begun to recover. The ghost
of FTX is fading and today the Solana ecosystem is as strong as it’s ever been with developer and
enterprise momentum accelerating. Increasingly, Solana’s industry leading scalability and unit
costs are becoming difficult to ignore.

Indeed the opportunity for Solana today could not be better. While many smart contract platforms
are marching towards a similar technical endgame, it is becoming clearer that the paths leading
there create meaningful trade-offs in functionality. Trade-offs so meaningful that it is also becoming
increasingly clear that a single technical stack cannot effectively support every application. Thus
the setup for Solana. As “integrated” and “modular'' emerge as the two ends of the trade-off
spectrum for blockchain design, Solana is well positioned to become an industry leading standard
– the cryptoeconomy’s premier integrated system to complement Ethereum as it further marches
down the modular path.

Whitespace is all that lies ahead. Below we share our thesis.

Solana’s Vision

The Genesis of Solana

The Solana story begins in 2017 when Solana co-founder Anatoly Yakovenko set out to build a
blockchain that could match the performance of a single machine and overcome the scalability
constraints of existing solutions. His insight was that if software did not get in the way of hardware,
it would be possible to build a blockchain where aggregate network performance grows linearly
with the hardware advancements. The core to achieving this vision, he argued, was to design an
efficient way for nodes to communicate, so bandwidth was no longer a bottleneck.

In October 2017 Anatoly had a eureka moment when he realized that blockchain networks offered
many similarities to the cellular networks he was familiar with from his time working at Qualcomm.
He recalled how telecommunications companies overcame the bandwidth constraints of radio
towers, by introducing “multiple access technologies” that enabled multiple phone calls on the
same frequency. Central to this solution was the concept of a globally available clock that enabled
towers to efficiently support multiple, simultaneous data channels by dividing each radio frequency
into time slots and allocating these time slots to each phone call.

Not long after, in November 2017 Anatoly published a whitepaper introducing Proof of History
(PoH) – a mechanism for keeping time between untrusting computers. While simple on the
surface, the implications of having a global clock that works before consensus are profound. In
contrast to other blockchains that require validators to talk to each other to agree that time has
passed, each Solana validator maintains its own clock. This independently verifiable global clock
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makes network synchronization simple and unlocks the ability for Solana to process transactions
almost as quickly as they arrive. With PoH Anatoly had the foundation for a novel blockchain that
could propagate data between nodes more efficiently, moving him closer towards fulfilling his
vision – a blockchain whose software scales at the rate of hardware.

Solana Architecture Overview

As outlined above, Proof of History is an essential feature of Solana’s architecture. At a technical

PoH enables leaders (block producers) to execute and propagate transactions downstream as if
they were being streamed. Unlike other blockchains, leaders don’t have to wait to create and
forward full blocks because the PoH timestamp provides the canonical order. With a defined order
pre-propagation, downstream nodes can receive transactions out of order but still process them in
the right order; there is no need to receive block data in full to begin executing and approving
transactions. The benefit for users is that they can receive soft confirmations on their transactions
significantly faster (~400ms) relative to blockchains that combine time and state.

The lifecycle of a transaction begins with Gulfstream – a transaction forwarding protocol that
enables RPC nodes to forward incoming transactions directly to leaders, eliminating the need for a
mempool. Once leaders receive a transaction they schedule it for execution using a multi-threaded
scheduling algorithm. This is where Solana’s Sealevel run-time (Solana Virtual Machine) comes
into play. In Solana programs are stateless and state gets stored in separate accounts. This
separation enables Solana to be embarrassingly parallel because transactions don't have to get
processed sequentially if they touch the same contract, only if they write to the same account. The
multi-threaded scheduling algorithm enables leaders to detect which transactions write to the
same account. The ones that don’t get processed in parallel, while the ones that do get executed
sequentially. Once executed, the leader timestamps all transactions processed at the same time
with a PoH tick (collectively called an entry), then subsequently splits these entries into “shreds” to
ship to downstream consensus validators.

