Solana's Eight Years: Anatoly's Behind-the-Scenes Account

Original video:NEW ECONOMIES

Compiled by: CryptoLeo ( @LeoAndCrypto )

In this slump, a true Solana defender is here to bolster your confidence. Anatoly Yakovenko, co-founder of Solana, gave an interview to NEW ECONOMIES in November, covering Solana's origins and development, its ups and downs and recovery, as well as discussions on regulation and stablecoins. Furthermore, Anatoly outlined Solana's grand vision for the future. Odaily Planet Daily has compiled the following (due to the large amount of detail, key points will be presented in a first-person narrative):

Solana's origins: from a side hustle to a full-time job

Solana originated from a perfect storm of timing, location, and people. At the time, a friend and I were working on a startup project—or more accurately, a side hustle. We were making AI-related things, like deep learning servers, and using these GPUs to mine cryptocurrency to pay for the GPUs. But a question popped into my head: why would people pay for our AI-related products? Over two cups of coffee and a bottle of beer, my partner and I talked about mining, Proof-of-Work (PoW), the Satoshi Nakamoto consensus, algorithms, and why electricity is so crucial in this process.

I've spent most of my career as an engineer at Qualcomm. As most people probably know, Qualcomm is deeply involved in wireless protocols, radio technology, and mobile phones. Your phone likely uses Qualcomm products, and it may also use products that I helped develop.

I stayed up until 4 a.m. that day when a sudden inspiration struck me: how to encode the passage of time into a data structure. I thought of the protocol originally used in cellular networks, called Time Division Multiplexing (TDMA). This concept first appeared in the 1960s and 70s and is very simple: divide time into segments and then use different time segments to transmit data, thus avoiding interference and allowing more information to pass through. The reason I thought of this is because Bitcoin and the Proof-of-Work (PoW) mechanism also face similar problems.

If there are two block producers, and both miners produce blocks simultaneously, a fork will occur, the network will be in chaos, and information will not be able to be transmitted normally. You will have to discard one of the blocks. Therefore, if the two miners can take turns producing blocks, conflicts can be avoided and the bandwidth utilization of the protocol can be maximized. I did a rough calculation and found that its throughput was 1,000 to 10,000 times higher than Ethereum or Bitcoin at the time.

The idea came to me: maybe I should start a company. Smart contract platforms really interested me because they provide developers with a completely new application development environment, and these applications are different from those you build anywhere else. So you can't just build smart contracts on a regular AWS server; you need the verifiability, cryptographic guarantees, and so on provided by the blockchain, which makes it possible to write code that can handle funds.

At the time, many believed that Wall Street's databases and similar systems controlled funds, all monitored by people, and that many products simply optimized these people's work. Smart contracts, however, are entirely different. The software itself is responsible for managing funds and is the sole authoritative source of information regarding the flow of funds. Therefore, to some extent, smart contracts have disrupted the entire data model.

In the early stages of entrepreneurship, boldly pursue what you believe in.

When I first decided to start my own business, I needed to convince a lot of people. My wife was the first person I needed to convince. She is an engineer and she knows me very well. I have always had a side job and always put some ideas into practice in my spare time. We already have a child. She said at the time, "Okay, this may work, but you can't be a worker, a father, and a part-time entrepreneur at the same time. You have to choose one or the other, either go all out or give up."

That's what prompted me to make the decision to start my own business. I remember she was in Colombia at the time, Facebook was expanding, and she was working at a startup that was Facebook's competitor in Colombia, when Facebook was still in its very early stages. What she learned there was that the market goes through a boom period of about six months, and everyone knows that there's a product under development that will capture 80% of the market share; it will have certain explosive characteristics, and if you miss that window of opportunity, you'll never catch up. So, in late 2017, I felt it was the perfect window of opportunity to build an L1 blockchain with specific properties that could scale globally and truly handle all global financial systems.

For me, the biggest motivations for creating Solana were: first, the necessity to go all out, and second, not wanting to miss out on a booming market. I think anyone reading this who is still hesitating about whether to invest in AI or other fields, or waiting another six months or a year, will really miss a golden opportunity. Take action now, or better yet, start now.

Unlike BTC and ETH, Solana prioritizes transaction efficiency.

Solana is a high-performance blockchain, and our key use case has always been transactions. If you think of Bitcoin as a store of value/digital gold, then building a store of value isn't an engineering challenge. In reality, ensuring settlement and global availability does require some engineering. Satoshi Nakamoto's PoW algorithm and the Bitcoin white paper excel in this regard. However, you can't develop a Bitcoin Plus version; you can't compete with Bitcoin in this market by adding features or increasing throughput. Ethereum aims to make settlement a viable use case; its philosophy is that after final checkpointing and settlement, you can use the Ethereum ledger as a reliable source of truth.

