Compilation: Wu Says Blockchain

In this episode of the podcast, host Shang engages in an in-depth discussion with Leo, a deep cultivator of the Solana ecosystem, covering the success factors of Solana, a technical comparison with Ethereum, how Solana attracts users and trading volume with its unique infrastructure and low-cost advantages, especially gaining significant profits during the Memecoin market frenzy. Leo shares Solana's innovative mechanisms, including POH (Proof of History) and Solana's Layer 2 solution Sonic, and how they promote the future development of gaming and DeFi. Additionally, Leo elaborates on the infrastructure within the Solana ecosystem, such as how Jito and RPC service providers profit through liquid staking (LST) and MEV (Maximum Extractable Value), and how they leverage network effects to enhance transaction efficiency and reduce costs.

Please note: The views of the guests do not represent Wu Says' views, and Wu Says does not endorse any products or tokens. Readers are advised to strictly comply with the laws and regulations of their location.

The audio record is generated by GPT, so there may be some errors. Please listen to the complete podcast.

Leo's Self-Introduction and Early Experience in the Solana Ecosystem

Shang: Hello everyone, welcome to this episode of Wu Says podcast, I am your host Shang. The recent hot topic is undoubtedly the surge in Meme coins on-chain, especially since almost all the recent Dogecoin variants have emerged on Solana. This makes me think that many listeners must be curious about the related participants and projects quietly making big profits behind this. Why are these activities almost all happening on Solana? What is so unique about Solana? Compared to Ethereum, what characteristics make it the public chain with the most users and the highest trading volume in this cycle?

Today, I am honored to invite Leo, who has been deeply involved in the Solana ecosystem for many years and is an active participant and builder. Leo, please say hello to everyone.

Leo: Thank you, Shang. Hello everyone, I am Leo, online name iqx. Since entering the space in 2021, I have been participating in the Solana ecosystem. When I first entered the space, I experienced both Ethereum and Solana, and at that time, I felt that from a newcomer’s perspective, Solana's user experience was very good, so I have been following some of its Alpha projects.

In 2022, when Solana was affected by the FTX incident, I had quite a few assets on the Solana chain myself. During that time, I listened to many spaces and AMAs in various communities and found that the core builders of the Solana ecosystem did not leave; instead, they encouraged each other. The community atmosphere of Solana left a deep impression on me, especially in January 2023, when everyone knew that Solana had an event called Super Team. I attended its monthly meeting, which was mainly open to builders. Even though Solana's token price had dropped by 95%, the atmosphere on-site was very positive, with over a hundred participants introducing their projects and sharing Alpha.

So I felt that the core strength of Solana had not dissipated, and the community remained very united. Another reason that made me decide to continue staying in the Solana ecosystem is that some of my friends are also involved in technical development, and they have given high praise to Solana's technology. Most of them are full-stack engineers from traditional Web2 industries, believing that the Rust language used by Solana has advantages in security. Although Rust has a high entry threshold and may not be easy for general developers to get started with, this is also Solana's uniqueness. Therefore, I decided to continue deepening my involvement in the Solana ecosystem.

In April 2023, the Mad Labs NFT was launched on the Solana network. At that time, its trading volume exceeded that of Ethereum's NFT blue-chip projects in the first month, successfully attracting a lot of heat back to Solana. I also began to create a Chinese community for Mad Labs and gradually became more involved in the Solana ecosystem. Currently, I am also a contributor to the Chinese community at Jito, the largest LST and MEV provider on Solana. If anyone has any questions about Jito, feel free to consult me. Thank you, everyone.

Success Factors of Solana and Technical Comparison with Ethereum

Shang: Thank you, Leo. I think we can divide this podcast into two parts. In the first part, I believe many listeners know that Solana has risen significantly and that there is a lot of trading volume on Solana, but their understanding of Solana's uniqueness, how it handles MEV and trading volume, and its competitive moat is not very deep, including myself, who may not have paid special attention to these aspects. So, in the first part, we can discuss, from the perspective of someone who may be involved in blockchain and on-chain trading but does not know much about Solana, why do you think Solana is so successful? Why are there so many transactions and users on Solana now? What do you think are the main reasons behind this?