Once leaders execute these transactions, they propagate the transactions downstream using a
mechanism called Turbine – a BitTorrent-inspired data propagation protocol that aims to maximize
throughput per unit of bandwidth. At a high level Turbine organizes downstream validators into
subgroups called neighborhoods. The topology resembles a tree. Upstream neighborhoods feed
data to downstream ones and adjacent neighbors share data among one another. Solana sorts
validators into these neighborhoods according to their stake weight with highest stake validators

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occupying the upper layer neighborhoods (closer to the leader) and the lowest stake validators
occupying the lower layer neighborhoods. The result is substantially reduced overhead for
validators – the number of direct peer connections is minimized as is the need for transmitting
duplicate data packages, leading to more efficient bandwidth utilization and higher transaction
throughput.

Taken altogether, these technical components, pioneered by Solana, work to fulfill Anatoly’s vision
of a blockchain whose software scales at the rate of hardware. With greater utilization of available
hardware, Solana achieves significantly greater scalability compared to prior blockchain designs,
irrespective of hardware requirements. The result is a genuinely innovative system that expands
the design space of the cryptoeconomy.

Solana Thesis

1) Solana’s best in class scalability and unit costs position it to be a secular share gainer of
onchain economic activity over the coming years as competitors remain performance
constrained and Solana extends its lead through a suite of upcoming upgrades

As discussed in the architecture overview section, Solana features several new technical
components that work together to maximize the potential of hardware available in a node and
unlock extreme levels of performance. With recent upgrades such as state compression – a
mechanism that dramatically reduces storage costs for applications – Solana now also features
the best unit economics in the industry for a wide range of onchain transactions. The numerical
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results are striking. Today Solana offers a maximum transaction throughput of 5,500 TPS and will
soon reach 55,000 TPS with the release of its upcoming Firedancer client. Meanwhile, state
compression has already reduced the cost of minting NFTs on Solana by 1,000x, with many teams
experimenting on how to bridge these benefits to additional use cases. These performance
metrics will only compound over time as Solana harnesses further hardware advancements – a
unique property that will enable Solana’s performance to double every two years without any
further upgrades. The cherry on top is Solana achieves this performance not through naively
raising hardware requirements as outlined above, but through genuine innovations in software
design. The result is Solana achieving 1 - 2 orders of magnitude more throughput per every dollar
spent on hardware.

This all comes with the backdrop of competitors being performance constrained for the
foreseeable future. While Ethereum’s rollup ecosystem has begun to hit its stride, regularly
processing more transactions than Ethereum itself, its near-term realities leave much to be
desired. The challenge is that rollups are still constrained by the Ethereum main chain and
upgrades won’t provide meaningful help anytime soon. The highly anticipated EIP-4844 upgrade
(est. Q1’24) will only provide ~0.375 MB of data availability capacity per block, translating into
~275 TPS (using a basic DEX swap) available for the entire Ethereum rollup ecosystem.
Danksharding, which likely won’t hit mainnet until 2025 or later, will only provide ~1.3 MB of data
availability capacity per block, translating into ~3,250 TPS available for the entire Ethereum rollup
ecosystem. These numbers are not only orders of magnitude less than where Solana is today, but
are likely insufficient for mainstream levels of activity.

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While there are options for rollups to work around Ethereum’s constraints, they all involve
meaningful trade-offs around security. The most popular way to gain more throughput involves
third party data availability providers like Celestia and EigenDA which offer rollups 1 - 2 orders of
magnitude more data availability capacity. However, the presence of these solutions in a given
rollup setup introduces new counterparty risks for applications and users. Instead of solely relying
on Ethereum for security, rollups would be outsourcing a meaningful portion of their security to
newly launched and unproven networks.

