- The speaker believes that once a stablecoin bill passes Congress, there will be a shift towards crypto-based financial systems within 2 to 5 years.
- The guest, one of the founders of Solana, caused controversy by tweeting that Solana is in trouble.
- The guest explains that he tweeted while on vacation and under the influence of alcohol, and acknowledges the backlash he received.
- The podcast host asks about the vision behind creating Solana as the world's fastest and cheapest blockchain, and the guest discusses the potential use cases and benefits of decentralized systems.
- The guest emphasizes that those working in crypto are solving hard engineering problems and have chosen this path because it is more enjoyable and fulfilling.
- The guest believes that the value of Solana and other proof-of-stake networks is derived from the resource people want, regardless of whether there is a burn mechanism or not.
- The guest mentions that Ethereum's EIP-1559 was introduced to prevent spam attacks, but the value accrual to the network remains the same.

- Ethereum is expected to fix its block space problem, resulting in lower fees and increased accessibility.
- The cost of running a validator on Solana's FireDancer software is decreasing, making it more affordable.
- FireDancer's efficiency improvements may not have a significant impact on overall costs due to other factors.
- The release of FireDancer will improve safety and reliability by allowing validators to run multiple clients simultaneously.
- Trading companies like Jump, which is building FireDancer, have an incentive to support decentralized systems that compete with centralized exchanges.
- The goal is to create a globally distributed system that eliminates arbitrage between Solana and centralized exchanges like NASDAQ.
- Financial transactions on Solana have faced challenges, but startups like Phoenix and Margin Fi are making progress in trading environments.
- These startups are slowly growing and optimizing their systems, but volumes are still relatively small compared to Ethereum DeFi.

- The competition with Ethereum in the DeFi space is tough due to its long-term preservation and yield collection features.
- It is challenging to attract users and TVL (total value locked) from Ethereum to Solana.
- Solana aims to make it easier to port over activity and attract users by improving user experience.
- The current focus of developer activity in the West may not necessarily meet the needs of emerging markets.
- The US financial system has regulatory roadblocks preventing a shift to crypto-based systems, but this may change with stablecoin legislation.
- Solana offers cheaper and faster transactions compared to Ethereum, making it more suitable for certain use cases like checkout UX and settlement.
- Solana's multi-routing capability allows for efficient and low-cost trades across multiple markets.
- The cost reduction and efficiency improvement in finance should be a priority for the entire world.
- Visa is exploring the use of Solana and USDC for a cross-border remittance program.

- Remittance using cryptocurrency such as USDC is a direct win compared to traditional banking methods for cross-border transactions.
- The goal is for major companies to generate 2-3% of their revenue from cryptocurrency activity to drive mainstream adoption.
- The past issues with Solana's network outage have been addressed through improvements in communication and quality of service.
- Solana's parallel virtual machine (SVM) allows for parallel processing, but certain limitations exist when multiple transactions touch the same state.
- The concept of "full" is defined by the block and the chain, with limits on the number of transactions that can touch the same state.
- As hardware costs decrease, Solana can add more hotspots to accommodate increased demand for block space.
- The future demand for block space is uncertain, but the potential for growth exists with the rise of use cases like gaming.
- The question remains whether certain use cases, like Star Atlas, would still exist and thrive in the absence of sufficient block space.

The speaker discusses the concept of block space and its importance in the context of Star Atlas and Bitcoin mining. They believe that the majority of block space usage will be superfluous and not critical. They also mention the potential for increased block space in the future due to advancements in computer technology. The speaker then talks about the strong community built around Solana and attributes its success to genuine passion and interest in the technology. They mention the importance of friction in community building and how it creates stickiness. The speaker expresses their surprise and gratitude for the community's loyalty. They also discuss the potential product market fit for Solana in the next 1 to 5 years, highlighting the example of Helium's $5 data plan as a successful application of crypto.

- The speaker discusses the potential of Hivemapper and Solana in the field of mapping data and finance.
- They believe that software will eventually replace traditional systems, including banking, but it will take time.
- The speaker emphasizes the importance of demonstrating the benefits of cryptocurrencies to regulators and politicians.
- They express curiosity about why some individuals, like Warren, are anti-crypto.
- The speaker believes that Solana has a chance to compete with Ethereum but acknowledges the uncertainty of which platform will ultimately dominate.
- They stress the importance of building apps and creating value to succeed in the crypto space.