Leo: I think, although I am not a developer, I understand some programming but am not very proficient. From the perspective of an ordinary on-chain user, the biggest difference between Solana and Ethereum is that Solana introduces the concept of time, which is unique to POH (Proof of History). In traditional Ethereum and Bitcoin, a shared memory pool mechanism is used, while Solana does not have a memory pool. Solana's transactions are referenced based on time as the axis of the transaction, while Ethereum does not have such a time concept; everyone's transactions are queued for processing.

In the Ethereum network, the concept of MEV (Maximum Extractable Value) emerges, a classic example being sandwich attacks. When your transaction has not yet been processed, others can jump the queue by raising gas fees to execute their transactions and then sell it, taking advantage of the price difference.

This is a typical example of MEV. Solana's MEV is somewhat different because Solana adopts the concept of time; the competition for transactions is actually about speed and low latency of the network. If your transaction is not processed in the current time slot, it will directly enter the next slot without waiting for others. This is also one of the reasons why Solana has experienced several network outages.

One significant instance was due to inconsistent time among nodes, which caused issues. Another reason was due to spam attacks (DDoS attacks), where a large number of transactions overwhelmed Solana's node validators, leading to network crashes. But you can see that after each network outage, Solana was able to fix the issues, and the system gradually became more refined. From my personal perspective, I believe these problems are issues that software companies encounter, and I can tolerate these bugs. I just think that after a bug occurs, you need to know what caused it and how to improve it. In terms of Ethereum, although I have not done in-depth research, my impression is that its upgrades and improvements require very complex work. Recently, there was the Devcon conference, which launched a major project called Beam Chain, right? It relies more on a five-year plan to continuously increase complexity through code upgrades.

On the other hand, Solana, as I mentioned earlier, scales through hardware. The operating costs of our nodes are indeed very high; many people say that the costs of Solana nodes are too high, which is true. However, from a long-term development perspective, hardware costs will continue to decline. In the future, the cost of network maintenance should become lower and lower. Conversely, if you look at Ethereum's five-year plan, you might wonder if the future maintenance costs of the Ethereum network will become higher and more complex, increasing the probability of bugs? From a technical perspective, this is the fundamental difference between Solana and Ethereum. Additionally, I also like the concept that Solana is the "Nasdaq" on-chain. I believe that as history progresses, humanity continues to develop, aiming to standardize goods and increase the rate of information transmission.

Solana has always claimed to be a global real-time information exchange, and I think this is truly the trend of the future. However, in this process, Solana will still encounter many problems. For example, in April of this year, there was an issue with the Solana network. It wasn't a complete outage, but I remember it was due to a token called ORE launching, which was mined through Pow on Solana. This token mined 60 tokens per second, causing everyone to rush to mine it, resulting in network congestion. You can simply understand it as a DDoS attack because Solana's transaction fees are too low, and the transaction speed is very fast, making the network susceptible to DDoS attacks to a certain extent.

Later, Solana added the QWSOD feature in the mainnet 1.18 upgrade. In simple terms, Solana's nodes are divided into two types: one is the voting validator nodes, which are about 1,500 nodes, and the other is non-voting nodes, commonly referred to as RPC nodes. RPC nodes help relay transactions to the validator nodes. In the early days, the cost of self-hosting nodes on the Solana network was very low, so many people set up their own nodes to mine ORE. However, after the 1.18 version upgrade, the mechanism for RPC nodes became more efficient. If RPC nodes hold more staked tokens, they can process more transaction information, effectively alleviating the issue of network attacks.

Of course, some may comment that this mechanism will make the network more centralized, and I agree, but I believe this is currently a relatively effective solution. I believe that in the future, public chains like Aptos will also face similar issues when pursuing speed and low-cost characteristics. As competition in the supply chain intensifies, DDoS attack issues are inevitable. I think Solana is already a pioneer in this regard, providing a relatively good solution. I hope that more public chains can learn from Solana's experience and further optimize.

Infrastructure in the Solana Ecosystem and MEV Profit Models

Shang: Understood. Can you briefly outline how some of the infrastructure behind Solana, such as nodes, Jito, and RPC service providers, are profiting during the Memecoin frenzy? Who are the ones quietly making big money in this "gold rush"?

Leo: First, we can take a look at the revenue rankings on DeFiLlama. You will find that Solana, Jito, and Raydium are almost always in the top five, and many times their revenue even exceeds the gas fee revenue of the Ethereum mainnet. These three can be said to be the main players quietly making big profits, and their tokens have performed quite well.