Despite rollups in their theoretical final form offering strong security guarantees, most rollups today
are still in what Vitalik has dubbed “Stage 0” – the full training wheels stage. Today the leading
rollups on Ethereum are all effectively run by their operators. Optimistic rollups lack
permissionless fraud proofs, if having any working fraud proofs at all. ZK rollups often rely on off-
chain data availability committees to scale throughput past rudimentary levels. Nearly all rollups
feature upgradable contracts, often via multisig setups and without time delays. Many rollups
feature a single sequencer and lack escape hatches for users to withdraw their assets in the event
of operator foul play. And this is all while having immature interoperability standards between
these disparate environments that make cross-rollup communication slow, expensive, and risky.
These issues may all be addressed in the years ahead, and it is certainly our bet they will, but at a
certain point it's worth questioning: is this technical stack as secure and decentralized relative to
Solana as rollup champions make it out to be, or is this a classic example of a double standard?

All said, with its current levels of performance, the Solana ecosystem is fertile ground for
innovation. Over time we’ve observed a strong correlation between the flexibility of a blockchain’s
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design space and the potential for breakthrough applications – a characteristic that undoubtedly
describes Solana given its cost, speed, and composability advantages. With Solana, it is now
possible to develop a variety of high-traffic and consumer-grade applications that would be
impossible to run in resource-constrained environments like Ethereum today. This is additive to
the cryptoeconomy and increases the probability the industry as a whole achieves mainstream
adoption.

At the end of the day, Ethereum is not a panacea and the cryptoeconomy is better off given this
reality. A world with a handful of blockchain substrates is more resilient than one with a single point
of failure.

2) Despite many smart contract platforms marching towards a similar technical endgame,
path dependence plays a critical role in determining product-market fit for different use
cases – Solana’s integrated design offers a structurally simpler and more cost-efficient
development environment compared to modular stacks, positioning Solana to win a larger
share of the cryptoeconomy’s growing developer base in the coming years

In Vitalik’s visionary Endgame post he discusses potential paths to scaling blockchains while
maintaining decentralization. He suggests that despite there being many such paths, the ultimate
destination is beginning to look very similar: centralized block production, decentralized validation,
and strong anti-censorship protection. Whether a blockchain begins integrated or modular is
besides the point. The essential issue is that it's impossible to scale blockchains with low validator
hardware requirements, so what would be needed instead was to ensure cheap verifiability. That
way even if validator requirements were high, users could still verify and keep a chain secure.

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Two years later Vitalik's prediction appears increasingly likely to come to fruition with a number of
projects emerging across the Ethereum and Solana ecosystems to bring about this future.
Nevertheless, while many of the leading blockchains march towards a similar endgame, there are
meaningful trade-offs that stem from the initial paths they took.

Ethereum

Ethereum’s origins begin with Blizzard Entertainment nerfing Vitalik’s character in World of
Warcraft (WoW). The experience was pivotal for Vitalik as it showed him first hand what “horrors
centralized services can bring.” So pivotal that censorship resistance became a key design goal of
Ethereum; thus the conception of Ethereum as a trust-minimized world computer. Settlement
guarantees would be of paramount importance – an evolution from Bitcoin’s trust-minimized
money thesis. Credible neutrality – the idea that Ethereum would not discriminate for or against
any specific people – became the guiding principle.

With settlement guarantees being of the highest importance for Ethereum, the developer
community adopted a philosophy of ideological decentralization. The justification being that while
ideological decentralization leads to slower evolution, it creates greater stability and predictability.
Along similar lines the Ethereum community adopted a hardware philosophy centered around end
user verification. The justification being that Ethereum would be more decentralized and therefore
provide stronger settlement guarantees if more users could run full nodes and keep the system in
check.

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The combination of Ethereum’s ideological decentralization and hardware philosophy led the
ecosystem to modularize in order to work around the scalability trilemma. Today execution is
increasingly being pushed to higher hardware requirement rollups that leverage Ethereum for
settlement and data availability. The idea is that Ethereum could maintain its lower hardware
requirements and specialize in security, while rollups could outsource security to Ethereum and
optimize for higher performance. This specialization of roles created a concurrent benefit of
enabling the Ethereum ecosystem to accelerate innovation on its execution environments, most
relevant to applications, while Ethereum’s lower-level infrastructure that underpins its trust-
minimized computation could begin to ossify.