- The speaker believes that with the passing of a stablecoin bill, crypto-based financial systems will become more prevalent in the next 2 to 5 years.
- The guest, a founder of Solana, caused controversy with a tweet but later apologized.
- The podcast host asks about the vision behind Solana as the fastest and cheapest blockchain, and the guest discusses the benefits of decentralized systems.
- The guest believes that Solana's value comes from the resource people want, regardless of a burn mechanism.
- Ethereum is expected to lower fees and improve accessibility.
- The cost of running a validator on Solana's FireDancer software is decreasing.
- FireDancer's release will enhance safety and reliability for validators.
- Trading companies like Jump have an incentive to support decentralized systems.
- Solana aims to attract users from Ethereum by improving user experience.
- The US financial system has regulatory roadblocks, but stablecoin legislation may change this.
- Solana offers cheaper and faster transactions, making it suitable for certain use cases.
- Visa is exploring the use of Solana and USDC for cross-border remittances.
- The goal is for major companies to generate revenue from cryptocurrency activity.
- Solana has addressed network outage issues and has a parallel virtual machine for parallel processing.
- The future demand for block space is uncertain, but potential growth exists.
- The speaker discusses the importance of block space and the strong community built around Solana.
- They believe that software will eventually replace traditional systems, including banking.
- Demonstrating the benefits of cryptocurrencies to regulators and politicians is crucial.
- Solana has a chance to compete with Ethereum, but the dominant platform is uncertain.
- Building apps and creating value are essential for success in the crypto space.

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--
In today's episode of 1000x Jonah and Avi welcome Anatoly Yakovenko to the show for a discussion on Solana's ultimate end game. After a tweet from Jonah questioning the future of Solana, we thought why not invite Anatoly himself to the show to explain Solana's ultimate vision. 

We deep dive into finding crypto's perfect use case, disrupting legacy financial rails, the challenges of building through a bear market & crypto's killer use case. To hear all this & more, you'll have to tune in!
--
Follow Anatoly: https://twitter.com/aeyakovenko
Follow Avi: https://twitter.com/AviFelman
Follow Jonah: https://twitter.com/jvb_xyz
Follow 1000x: https://twitter.com/1000xPod

Get top market insights and the latest in crypto news. Subscribe to Blockworks Daily Newsletter: https://blockworks.co/newsletter/
--
Timestamps
0:00 Introduction
3:23 Solana's Ultimate Vision
7:57 Value Within A PoS Chain
10:25 Running A Solana Validator
13:03 Firedancer: Boosting Solana's Scalability
17:21 TVL & Volume On Solana
21:56 Crypto's Perfect Use Case
25:10 Stablecoins
31:05 The Future Of Solana
38:01 The Waves Of Adoption In Crypto
43:54 Building Community In Solana
48:06 Solana's Perfect Product Market Fit
54:47 What Solana Has Learnt From Ethereum
--
Disclaimer: Nothing said on 1000x is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Avi, Jonah and our guests may hold positions in the companies, funds, or projects discussed.

I honestly think that as soon as a stablecoin bill passes Congress, you will see a massive, dramatic shift within like 2 to 5 years of like US converting from current financial systems to crypto-based ones.

Everyone knows this technology is better, it's easier, like all the APIs are easier, and like we can start actually using this technology.

We've got a very special guest for everybody today.

Well, because Jonah managed to make every single holder of Solana extremely irate a few days ago by drunk tweeting in his words why Solana is completely fucked.

And so we wanted to have a conversation here to figure out is that true?

But first I kind of want to figure out, Jono, where did that tweak come from?

So first of all, Tully, thank you for being such a mature, good steward of your ecosystem and responding to me in technical, thoughtful ways.

Thank you for coming on the podcast to discuss.

Let me give you a little bit of an apologetic background.

The kids were somewhere else with their grandparents.

Yeah, I had 1 of those nights that you really don't get a lot when you're a parent.

So I had a nice bottle of wine, feeling pretty happy about myself and my 24 hours of freedom.

Now my wife's pretty sick of listening to me talk about crypto, so after she passed out I was like, you know what?

I don't know if Solana's going to perform as well as ETH will in the next year.

No 1 cares what you say on the internet if you're not a little bit extreme.

I could have said, hey, Sol ETH is going to underperform a little bit if these things happen, but instead I kind of went for it.

I wake up and now literally everyone who still cares about crypto wants to fucking kill me.

So for everybody out there, if you want to make people mad, suggest that Solana is in trouble.

Oh man, I am a dad myself and I wouldn't spend my 24 hours free from the kids thinking about crypto.

But I appreciate that you had time to think about Solana.

First of all, I hope everyone that's listening can be mature about these things.

If you ever actually meet those folks, even the worst shitposters in crypto Twitter, if you meet them, they're all nice people that you would totally be normally friends with and grab beers or whatever.