Speaking of RPC, RPC is actually the infrastructure that supports many TG bots. As we all know, many people use TG bots for high-frequency trading, and these bots can operate so quickly because they have a custodial form of wallet private keys. Recently, there seems to have been a security incident with a DEX TG bot that needed to store user private keys because they needed to control your trading instructions, and these bots frequently send messages to validators across the network.

These transaction records may be sent to the top 30% of validators because Solana's validation mechanism has a leader for each slot, responsible for sorting transactions, while the remaining validators perform the validation. These unprocessed transactions are sent to the leader via RPC, where the leader sorts and processes them before broadcasting to the entire network and passing them to other RPC nodes.

As for Jito, to give a brief introduction, Jito is currently the largest LST (liquid staking provider) on Solana, holding about 43% of the market share. What many may not know is that about 80% of validators on Solana are using Jito's client software for validation. Jito has a block engine that packages and sorts transactions before sending them to leaders running the Jito client for processing. This involves a concept called Jito Bundle, which is essentially a tip for validators.

For ordinary users, the features provided by Jito can directly impact their trading experience. For example, Jupiter, one of Solana's largest DEXs, has a feature called MEV Protection on Jito. When using Jupiter, if you want to avoid being front-run by other transactions, you just need to add a small tip to your transaction. In this way, Jito's block engine will prioritize your transaction, ensuring it won't be sandwiched between others.

Shang: So, the entire infrastructure behind Solana plays a very important role, right? I remember you mentioned before that Solana's validation method has some flaws, especially regarding MEV and transaction sorting. Jito plays an important role in significantly enhancing Solana's operational economy and efficiency. I may not have covered it completely; could you elaborate a bit?

Leo: You're absolutely right. Solana's parallel network does have its advantages, but it also has issues, particularly with the backlog of unprocessed transactions. Each slot on Solana lasts about 0.4 to 0.6 seconds. If you manage to submit a transaction within that time, it will successfully be added to the chain; if not, your transaction will have to wait for the next slot. Before Jito was introduced, many people attacked the network in a DDoS manner, causing transactions to not be processed in a timely manner.

I remember the first time this happened was during a project IDO when everyone was scrambling to buy, resulting in the network crashing. After the introduction of Jito's block engine, this issue was alleviated. Jito's block engine acts as a core engine that requires all validators to use this mechanism to function effectively. For example, if we currently have 300 validators using the Jito client as leaders, then if the next batch of slots does not use Jito nodes, Jito will not be able to correctly relay transaction information. Validators using the Jito client manage transaction sorting, solving the congestion problem.

Through Jito, opportunities for MEV (Maximum Extractable Value) and arbitrage are more available to validators. Moreover, according to the current economic model, most of the MEV revenue is distributed to stakers, with over 90% of the revenue going to these stakers.

Shang: I understand, that's why validator node operators like you are willing to install Jito, as it allows for greater earnings.

Leo: Exactly, that's right. We also operate a community node, and of course, we have installed the Jito client. This way, we can increase a portion of our MEV income. The MEV income comes from users paying us tips through the Jito bundle service to prioritize their transactions for the block engine. If a validator using a Jito client is the leader in a slot, it will first process those transactions with tips. The Jito block engine has already sorted the transactions; we just need to execute those sorted transactions.

Shang: Got it. Everyone must be very curious about how much MEV income there is; can you share that?

Leo: According to some reports I saw yesterday, the current inflation rate of the Solana network is about 5.8%. However, since not all SOL is staked, the staking incentives in the network are about 7.6%. In addition, MEV income accounts for about 3% of the network's revenue. Specifically, as validators, we can choose how much MEV income to allocate to stakers. Currently, we distribute about 90% of our MEV income to stakers. So this means that Solana's staking can earn about 7.6% in base returns, while MEV income is an additional bonus. In simple terms, the more active the network, the higher the MEV income. A few months ago, this MEV income was only about 1%.

Jito's Profit Model and Solana MEV Bot Arbitrage Opportunities

Shang: So does the Jito project itself profit from MEV or similar network growth and trading volume growth?