Ethereum’s commitment to credible neutrality from Day 1 has been fundamental to bootstrapping
mission critical monetary and financial applications – two of the most challenging yet vital features
for any smart contract platform to develop. Not only does a monetary premium – an asset’s utility
as a unit of account, medium of exchange, and store of value – provide a blockchain’s native
asset the highest valuation multiple of any feature, it may very well be the only way a blockchain
can secure itself while maintaining total sovereignty long-term. Blockchains like Ethereum feature
a circular security arrangement where validators are paid in an asset the blockchain issues. Given
that by definition a sovereign blockchain cannot rely on validators being paid in an external
currency (like the USD), it is essential that its base asset has value in and of itself. And the
greatest way to ensure that base asset is valuable enough to secure a blockchain from any
perceivable adversary on the planet, is for it to become one of the most valuable assets in the
world: money.

Nevertheless Ethereum’s approach is not without trade-offs. While Ethereum has bootstrapped
these mission critical monetary and financial applications due to its emphasis on security, it has
come at the expense of bootstrapping higher throughput, more cost sensitive applications.
Furthermore, while modularity increases developer flexibility, promotes greater security, and
creates new monetization opportunities for applications, associated costs from such a multi-chain
economy are worth examining. Once again, while Ethereum may very well address these
performance issues down the road, the years it will take to get there provide ample opportunity for
an alternative system marching along a different path to win market share.

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Solana

The Solana origin story begins with Anatoly day trading and realizing his trades were being front
run by high frequency trading firms. The experience was pivotal for Anatoly as it made him
appreciate the potential for blockchains to ensure fairer information transfer between users and
exchanges. So pivotal that fair and cheap access to global state became a key design goal of
Solana; thus the conception of Solana as a global programmable order book that synchronized at
the speed of light. Performance would be of paramount importance. Solana would orient itself as a
technology platform first – a divergence from the monetary thesis that guided preceding
blockchains’ designs. Software shall not get in the way of hardware – the idea that Solana would
leverage all of the compute and bandwidth power available in today’s multicore computers to
maximize system performance – became the guiding principle.

With performance being of the highest importance for Solana, the developer community adopted a
philosophy of pragmatism. An engineering minded culture took root. While more aggressive than
Ethereum, the justification is that while this “move fast and break things” mentality may lead to
greater instability, it leads to faster product evolution. Along similar lines the Solana community
adopted a hardware philosophy centered around practical decentralization – at the heart of this

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philosophy are the ideas that not all nodes are equal and that node count is a lagging indicator of
product market fit.

The justification is twofold. The first is that the number of sophisticated node operators who are
actively monitoring the network increases security as opposed to a naive count of users that
participate passively. The second is that what causes node count to rise over time is less about
how cheap it is to run and more about how much demand there is to run a node – the more
activity Solana hosts, the more individuals, companies, and other organizations will be incentivized
to run nodes as part of their operations. Already today this philosophy seems to be playing in
Solana’s favor.

At the limit, Solana’s philosophy of pragmatism is predicated on the thesis that while Solana may
not achieve nuclear levels of decentralization, it may cover 99% of what users ultimately need, all
while maintaining a single-stack architecture. This approach, now known as “integrated”, has been
critical in bootstrapping Solana as a premier platform for mainstream-ready applications that
prioritize speed and cost, albeit at the expense of mission critical monetary and financial
applications thus far. However, this may not be an issue Antaloy argues – settlement is just a
feature, a side effect of keeping the state in sync. If Vitalik’s Endgame is correct then in the long-
run Solana will achieve sufficient censorship resistance anyways, at which point the scale of
economic activity would be the key differentiator in which smart contract platform’s base asset
accrues the largest monetary premium.

