Is Solana doomed?

Solana, one of the best-funded and fastest blockchains, has had issues recently related to outages and censorship. It once seemed inevitable that Solana would become the next big smart contract blockchain after Ethereum , but that future is no longer certain. Let’s look at what went wrong with Solana and what might happen in the future.

Solana was founded in 2017 at the height of the ICO bubble. Its goal is to create a scalable and usable blockchain that does not rely on sharding or second-layer scaling solutions. It does this by using Proof of History, a mechanism that timestamps each transaction using cryptographic blocks built into the Solana blockchain. This allows the blockchain to know the time of each transaction and quickly sort them.

Solana’s ability to process 40,000 transactions per second at near-instant speeds has made it instantly popular. Its rise has also been fueled by one of the world’s largest cryptocurrency exchanges, FTX , which chose Solana as its preferred blockchain for building its decentralized exchange Serum . In addition, it raised about $300 million in a round led by Andreessen Horowitz, giving them a huge war chest to incentivize developers and grow the Solana ecosystem.

All the excitement surrounding Solana pushed its market cap to nearly $80 billion. However, since then, its price has plummeted by more than 50% to $26 billion, with each token priced at $80.

There are several reasons for Solana's recent decline. The most prominent is the instability and frequent outages of the blockchain. In the past five months, the Solana network has experienced a total of seven outages, mainly due to nodes reaching consensus, spam transactions, or errors. These outages, which can last for hours, prevent anyone from transacting on the blockchain and essentially cause funds to be frozen. No company or user wants to put their funds in a system that may make it inaccessible at any given time. This represents a huge trust issue that must be resolved before Solana can be used for enterprise and commercial applications. Solana stated that their mainnet is still in the testing phase.

Most recently, the outage on May 1st was caused by an NFT minting bot sending 4 million transactions per second. When the blockchain was restored 7 hours later, they decided to penalize any bots using the network and offer the option to block NFT minting bots until the network stabilizes. Many in the cryptocurrency space saw this as blatant censorship, which is unprincipled in the cryptocurrency and blockchain world. Solana nodes require having high-end server equipment, fast SSDs, and lots of RAM, which only exacerbates the problem.

Finally, the popularity of second-layer solutions and other EVM-compatible chains has stolen some value and usage from Solana. When Solana rose to prominence, Ethereum was dealing with many congestion issues and there were not many viable alternatives. However, now that Rollups like Arbitrum and Optimism exist, users can experience the security of Ethereum while still enjoying low fees and high throughput. This makes Solana less attractive because it requires dApps to write entirely new code to port their dApps to the blockchain.

Despite Solana’s many problems and declining total locked value, there is still a chance for it to get back on its feet. If Solana can solve the centralization, censorship, and outage issues, users and companies may give it another chance. There are several other smart contract platforms vying for a spot in the top 10, and it may only be a matter of time before they replace Solana.