Leo: It seems that about 5% of the income goes to Jito's major foundation, while the remaining income is distributed to LST holders. Because Jito itself, as the largest LST on Solana, provides services that 80% of users utilize through the Jito client, and these clients are actually free. On the other hand, Jito, as the largest LST on Solana, derives its profits from users holding JitoSOL.

For users holding JitoSOL, they convert SOL into JitoSOL, no longer using native staking, but instead staking through the JitoSOL staking network. JitoSOL automatically delegates these SOL to the top 200 validators in the system, which are usually the highest-yielding. We are also continuously working to improve our ranking; currently, we might be around 300th. To enter the top 200, a validator's voting rate must exceed 99%, and they must provide sufficiently high returns.

So the income from JitoSOL is actually the largest source of income within the entire Jito protocol. Currently, this income is almost entirely distributed to JitoSOL holders. There has also been a recent proposal to allocate 0.15% of this income to Jito token holders, which has led to a recent increase in Jito's token price.

In fact, this portion of the dividend is very small right now; if you really look at the numbers, but I think it's still a good demonstration. This proportion may increase in the future, but whether it will increase is still uncertain. Since the recent founder has taken office, many regulatory issues have started to loosen, and everyone is beginning to test the waters. If the dividends are really implemented, this token could be seen as a type of security.

Shang: So it sounds like the Jito token is also a way for ordinary people to profit from the trading volume of Solana or Memecoins; can we understand it this way?

Leo: I think, from the current stage, JitoSOL is the best choice because it directly generates income.

Shang: What do you think of the entire Jito project? How do you see its future development?

Leo: If you are optimistic about the Jito project, its current infrastructure is free; in fact, it profits by providing staking services to users. Users transfer SOL to Jito, and Jito helps users earn money through its top validators while earning some fees from it.

Of course, Jito's future restaking is also doing very well; this is just getting started, and we can discuss it later. However, if you are long-term optimistic about Jito, purchasing Jito tokens is a good choice. From the topic we discussed today regarding Memecoins, I believe JitoSOL is a very good investment target.

Shang: Understood. I actually want to discuss another topic because you just mentioned that Solana has a clock, which is very different from Ethereum's memory pool. Can we discuss in detail the differences between MEV bots on Solana and Ethereum? This should be quite an interesting topic that many people may not be aware of.

Leo: Understood. Well, Ethereum's MEV mainly comes from your ability to know unprocessed transaction information and then arbitrage. In Solana, due to the lack of a shared memory pool, it is difficult to obtain this information. Of course, Solana also has similar situations. I can briefly explain that if I am a validator, during a round of transaction processing, I know which transactions have not been processed. At this point, as a validator, I also have the opportunity to perform "sandwich attacks" like in Ethereum, but this information is private; only I know it, and the other 1,499 validators cannot know.

This situation does exist, but due to Solana's permission control mechanism, many validators will follow the rules. For example, the Solana Foundation and Jito have blacklists. If you are a validator and engage in such unethical trading, you will not be able to receive delegation support from Jito. The Solana Foundation also has its own delegation program, and if you engage in such "bad trades," they will not delegate SOL to you. This part is similar to Ethereum.

Shang: I understand. From the perspective of on-chain traders, does this mean that situations like slippage or being front-run do not occur on Solana as they do on Ethereum? On Ethereum, we often see MEV bots front-running trades to make a profit. Because Solana has this clock mechanism, it means that if you submit an order in the first second, the bots cannot front-run you. Can we understand this situation this way?

Leo: Yes, Solana has indeed weakened traditional MEV. The Ethereum mainnet can only process 60 transactions per second, while Solana can process many more transactions more quickly. This means that the transaction queue on Solana is relatively short, and the arbitrage opportunities for MEV bots are also reduced. On Ethereum, bots only need to increase gas fees to front-run trades, while on Solana, bots require higher hardware specifications.

On Solana, the role of MEV is diminished because it uses a clock mechanism, which avoids the common front-running issues seen in Ethereum. MEV on Solana occurs more after transaction processing. The blockchain structure of Solana is permissionless, meaning there are many different transaction pools on-chain. For example, when someone submits a large transaction, there may be price discrepancies between different pools, and at that point, bots can listen to transaction information to arbitrage.