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Solana has a few levers to pull in this regard. Beyond being used as a medium of exchange (gas
payments) and unit of account (NFT pricing), SOL is the premier store of value within the Solana
economy. As a Proof-of-Stake asset, SOL directly captures fee revenue and MEV generated by
onchain activity. While Solana aims to keep user fees low per transaction, it can make up the
difference by growing transaction volumes and expanding the dimensionality of its fee markets
(more revenue sources). Furthermore, not only does SOL function as a take rate on the Solana
economy, it is also the asset with the lowest counterparty risk on Solana, making SOL the most
pristine collateral available within its financial system.

Moreover, while Ethereum is often celebrated for its sound monetary policy, Solana may not be
too far behind in its credibility. Although Solana must grow transaction activity orders of magnitude
before SOL becomes deflationary like ETH, Solana’s supply schedule has arguably been more
predictable than Ethereum’s – Solana has never changed its issuance schedule, yet Ethereum
has changed its issuance schedule three times. In any case it’s important to remember most of
these properties are emergent and a lagging indicator of product-market fit for a smart contract
platform. Is it not conceivable that a competitor could reach similar levels of adoption?

Zooming out, Solana’s integrated design may be the key to accelerating its economic growth.
Integrated systems offer a structurally simpler and more cost-efficient development environment
compared to modular stacks. For one, integrated systems abstract all of the lower-level
infrastructural and economic complexities that deliver trust-minimized computation and allow
developers to focus solely on their core product. In comparison, modular stacks increase
developer complexity almost exponentially, as they force developers to consider a much wider
range of mission-critical technical components and spend resources on often unrewarding efforts
like cross-chain deployments. Furthermore, not only does modularization increase complexity for
developers, it also incurs immeasurable costs in the user experience due to the higher probability
of incompatibility between different layers and the immaturity of abstraction mechanisms.
Practically, this translates to application developers on Solana being able to spend more time and
resources on refining their applications and pathways to user-adoption, than their modular peers
who have to spend relatively more time on infrastructure.

Most significantly, housing all of the logic and data in a single layer also minimizes the time and
costs involved with cross-contract (or composable) transactions, which are the basis of financial
transactions within the cryptoeconomy. An economy built upon multiple chains will inevitably incur
hidden costs such as latency, slippage, cognitive overload, and additional fees. As time passes
these costs may only become more apparent as the number of actors in the modular stack
continues increasing. Already today the modular stack involves rollup chains, settlement layers,
third party bridges, external data availability providers, cross-domain MEV solutions, decentralized
sequencers, and watchtower / prover networks who will each demand a slice of the pie. At a
certain point it's worth asking whether a multi-rollup economy is worth it given that the most cited

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reason for launching application specific rollups is “dedicated blockspace,” which Solana’s parallel
execution environment and local fee markets explicitly address without the added costs.

All things considered, when confronted with the choice of where to build, where will developers
decide to go? Remember there are no absolute best solutions, there are only trade-offs.

3) The smart contract market offers the largest TAM in the cryptoeconomy. It follows a
power law distribution where a combination of ecosystem properties and blockchain
properties entrench the leaders at the top and enable them to continue winning the
majority of mindshare and economic activity – there is a massive opportunity for Solana to
become one of these entrenched players through offering a highly differentiated, integrated
solution, and bootstrapping a sufficiently large developer ecosystem.

Smart contract platforms are fundamental to the cryptoeconomy. At their core, smart contract
platforms are marketplaces for blockspace – space on a blockchain that can be used to store
information and run code. Users pay fees to access that blockspace, of which all economic activity
on that blockchain settles to. Blockspace that will one day underpin all of money, finance, and
commerce globally. Indeed as smart contract platforms continue to grow their “GDP” their
economies may eventually surpass those of the dominant sovereign powers. In this respect, given
the base assets of these smart contract platforms are the most deeply integrated and widely held
assets within their economies, it is very well possible they may become world reserve currencies
in the long-run.