So I hope people can step back whenever they get too emotional in these discussions.

And just like, this is just literally people arguing about software.

And I'm not even, I'm not arguing about software.

And I think the most technical thing I ever did was write the electronic music for this podcast.

But let me ask you a very simple question for non-technical folks out there about Solana.

In a world where there's probably a little bit too much block space relative to the demand for crypto use cases right now.

What's sort of the vision behind creating the world's fastest, cheapest blockchain?

This is a really good question because we don't know, like, at what point is the market saturated with block space?

Are there use cases that are like unlocked at sub-sum transactions that are worthwhile for anyone?

You look at like IoT stuff like Helium and HiveMapper, it would be really, really tough to do it on any other environment unless it's completely centralized running on a database.

You kind of need something like Solana for those.

But could the world create those services in a completely centralized manner and be fine?

But I think there is this general belief similar to people building open source software in the 90s that I think if we build these systems in a decentralized way, they'll create more value in the long term for everyone else.

Just like you could argue Windows has better features, as good as Linux, yada, yada, yada.

But for some reason in the 90s, I was motivated to spend my weekends working on open source software because I thought that it would be a major benefit to myself as an engineer and to the greater public and to all the other engineers I work with.

I think similarly, if we can build decentralized systems, the hope is that they're less likely to get co-opted and turned into the shitty version of the web that we have today.

Like if Facebook was decentralized, if Google was decentralized, if all these things were decentralized from the start, they might not suck as much.

You might not have your data stolen all the time and sold.

There's a bunch of benefits that come from that diffusion of power and robustness and reliability.

Everyone in crypto that's building stuff, they're solving real hard engineering problems.

They all have the option to go work at Facebook, Google, Netflix, Microsoft, earn close to a million dollars a year and just not give a shit.

For some reason, they're choosing to do this.

Some may choose it for the upside, but a lot of people are choosing it because it's more fun.

You actually feel like you're fighting the David versus Goliath battle.

You get to push the hard technology forward.

It's just more enjoyable for a life's career goal to do that than to go work on a giant Java database to optimize ads for Google, even though probably you'd make more money and will have better work-life balance and your kids spend more time with the kids.

But we're here, we're trying to do something interesting.

So in that sense, there's a lot of faith in that if we build the system, what am I good at?

I'm good at making things hyper-optimized and efficient.

If I apply all my talents into this and make a really hyper-efficient, low-slatency, cheapest-cost blockchain, I think it'll open up new use cases and could be very disruptive.

I don't know what it's going to be worth.

If Solana is worth one-tenth of what it is today, we just have smaller validators and features that take longer to ship because there'd be fewer core developers.

But there's still be people that are like, holy shit, this is fun to work on.

Like, The rest is kind of like up to the gods, you know, like PMF is really, really hard to find, really hard to predict.

So what happens is really, really tough to know, like in the future.

That's actually something that I wanted to ask about is that last little part there.

Is it important to you to build in ways to generate value for Solana?

They basically made the decision, we're going to introduce EIP-1559 specifically so that ETH can derive more value from activity on the chain.

Is that something that you view as important?

All proof of stake networks, no matter how the tokens move inside the black box, all derive value the exact same way.

There is a resource that people want, And if people want it enough in a short enough time, they will try to access it.

And whether you have a burn or not, it doesn't really matter.

Because even without the burn, people bid up the fees, validators earn more rewards.

That means that owning ETH to get more stake, to be a block producer more often earns higher rewards.

It's a nice meme to have it, the deflationary meme.

But 1559 exists for a more technical reason, it's to prevent spam attacks in the ledger.

If you took away that technical reason, the value accrual to the Ethereum network is exactly the same.

It's from people demanding access to block space and bidding for it to such heights that it's significant.

Now that's harder for that to occur in Solana because we have localized fee markets And that's slowly happening in Ethereum because L2s are separating state and each L2 has its own fee markets.

So you can think of each L2 as kind of this generic blob that has its own fees.

Those fees now don't really accrue to Ethereum outside of like the L2 data fees.

So like you're already seeing kind of this happening in Ethereum.

And the question that everyone should have in their mind, at some point, I don't know when, Ethereum will also fix its block space problem.

And its block space is going to be much, much higher, probably to the point that the fees to access the data itself, just submitting bytes to the network, are kind of commoditized.

There should be no more than 2, 3x the cost of the hardware, maybe 5x, but like a small multiple of the cost of the hardware.

Hardware is really cheap, like really, really cheap.

That's interesting because I remember, you know, in the early days of Solana, the hardware to run a validator was super expensive, right?

When we started, it was about $1,100 a month.