The information transmission structure on Solana resembles a tree diagram. The more SOL you stake, the earlier you know about transaction occurrences, with very little time lag. For some bots, this tiny time difference determines whether they can make a profit. Jito also provides a service; since Jito coordinates 80% of the validators on Solana, you can subscribe to Jito's service to learn about which transactions can be arbitraged.

In Jito, there is a service called "searcher" that helps you quickly obtain arbitrage opportunities in the network. By subscribing to Jito's service, when you discover an arbitrage opportunity, you can pay a tip through Jito's bundle service to ensure these transactions are prioritized for processing. This entire process actually creates arbitrage space between processed transactions and the ecosystem.

For example, a few weeks ago, someone contacted me; they made four to five million dollars by listening to transaction addresses. Their arbitrage model involved listening for a developer releasing a new token, buying immediately, and using a bonding curve, where later users would push up the price, allowing the earliest buyers to profit.

Interestingly, these arbitrage bots do not need to care about the specific narrative; as long as others buy in, they can sell out and make a profit. That person actually gave very low tips and still managed to buy in first. Later, another team tried to replicate his approach, but they were always one to two slots behind that address. This is the advantage of Solana; only machines in the same physical data center can obtain information the fastest and react to trades. This is also why high-frequency traders place such importance on physical location.

Shang: Just like high-frequency trading on Wall Street, movies often say that to be a little faster than others, traders even lay cables; this tiny difference can lead to huge profits.

Leo: Yes, precisely because of this physical location difference, those with servers in the same data center can obtain transaction information faster and trade ahead, while others lag behind by several slots on the network, even if they pay higher tips, it is of no use.

Shang: Right, the money earned by these MEV bots can also be considered as impermanent loss for LPs. For ordinary traders, they do not need to be too greedy. Do you think this mechanism of Solana, or rather its functionality, will become Solana's moat? Is this an important reason for Solana's continued brilliance?

Leo: I believe so. Solana's innovative mechanisms, especially the improvements in MEV and transaction processing, indeed constitute its competitive advantage. In addition, Raydium's revenue is also very high; I myself am a fan of Memecoin LPs.

Shang: Memecoin LPs are indeed a very interesting field.

Leo: Yes, that's true.

Memecoin and LP Profit Opportunities in the Solana Ecosystem

Shang: Many people feel that being an LP is a very risky thing, but it seems that in the markets of Raydium and Memecoins, LPs are actually very profitable. I would especially like to hear about your experiences in this area.

Leo: This actually depends on whether your trading fees can cover impermanent loss. I once saw a report stating that the overall returns from being an LP on Ethereum are negative because the fees simply cannot compensate for impermanent loss. I believe this issue mainly arises from Ethereum's performance limitations. Many token trading volumes on Ethereum are concentrated on CEXs (centralized exchanges) because the costs on CEXs are lower, while on-chain LPs often become tools for CEX arbitrage.

So many people say that AMMs (automated market makers) on Ethereum absorb a lot of "toxic flow," meaning that others buy low and sell high on CEXs, then sell high and buy low on AMMs. This arbitrage model means that most of the traffic to AMMs comes from arbitrageurs, while good traffic mostly occurs on exchanges rather than on-chain.

Shang: It seems that the only trading volume comes from arbitrageurs, and ordinary users have no reason to trade on-chain, especially to pay such high gas fees.

Leo: Exactly, why would ordinary users want to pay hundreds of dollars in gas fees on-chain? If they only want to buy a few hundred dollars worth of tokens, can't they just buy directly on Binance? In fact, on Ethereum, these high gas fees make people reluctant to trade. However, on Solana, the trading costs for Memecoins are very low. I remember during the first round of the Memecoin cycle, around Q1 2023, I saw someone in a Telegram group who had moved from Ethereum to Solana, saying they made a lot of money on Solana because they could earn 100 times the returns, while on Ethereum they couldn't even cover the gas fees.

This is indeed the case; Solana's trading costs are much lower, which is why Solana trading aggregators like Jupiter can succeed on Solana while facing many difficulties on Ethereum. On Ethereum, Uniswap dominates the traffic, but even with good trading routers like 1inch, it is difficult to complete trades due to high gas fees. On Solana, gas fees are almost negligible, so trading slippage is smaller, allowing for more liquidity pools and higher liquidity.