While the smart contract platform market is highly concentrated around Ethereum today, it will
likely continue to fragment into a more oligopolistic market structure due to Ethereum’s limitations
that restrict the number of use cases it can support. To be clear, we’re not suggesting that
Ethereum won’t continue to be a dominant player in the market; however, there is an opportunity
for competing players to dent Ethereum’s share and expand the market through offering highly
differentiated solutions and bootstrapping sufficiently large developer ecosystems. While many still
lack the developer tooling and middleware to support innovation and experimentation at the
application layer, as the incentive to build on these chains grows, so too will the incentive to solve
their remaining development hurdles.

The smart contract platform market is perfectly competitive from a technical perspective with all
code being open sourced. However, while competitors can fork code, they can’t copy the
emergent properties of a smart contract platform. A combination of ecosystem properties including
developer talent, applications, liquidity, and integrations, and blockchain properties including
monetary premium, security, resources, and track record, enable smart contract platforms to
become practically un-forkable. Once protocols become standards, powerful network effects
emerge – thriving ecosystems compound rapidly enabling winners to keep winning. Code can be
forked, but community can’t.

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These properties are worth unpacking. Ecosystem properties like developer talent, applications,
integrations (bridges, exchanges, wallets, etc.), and onchain liquidity are the key elements
underpinning a smart contract platform’s economic potential. Every smart contract platform faces
a steep cold-start problem to not only bootstrap these properties but to also do so in a way that is
sustainable. Once a chain reaches critical mass in developer adoption and on-chain activity, it has
the potential to experience strong flywheel effects that allow for years of durable economic growth.
A deep developer talent pool leads to more useful applications, which leads to greater economic
activity, which leads to greater network revenue, which leads to greater investor interest, which
leads to more capital available for developers to build in the ecosystem.

Blockchain properties like security, track record, resources, and monetary premium are perhaps
even more powerful. Ethereum, for example, remains the dominant smart contract platform by a
wide margin despite its scalability constraints, largely because it was first to market – this enabled
Ethereum to develop best in class security, achieve a long track record of overcoming adversity,
and develop a monetary premium for its base asset ETH, which as we mentioned earlier is one of
the hardest properties for a blockchain to achieve. In total these blockchain properties reinforce
the ecosystem property flywheel – the majority of developers will always choose the platform that
offers them the greatest financial opportunity and strongest guarantees of sustainability, which
leaves the top economically relevant blockchains as the most logical destinations.

Given the trade-offs outlined in the prior section on integration vs modularity, it is highly likely an
integrated blockchain can meaningfully dent Ethereum’s market share, and as the indisputable
leader of the integrated blockchains Solana is well positioned to become one of the entrenched
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players in the smart contract platform landscape. This market structure wouldn’t be strange by
historical standards either – the most recent example in computing being the competition between
Android and iOS in mobile over the past decade. In fact the question isn’t so much whether there
will be more than one winner – it's quite evident that a single technical stack will not be able to
effectively support every application. It’s whether the current players are all fairly priced given the
opportunity, and whether new winning players will emerge.

4) Solana’s current trajectory is reminiscent of Ethereum’s rise from the ashes following
the 2018 post-ICO boom crash. Despite the Solana ecosystem having bottomed and being
on a path to recovery following the collapse of FTX, SOL remains too harshly penalized. As
technical upgrades continue to push Solana forward and developer momentum among
enterprises and crypto-natives accelerates, SOL is increasingly mispriced at ~13% of
Ethereum’s valuation.

Although it may be forgotten today, Ethereum’s rise to dominance wasn’t a straight line. It first
went through a massive speculative phase known as “The ICO Craze'' in 2017, where over 90% of
projects failed to drive any meaningful economic value, and many didn’t deliver at all. This led
many to lose faith in Ethereum and the potential of smart contract applications.

In hindsight, this speculative mania was critical for Ethereum’s success as it put the network on
the map, winning Ethereum developer and investor mindshare. This was essential for attracting
mission-driven contributors who continued to innovate on Ethereum despite dwindling sentiment in
the years of 2018 and 2019. Their work eventually paid off. After many years of building crucial
financial infrastructure, the innovation of “liquidity mining” in 2020 sparked a resurgence in
institutional and developer interest in Ethereum, where users now found a rich economy of
actually useful applications – this DeFi revolution helped cement Ethereum as the leading smart
contract platform in the cryptoeconomy.