My guess is within a year, probably sub $200 a month.

So Let's say that FireDancer ships and it's a big success, what will it cost to run a validator?

FireDancer is far more efficient than the labs client.

But the problem is that when you get a box at a data center, you're paying for the machine, the cores, the memory, and the bandwidth and the electricity.

And the cost of the cores and that kind of stuff where efficiency of the code has the highest impact is like 1 quarter of the overall cost.

So Firedancer could be 10 times more efficient.

So you get some benefits, but not all the benefits.

So you need like, it's like Amdell's law kind of problem.

When you have like a bunch of things to optimize, you make 1, the cost of 1 0, the other things become the dominant factors and you don't see like the same improvement across the overall thing, right?

It would be really awesome to see once Fire Dancer's out, what kind of performance they could get on the same hardware.

And I suspect it's going to be much, much better, but we'll see.

So what I'm excited about like Firedancer coming out is obviously safety.

We have 2 clients, most of the top validators that have a lot of stake, the hardware costs of them are insignificant.

They should be running both clients at the same time and 1 primary, 1 secondary.

So if there's a bug in 1, they fail over to the other 1.

That's a massive improvement in reliability.

If they diverge on state, they halt, that means there's a system-wide bug.

Hopefully that never happens, but that's like, I will be able to sleep at night because we go from catastrophic safety bugs being a potential death of the network to just being a liveness issue.

Most suck, but those are recoverable from.

Again, hopefully it never happens, but that's a massive, massive improvement.

And once you have 2 clients, it's easier to build a third and a fourth, and there's already a team working on the third 1.

The Fire Dancer is being built by a trading company.

I've never worked at Jump, but I've worked at Goldman, I've worked at VTOL, I've worked at DRW.

I know that trading companies are not altruistic entities, and I know how they operate.

So let's say that FireDancer is a huge technical success, and it decreases the cost of block space and everything that you just mentioned works smoothly.

And suddenly, machines all over the world are running Fire Dancer and it's the go-to validator client for Solana.

How should users feel about the fact that the go-to software validating blocks is control or invented by a company that's clearly got some incentive, right, to build this.

The trading companies actually like are mutually aligned with the idea of a giant transparent state machine that would be competing with centralized exchanges.

So when you right now connect to NASDAQ to get high performance connection, you got to pay them an arm and a leg.

Every trade and everything you submit, you can keep track of your data, but they keep all the data and then they charge you to get the data back.

So you pay them an arm and a leg to connect, you pay them an arm and a leg to read the data, and it's available only to the top traders.

And to be part of that network, it's very expensive, and it's opaque, it's transparent to them.

This is an open system run by volunteers that means that anyone in the world that pays for a hunk of metal can go and connect and be in the same level playing Fieldless Jump.

They just have more competition that they get to compete in an open environment.

It's the hunk of metal, the data is available to everyone.

They get to grind out a profit based on their algorithms and know-how and stuff like that.

Without this additional man in the middle, this NASDAQ or NYSE that's taking a rake.

That's a huge win for every trading company.

doing this to attract volume to the network, basically.

They're doing this because the vision is aligned with removing an extractive meta in the middle in finance, which is like decentralized entities that run markets, it'd be better if they were all decentralized markets.

Because that's an open space where they're competing without paying these astronomical fees to...

It's just a bunch of boxes somewhere that you connect to, right?

Why do they get to make so much money for running a market?

Yeah, I mean, exchanges are very valuable businesses.

Jump actually takes capital and risks it.

They try to synthesize all of the world's information and predict the future.

They just run a market and say, here, I'm going to take a trade from you and a trade from you.

And I'm going to take a cut in the middle.

If this works, if we can get a decentralized system to be basically like bound by physics, like we remove all the bottlenecks and Solana is now like globally distributed information is propagating it at the speed of light.

There would be no arbitrage between the state on Solana and state on Nasdaq.

I think that's aligned with Jump because it will literally cut costs for them over the long term.

It's like Google investing in Linux because they see Microsoft making a shitload on Windows and being like, if we invest in Linux, it's a free OS, it might take a chunk out of this big competitor that's kind of extracting a lot of value from us.

So I know this was like a big narrative in 2021 with Solana as the basis for a lot of financial transactions and for the places that an exchange could go build that DeFi might get really, really huge on and then you get the financial system rebuilt on Solana.

I think realistically post the FTX implosion, because FTX was a big supporter of that narrative, that sort of died a bit.

And on Solana, you started to see activity on NFTs and gaming and people were starting to pay attention.

Oh, well, maybe it's not going to be, you know, used for that, but it's going to be used for at the NFTs were, were, were, were blowing up at the time.