You can see that recently, Solana's monthly trading volume is twice that of the Ethereum mainnet, even though Solana's TVL (total value locked) is still significantly lower than Ethereum's, even less than half. But for LP providers, Solana's low TVL and high trading volume mean that fees are relatively high and can fully cover costs.

Let me give you an extreme example: last year, in the MOTHER Memecoin project, I made LP for the first time within 24 hours and earned very high returns. Initially, the APR showed over 19,000, and the APY was 36,500%. I could earn 50% in fees in just one day. Of course, as time went on, the returns would decrease, but during that period, I invested one or two thousand dollars and ultimately earned nearly 20,000 dollars in fees.

Shang: From one or two thousand to 20,000?

Leo: Yes, I made some adjustments to the concentrated liquidity in between. When the first wave rose to twenty cents, I started selling some, and later when it retraced, I added more, but overall, I earned three to four times in fees. I made these profits in about three weeks.

Additionally, I also shared another Memecoin called Gecko in the Mad Labs group. Its community is very active; although its market cap is not large, the trading volume is high. Although the token price does not fluctuate much, it still has strong community support. During the testing period, I earned over double the fees, with the highest annualized yield reaching 500% to 1000%.

Shang: So the LP for MOTHER earned more compared to simply holding the token?

Leo: Yes, it should have earned about double. If you focus on the Solana Memecoin market, being an LP is very worthwhile. The Solana Memecoin market has many high-frequency trading opportunities. If you only do LP for a short term, like 12 hours or 48 hours, the fees are unlikely to cover impermanent loss. Therefore, the best way to be an LP is to hold long-term, ensuring that the trading fees can cover the losses.

The biggest characteristic of Solana's Memecoins is their strong volatility; prices go up and then down, and when they rise again, they can bring high returns. However, for poor Memecoins, like projects that disappear after a wave of increase, it’s different. But if the Memecoin community is active, with frequent updates on Twitter, and the project is continuously managed, then being an LP is very beneficial.

Currently, I believe Solana's Memecoins have entered a second cycle. The first cycle was from February to April, and the second cycle has attracted more participants. The second cycle market is more mixed, but this also gives many VCs and project parties opportunities. They have the resources to enter the market and may earn some profits in the short term.

This makes the market more competitive and the risks greater. But right now, I am mainly doing LP for two Memecoins, WIF and Popcat. Through concentrated liquidity trading, my daily returns are maintained at around 0.5% to 3%. Such LP returns are very ideal on Solana, while it is almost impossible to achieve such profits on Ethereum.

Memecoin projects on Solana, like Popcat and other Memecoins, already have many LP pools, occupying a significant proportion in the ecosystem. Through these LP pools, you can earn higher returns by utilizing lower trading costs.

Shang: I often see that many Memecoin trades are actually providing liquidity by pairing two Memecoins together.

Leo: Yes, if you really like these two Memecoins, even though some people think LP is a loss, in reality, during the holding period, you don't know whether it will go up or down. My philosophy is that if I really like these two Memecoins, I will pair them together for LP to earn fees, and whichever earns more makes me happy. Ultimately, one will definitely perform better than the other, but as a holder, as long as I like these two Memecoins, my goal is to accumulate more of both. So, if you do LP with these blue-chip Memecoins, it is actually a very stable choice. I have been doing LP for about one to two months because I believe these Memecoins are relatively stable, especially BONK and WIF, which are no longer the "leading" Memecoins.

Yes, we used to think of WIF as representing dogs and Popcat as representing cats, and the price fluctuations of these two Memecoins have a certain correlation. Therefore, the impermanent loss when doing LP is not too significant, which actually makes the entire ecosystem more robust. In the past, people trading Memecoins could only make money through "buy and hold," but ultimately, you still have to sell. However, on Solana, you can earn fees through LP, and just relying on fees can make a profit, providing another profit model for the Memecoin ecosystem.

This also allows more people like me to participate. I am not the kind of person who can engage in high-risk trading every day, but I believe in the Memecoin culture. As for the "super cycle" of Memecoins, I believe only the top Memecoins have a real culture; the others are essentially junk coins. In this case, I can support the prices of these Memecoins indirectly by purchasing these blue-chip Memecoins for LP. The prices of blue-chip Memecoins will help elevate the prices of second- and third-tier Memecoins because their prices are interconnected.