Today Solana finds itself in a similar position to Ethereum in the aftermath of the ICO boom. The
most recent bull market featured a massive speculative wave for Solana which drove it to a ~$140
billion fully diluted valuation. The run up was in large part driven by FTX’s involvement in
bootstrapping the application ecosystem and providing liquidity for Solana tokens. However, over
90% of applications built on Solana were near copycats of their Ethereum counterparts – they had
very little organic usage, an abundance of mercenary capital, and atrocious token supply
schedules, which led to a fallout in activity, price, and committed developers that further
deteriorated following the collapse of FTX.

In the quarters since the collapse, the ecosystem has since been able to successfully exorcize the
ills of FTX influence. Today there is fresh developer optimism as well as new community leaders
emerging, with stronger moral values. Moreover, with all the mercenaries purged from the
ecosystem, missionaries are back in command of Solana. With greenshoots of net new use cases

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emerging, uptime issues likely in the rear-view, and unique DeFi primitives being built, the
probability of Solana succeeding in the years to come is increasing dramatically.

Similar to how Ethereum took over 6 years to reach escape velocity, we believe Solana is trending
in the same direction, albeit at a faster pace. Despite Solana only being 3 and a half years old, its
recent enterprise and ecosystem momentum positions it well to produce a breakthrough use case
in the next cycle. On the enterprise front Solana recently landed integrations with Visa and
Shopify, speaking to its institutional mindshare even after the events of last year. Their continued
support and validation could lead to enormous downstream network effects should other
enterprises want to work alongside Visa or Shopify when exploring crypto initiatives.

Within the cryptoeconomy sentiment on Solana continues to improve with a number of major
product announcements coming out in the past quarters. Eclipse recently announced its SVM
rollup mainnet, which despite not providing direct benefit to Solana, does de-risk launching
applications on Solana for developers and increases the number of contributors to the Solana
ecosystem. In a similar light, Maker’s founder Rune proposed to fork Solana’s code base to launch
Maker’s upcoming chain. The proposal was not only a major validation of Solana’s technical stack
from one of the most respected builders in Ethereum, but also yet another sign of the expanding
Solana contributor ecosystem.

The evidence is in the data as well. The latest generation of Solana DeFi protocols, aptly dubbed
“DeFi 2.0,” are powering Solana onchain financial activity to heights not seen since the bull
market. Solana’s DEX volumes are trending at their highest monthly pace ever, surpassing 2021
bull market heights. Total value locked – the best proxy for how much users trust a chain’s core
financial infrastructure to store their wealth – is up nearly 5x from the start of the year and is now
at $1.5 billion. Most importantly, Solana’s DeFi efficiency, measured by volume over total value
locked, is tracking at ~4x – nearly an order of magnitude greater than Ethereum’s DeFi efficiency.
These numbers may only increase as major projects launch their tokens, providing the Solana
ecosystem with more high quality assets.

Solana’s non-financial sectors are also blossoming. Despite an 80% drop in NFT trading volumes
on Solana since January 2023, the introduction of compressed NFTs (cNFTs) has reinvigorated
growth in the sector, positioning Solana to be a secular share gainer in the NFT market. cNFTs are
about 1,000x cheaper to mint and distribute on Solana than any Ethereum environment – to put
that into perspective, it means cNFTs can be dropped to 10M users on Solana for a few hundred
dollars, while it would take hundreds of thousands of dollars on Ethereum L2s, and hundreds of
millions of dollars on Ethereum L1. Since Metplex introduced their cNFT standard in April 2023
Solana has issued more NFTs than its previous three years combined – the cost reduction offered
by cNFTs is so dramatic that big name brands can begin to reasonably experiment with on-chain
assets at scale, greatly increasing Solana’s potential appeal to enterprises and its probability of
being the home of the industry’s next breakthrough applications.