So my, my, my question to you is, on the financial side, what has happened over the last year or 18 months that people might not be paying attention to that is proving out that you're getting closer to everything that you just described?

Because obviously there were a lot of roadblocks there.

I think the hardest part has been grinding for TVL and volume.

Those are the really, really tough businesses to run.

1 is 1, I'm heads down optimizing the network, but there's startups like Phoenix, like Margin, Fi, like Drift, Zeta, et cetera, that are like running these like systems that are doing all sorts of trading environments running markets and are grinding for PMF and competing across the board, right?

In the bear market with everyone else for traders and stuff.

I don't know if you guys look at the ellipsis, the central limit order book that was built by a couple of engineers over the last 6 months.

Their volume to TVL ratio is like 30 times higher than Uniswap.

And this is because it's a highly optimized central limit order book.

The compute costs on it are way, way more faster even than Serum and the old school Central Limit Order book.

They've done a meticulous job optimizing that.

They've been doing a really amazing job, but the volumes are still small.

We're talking like 1 to 5 million per day.

So these are tiny things, but are not 0, that are growing.

It's really tough to compete with Ethereum there because the way that Ethereum DeFi works is that people deposit a bunch of tokens that they don't want to sell, that they kind of have a very long position on and collect yield on them.

They're not optimizing for capital efficiency.

They're just optimizing for long-term preservation of that exposure to that coin or that thing.

So if you're like a big Aave holder, you don't really care how much it costs or how much your capital could be gaining somewhere else, right?

Because you're not going to sell your tokens.

You're going to deposit them in that protocol.

You're going to keep them there and get whatever yield you can get because you're like maximally aligned with that.

And Ethereum being first and kind of leading DeFi summer and generating so much like market cap across the board there is really, really tough to compete.

You just like a 1 click, you should move your TVL from an Aave to an equivalent on Solana.

I've always wondered why more people don't go down that path and trying to make it just really, really, really easy to port over activity.

Yeah, I think like Jupyter actually is working on some of that, like we're working on like bringing like bridges and stuff like that, that are instant on-demand bridge liquidity that you don't have to worry about like where it's coming from.

Yeah, people are like, the pieces are there.

People are starting to realize that's a way to attract users and then grow their business.

And they're adding those user UX improvements.

Everyone is trying to find what is a product that I can build to attract traders, which is kind of a fixed number right now.

Maybe we're not in the bear market anymore, but we are not really in a bull market either.

The winds are shifting potentially, but that's a 0 sum game where everyone's PVPing each other for that activity.

But I hear you on the attracting TVL and attracting flow thing.

I mean, we and I go back and forth on this.

My sort of geopolitical view on crypto is that in its current form, crypto is a fantastic solution for emerging markets.

It provides dollarized checking accounts, banking.

If you live in a place like Argentina or Iran or Venezuela, you can effectively have a US dollar bank account.

However, I think a lot of the developer activity in the West, at the cutting edge is focused on applications that aren't necessarily needed in the West.

So I think it would be kind of an interesting thought exercise for people building financial applications on a chain like Solana to think about how could I just create basic DeFi primitives that are beautiful and easy to use for people who actually need them?

I'm not sure the market is ready for a central limit order book for options trading.

I honestly think that as soon as a stablecoin bill passes Congress, you will see a massive dramatic shift within like 2 to 5 years of US converting from current financial systems to crypto-based ones.

Like I think there is just a massive regulatory roadblock right now.

Everyone knows this technology is better.

I don't know if you've ever been a dev and tried to like connect to PayPal or Stripe.

It's like a pound of flesh on the first board to like deal with the mess of setting up merchant.

It's much easier, but it still sucks compared to I just generate an address with a private key and I'm good to go.

Is it a technical issue or is it that they don't want to make it easy?

The networks, the way that the US financial systems work are all around these compliance silos, like around AML and stuff.

And credit cards are kind of like the way that you interact with users.

When I do a credit card transaction, it's equivalent to me sharing my private key with the merchant.

And then there's this massive process to figure out if the merchant did a...

Like somebody stole the private key in the process and did an invalid transaction.

If you step back for a second and you're like, what?

So there's a lot of problems with how this stuff works right now in the US and it's all based on KYC, ML silos.

If and when we get a stable coin bill and we can start actually using this technologies, I think it'll explode.

Your bank accounts will take USDC deposits across a bunch of networks, just like exchanges do, and people will forget about wires and all this other stuff.

So what are you doing to make sure that stablecoin activity occurs on Solana?

And why is Solana better than Ethereum for stablecoin usage?

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Solana's End Game with Anatoly Yakovenko