I never intended to compete in the settlement process. Perhaps there's room for technological improvement in that area, such as adding an execution layer, but I'm more interested in the execution itself. That is, building a global blockchain capable of handling transactions, payments, and all the daily operations users need, all within a single system.

Salana's most unique feature may lie in its vision: without the need for separate blockchains or hierarchical structures, you can integrate all functions into a single massive state machine and complete all operations collaboratively at lightning speed. To give you some context, the transaction volume Solana completed in its first month was equivalent to the total transaction volume Ethereum handled throughout its entire lifespan.

Startup challenges: financing and recruitment

There are many challenges in the early stages of starting a business. For any founder, making progress in the first major approval process can be the biggest obstacle, and the vast majority of companies fail at this stage. I remember attending thousands of meetings back then. Around the end of 2017, I compiled a list of all the venture capital firms in Silicon Valley that might invest in cryptocurrencies. Fortunately, I was in Silicon Valley at the time, which I think is probably why Silicon Valley remains a startup hub: you can meet with thousands of people in a very short period of time and try to pitch your startup idea.

For founders, being able to effectively market their product vision and philosophy is crucial; otherwise, you will never be able to recruit people, sell products, or guide users, whether you are in the B2B or B2C business.

Selling Solana was a completely new experience for me, but also a process of learning and continuous improvement. That's why I believe in Silicon Valley you can build a huge list, force yourself to repeat the effort thousands of times, and ensure you eventually reach the most valuable investors. The more familiar you are with the process, the better you'll sell.

For founders, the goal is to convey information in the most concise way possible. In a short 10-minute conversation, you must ascertain how much the other person already knows about cryptocurrency, because you don't want to repeat what they already know. You also need to explain, in the shortest possible time, the specific problems your product is solving and its impact, and show them how the world will change based on the principles of cryptocurrency.

My strategy at the time (I don't know if this strategy works for all founders) was to first pitch to the company, then to the partner. Even if the company ultimately backed out, I could still convince the partner to commit, making them more likely to connect me with other venture capital firms they knew that invested in the field. Ultimately, this allowed me to attend thousands of meetings and find companies focused on the crypto space and more willing to take risks at an early stage, because the venture capitalists who invest are both employees of the companies and also make personal investments.

In fact, we had already completed a funding round and were almost done with it. This was in the first quarter of 2018, and there wasn't a standard, secure, and reliable investment template for cryptocurrencies that could be quickly provided to investors. We spent six weeks having lawyers draft the relevant documents. But during this time, Ethereum started to fall, by about 10%, and many funds went bankrupt as a result—this was the first challenge we encountered in the early stages. Even so, quite a few people were willing to participate. They weren't entirely crypto funds, nor were they 100% invested in cryptocurrencies; their balance sheets held more US dollars, but they saw this investment as an opportunity. We eventually completed this funding round, but the situation was quite volatile at the time.

At the time, I was sitting in the 500 Startups (now 500 Global) office with another co-founder, Raj (because one of our investors came from 500 Startups). He said, “I feel like I have to work hard, I have to go all out.” I thought that once a product had investment commitments, it was very likely to snowball and eventually turn into actual checks, but my advice was to keep raising funds until you actually had money in your bank account.

I believe the second challenge was recruitment. However, I was fortunate that many of my former colleagues at Qualcomm were eager to do something new, and these individuals all had over ten years of experience in low-level operating systems or protocols. For example, one of the people involved in the development of the Solana protocol had also participated in the formulation of the LTE specification. These people, with their deep understanding of networks, operating systems, GPUs, CPUs, and low-level chips, understood what I meant when I told them, "Since you're going to change jobs anyway, you can treat building Solana as a vacation."

I hired a group of experts in their respective fields whom I knew very well, and everyone quickly got to work, starting to build what I considered to be the most advanced network at the time. As it turned out, Solana was miles ahead of all its competitors from the very beginning.

From the founders' alignment to Solana having PMF

When it comes to work partners, the best way to describe my relationship with Raj is like a romantic relationship—it requires complete commitment. Raj was introduced to me by a mutual friend. At the time, I didn't have much of an impression of him; he seemed like an ordinary person. My friend specifically said, "You're a great engineer, but you don't have any other experience. You need someone who complements you. Raj previously founded a company and did very well, but he has absolutely no engineering experience. You two are a perfect match." We get along very well, and my wife basically calls our relationship a "work marriage."

Our decision-making process was indeed exhausting, but in that high-pressure, fast-paced environment, we would repeatedly debate some viewpoints until we eliminated all obviously bad options, and finally only what I call the Pareto-optimal set of options remained (Pareto efficient means that there is no room for further improvement). We could choose A, B, and C, and all the trade-offs seemed about the same. We had discussed almost all possible directions, and at this point, it almost came down to luck.