This essentially makes the Solana Memecoin ecosystem more robust and explains why Solana has stood out in this round. Although other chains may have hotspots and even new competitors may emerge, the hottest Memecoins will still be in the Solana ecosystem. I think this is a very important reason.

Shang: Thank you for sharing the wealth code, haha.

Memecoins are the Future Trend Combining Social + E-sports

Leo: I think Memecoins are truly a future trend that combines social interaction and e-sports. You know Roblox, right? That American gaming platform that has made a lot of money. Although I tried it, I found it unappealing, and the graphics are poor. Many people say our Token is also doing very well, but it doesn't really matter because it's the concept of "my world."

Shang: Can we understand this as a commercial version of "my world"? Where everyone can create their own games with almost no coding required.

Leo: Yes, Roblox is launched by Microsoft, and it makes money through commissions. I think projects like PumpFun might be the social and competitive way for Gen Z. I feel that the evolution of social interaction, from the earliest text messages, QQ, to WeChat, and now to Douyin, shows that electronic social interactions are increasingly demanding attention. The next generation might be kids staring at PumpFun all day, watching live streams and trading tokens.

I have asked many friends, especially those in the community, and many feel that after 25, it becomes difficult to adapt to this high-intensity PVP gameplay. For many young people, although they don't have much money, this model is very suitable for helping them earn their first pot of gold. You see, recently a kid created a token called QUANT when he was 12 or 13, and he rug-pulled and made tens of thousands of dollars, later being pushed up to a market cap of 40 million by big players. I think there are negative aspects to this, but it also has its unique value and is worth paying attention to. Moreover, all of this is happening on Solana, precisely because of its high network efficiency.

My ideal blockchain is like this: previously, Ethereum big shots analyzed the importance of blockspace. Blockspace is essentially Ethereum's auction mechanism, making money by auctioning blockspace. But I believe that as an infrastructure (INFA) provider, it should carry higher value at a lower cost. Whether it's trading $1,000 or trading on NASDAQ, Solana's costs are much lower. I believe that in the future, Solana can become a "NASDAQ on-chain," where everyone trades 24/7. But from my perspective, this market is essentially a casino business. I don't oppose it, but you must choose which assets and tokens can be the house. If you believe in the casino business, tokens like Sol, Jito, and Raydium are worth participating in, but you must understand that if you don't participate, you might end up in a bad situation; it’s better to take a small cut.

Shang: I understand. As you gain more knowledge in this field, the ways for ordinary people to participate in this gold rush become clearer, especially for those investors who are unwilling to take on too much risk. For example, they can choose to hold tokens like Sol, Raydium, and Jito, or participate in LP.

Leo: Yes, LPs like SOL and WIF, or SOL and GOAT are also very profitable. I checked today and have already earned 30% in fees, which feels great. Young people always trade time and energy for money, but ultimately, you still have to learn to use money to make money. The tokens and strategies we discussed earlier are all good ways to help you earn more money with your own funds.

Shang: I completely agree, especially for those veterans in the crypto space who feel anxious. Many previously familiar areas, like altcoins and Ethereum, seem to have not made progress in this cycle. Meanwhile, new areas like Memecoins are gaining more attention, and the market narrative is becoming larger.

Leo: I also strongly agree with this. Indeed, many participants have shifted from traditional markets to Solana, especially for those investors who are unwilling to take too much risk; participating in Memecoin LP is a relatively safe way. Moreover, the DeFi on Solana, compared to Ethereum, has smaller liquidity pools, but the returns from staking on Solana are much higher than those on Ethereum.

Although Solana has a higher inflation rate, as long as the number of new wallet addresses on the network grows by more than 5.8% annually, theoretically, the token price will continue to rise. For big players, participating in staking not only maintains the security of the Solana network but also profits from MEV income, which is a very good model.

Future Directions for Solana: Payments, Layer 2, and Gaming

Shang: Earlier, we mentioned that Solana's hotspots and narratives are currently mainly focused on the casino business, but over time, the hotspots may rotate. What do you think about the future development trend of Solana? Will there be new supply chains or public chains that gradually become the next competitor to Ethereum?