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In addition to Solana’s NFT resurgence, Solana has also become a popular home for
decentralized physical infrastructure networks (DePIN) due to its low latency and fees. Most
notably the decentralized wireless network Helium migrated to Solana in April 2023 citing Solana
enabled it to achieve greater scale, and Render most recently completing a similar migration
stating that Solana’s unrivaled performance and state compression capabilities would increase
margins for node operators and expand its market potential.

At a certain point investors need to ask themselves: is Solana’s probability of success as low as
the market is implying? Solana currently trades at ~13% of Ethereum’s valuation, suggesting the
market believes Solana has ~13% chance at becoming the top smart contract platform. This is in
spite of the Solana ecosystem accelerating off the FTX lows, gaining developer momentum
among enterprises and crypto-natives, and the Solana blockchain gearing up for its Firedancer
upgrade, which for all intents and purposes could be considered “Solana 2.0”. With all the above
in mind we believe the risk / reward for Solana is prime. As the market comes to appreciate
Solana as a foundational platform alongside Bitcoin and Ethereum, we believe it could reach at a
minimum 25% of Ethereum’s market capitalization – the relative levels it peaked at vs Ethereum
last cycle. Moreover, this ratio could go even higher should the market begin to underwrite Solana
surpassing Ethereum long-term.

The Fastest Horse Rises From the Ashes

“If paradise now arises in hell, it's because in the suspension of the usual order and the failure of
most systems, we are free to live and act another way” – A Paradise Built in Hell

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Time and time again within the cryptoeconomy the greatest projects have overcome the greatest
adversities. Bitcoin survived the infamous Mt Gox hack despite Mt Gox having handled 70% of
Bitcoin trading volume and losing 6% of all bitcoin in existence at the time. Ethereum survived the
infamous DAO hack despite the DAO raising $150 million and ironically also losing 6% of all the
ether in existence at the time. In both cases the comeback was a testament to their resilience –
the lasting impact being the fortification of their souls and the crystallization of their fundamental
theses. Decentralized money and autonomous programs were here to stay.

Today Solana is carving its own role in history. Despite FTX having been one of the largest
contributors to the Solana ecosystem and holding ~8% of the Solana supply through its fraudulent
and now defunct Alameda entity, the Solana ecosystem is rising from the depths of its worst
nightmare. Like how Bitcoin and Ethereum went on to reach new heights on the back of their
improved resilience and identity, we believe Solana is primed to become the next ecosystem to do
so. Bear markets afterall are where legends are made. Especially in the cryptoeconomy; in a
permissionless world only those who can survive catastrophe may reach the promised land.

As stated upfront, it is not often we come across a project that unlocks new possibilities at a scale
comparable to Bitcoin and Ethereum. Even rarer to come across such a project during such a
special moment in its history like Solana. And even more rare that such a project is as liquid as
Solana is.

We couldn’t be more excited to back Solana as it rises from the ashes. The fastest horse has once
again left the stable.

Important Legal Notices

While this article is intended to express the views held by Syncracy Operational Management LLC
(“Syncracy”), nothing in this article is intended to constitute or form part of, and should not be
construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to
subscribe for, underwrite, or otherwise acquire or dispose of any security, including any interest in
any private investment fund managed by Syncracy. Any such offer may only be made pursuant to
a formal confidential private placement memorandum of any such fund, which may be furnished to
potential investors upon request and which will contain important information to be considered in
connection with any such investment, including risk factors associated with making any investment
in any such fund. Further, nothing in this correspondence is, or is intended to be treated as,
investment or tax advice. Each recipient should consult their own legal, tax and other professional
advisors in connection with investment decisions. Any investment involves the risk of a loss,
including the risk of a complete loss.

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Syncracy’s views with respect to any investment, including SOL, could change at any time.
Further, while Syncracy currently holds a long position in SOL, Syncracy will not provide any
recipient of this article with notice if Syncracy unwinds its position or its views change.

[email protected]

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