Leo: At present, I still have a positive outlook on Solana, although I also acknowledge some criticisms of Memecoins. Memecoins are indeed more about emotional speculation, but they also showcase the advantages of Solana's infrastructure. Previously, a partner at Placeholder mentioned that Solana is like Apple, while Ethereum is like Angel. The current infrastructure structure of Ethereum leads to fragmented liquidity, affecting the development of the ecosystem. In contrast, Solana, through the POH (Proof of History) verification method, can unify the entire ecosystem, allowing liquidity to gather together. I believe this is a breakthrough for Solana in terms of infrastructure, reaching a new height.

I hope that in the future, more high-performance public chains will emerge, allowing more ordinary people to enter the crypto space. Solana's progress has already been rapid, but some new public chains, like MOVE systems and EVM parallel execution systems like Monad, although their white papers are well-written, may take years to truly implement. Recently, the Sui network went down, and I saw some big players in the Solana community celebrating, saying congratulations for getting on the right path. Downtime is not shameful; what matters is finding the problems and optimizing from there. In fact, Solana has not experienced frequent downtimes in the past year; events like the inscription release at the beginning of the year and the Jupiter airdrop claim went very smoothly, demonstrating Solana's progress in network stability.

Next, as Lily mentioned, in the payment sector and the application space for stablecoins, I believe Solana has great development potential. The most lacking aspect of Solana in some professional institutions is stability, and now the stability of this network has improved significantly, which will attract more projects to enter the Solana ecosystem.

The FTX incident did have an impact on the Solana ecosystem, but new good projects and excellent developers are still working quietly. I believe that excellent projects usually take two to three years to mature, like Jito, Jupiter, and Raydium, and even the Camel lending platform that I like, which existed before the FTX incident and has a history of two to three years. In the future, I am very interested in some emerging projects, such as ride-hailing protocols through the Solana network, similar to Uber. This project has been in operation for two years and is currently in trial operation in the United States, showing very good data performance. Additionally, DePIN has great potential in the Solana ecosystem.

The connection between DePIN and blockchain is primarily in payments. My physical devices need to operate, and I need to reward users with tokens. On Ethereum, if I want to issue a token worth $5, I might need to pay $3 in gas fees, making this model unsustainable. However, on Solana, DePIN can settle in real-time, making Solana an ideal choice for hardware mining and various end-user payments. As more hardware projects develop on Solana, they can pay end users at lower costs and higher efficiency. I believe that although the overall failure rate may be high, as long as one or two blockbuster projects emerge, it can significantly drive up the price of Solana tokens. I am confident that Solana (SOL) will see greater value appreciation in future cycles.

Shang: Besides the current MEV, new emerging fields like DePIN may appear in the future. What do you think about Solana's future development, especially in the gaming sector? Recently, it seems that some new teams and projects have started to pay attention to Solana but have not yet gained widespread attention.

Leo: Yes, that's true. For example, recently Solana launched its first Layer 2 project called Sonic. Sonic is a Layer 2 specifically designed for gaming, utilizing Solana's technology to optimize game performance. What it can do is that many games hope to achieve on-chain services, but fully on-chain game interactions often lack economic value. For instance, certain gambling games may aim for fairness rather than direct profit. Traditionally, if such games run on the mainnet, they incur high costs.

Sonic can place the underlying rules of the game on its own network. If a game has token incentives, such as players receiving a token upon completing a task, Sonic can directly set these tokens on the Solana mainnet for Layer 2 operations. This design is very suitable for the future development of games. Take Layer 2s like IMX, for example; although it places games on-chain, liquidity has not been well addressed. One of the core issues of crypto games is price support; if there is no liquidity, no one wants to play.

Sonic's design is clever because it allows game developers to continue obtaining liquidity on Solana's mainnet while enjoying the advantages of the Solana network. This design helps game developers operate more efficiently, avoiding the difficulties of building an independent ecosystem. You cannot build a Layer 2 and an ecosystem of decentralized exchanges like DEX, Raydium, Orca, and Meteora on your own; the liquidity of Solana's mainnet serves as the underlying support for these games.

I believe that once Sonic is launched, it may drive the development of GameFi and attract more traffic to Solana. I have heard that they have already signed contracts with some game projects. Although game projects currently do not have the same hype in the crypto ecosystem as Memecoins, I believe the potential for gaming is still enormous, and more developers and teams will enter the Solana ecosystem in the future.

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