It's exhausting and requires immense stamina. It also demands mutual trust and confidence in each other's judgment. I believe both the CEO and the initial employees or co-founders need this kind of personality—able to engage in heated debates based on mutual trust, while still maintaining a sense of mutual respect. It's quite difficult; I enjoy debating, and I don't mind losing. Many of a CEO's flaws or personality traits ultimately influence the company culture, and in the early stages of a company, anything can spark debate.

Strive to build your product and complete development as quickly as possible, but you can't anticipate all possible failures. Should you assume you'll succeed and then invest in developing auxiliary features to solidify that success and launch the product more effectively? Or should you focus on developing the product well, proving your capabilities, and then add other enhancements later? In the early stages, especially when developing complex products, you'll have to make many of these decisions.

Startup books like Peter Thiel's *From Nothing to Something* offer a lot of great advice, and the best advice you can get is to build a Minimum Viable Product (MVP)—the smallest product that can validate your idea—but this is actually very difficult to define. Therefore, you have to find your niche market. We spent some time doing this, and it was almost forced upon us, probably in the second year of our development cycle.

At that point, we only had about 12 months of funding left (out of a total of 24 months), and the product still couldn't function properly. We had no choice but to cut all features except for the existing ones, release the product as quickly as possible, and minimize the necessary changes. This allowed us to seize the market opportunity and launch a product completely different from all others on the market.

To some extent, during the first year of developing Solana, I wanted to take as much product risk as possible and build a top-notch product. This was indeed part of our vision, and by the end of that year, we had developed a series of features and taken on about eight technical risks. If you only risk trying one technology, the probability of success is 50%. But if you try eight technologies, the probability of all eight succeeding is only 1 in 256. So, the probability of failure is high, various problems arise one after another, and then you have to find ways to fix them and make repeated adjustments before you can launch it to the market.

But it was precisely because of these decisions that we took on these risks early on, which resulted in a range of differentiated features that are more or less effective. They are not perfect, but we have indeed expanded capacity and reduced latency, and the development experience on Salana is completely different from any other platform.

At the time, Ethereum used the Proof-of-Work (PoW) mechanism, where a block took about 12 seconds to generate, but you had to wait at least two blocks for a transaction to be confirmed as final. Therefore, users had to wait 30 seconds to confirm a transaction, resulting in a terrible user experience. Furthermore, a processing capacity of 7 or 11 transactions per second was far too low for any application of any size.

We achieved final confirmation for thousands of transactions in just 400 milliseconds, which, including all server-side round-trip time, was only one to two seconds. Users and developers alike were astonished by Solana's performance, as it was so different, despite the product's inherent limitations at the time. It could run, but it would crash after about an hour.

Next came the timeline for a stable market launch, which was the most stressful part. This required cutting things, such as supporting EVM, supporting a certain programming language, needing a high-end browser, or launching our own wallet stack. Stripping away these elements and then getting the most basic version to market as quickly as possible was crucial. However, I think defining a minimum viable product (MPF) that achieves product-market fit—high capacity, low latency, and removing all other features—is very difficult because you simply don't know how much to sacrifice or what developers truly care about. We were fortunate because our previous experience developing operating systems and developer platforms greatly helped us make most of the right choices and the final result.

But I think the most difficult part is the product's sustainability. Cryptocurrencies can bring a lot of deceptive viral effects. Your token price might skyrocket, but you don't actually have any users; you're disconnected from your users. We didn't have much of a user base at the time, but the SOL token price was rising, and we needed to take advantage of this opportunity to accumulate as many real-world user cases as possible. If we missed this opportunity, it would be very difficult to recover.

We had good luck at the first hackathon; many people submitted projects, but their applications were all junk. It wasn't until the second hackathon that I felt, "Wow, we think we've found our direction!" The projects from the first hackathon, after three months of continuous improvement, resulted in a very complete and feature-rich product that truly aligned with our overall vision for finance, trading, and DeFi.

During the second hackathon, while judging the entries, I found significant differences in quality, usability, business models, and actual entrepreneurial capabilities (such as the ability to raise funds and survive). Seeing these companies secure funding during the hackathon gave me the feeling that we now had product-market fit, were part of our core business, and had a path to profitability.

So I think that was the biggest change since Solana launched. I mean, considering all factors, reaching this stage within a year of product launch is incredibly lucky. Most companies spend years figuring out the best product-market fit, and I think it takes about ten years to truly build a company.

Solana, from high spirits to sudden devastation, struggles to survive in the crisis.

Then came one of the worst downturns we experienced in the industry—the FTX incident. As everyone knows, FTX is one of our largest investors and partners. It happened during our third Breakpoint conference, a huge event that attracted approximately 1,600 developers. We had sold out of tickets, and then, on our return flight, FTX crashed.

That's how it was. On the plane, when everything seemed to be going smoothly, FTX crashed, crypto prices plummeted, and the market was in a slump. It was a massive collapse that could have destroyed the entire ecosystem. Solana was founded at the beginning of the 2018 bear market, when Ethereum was falling 10% every week. So we were very cautious; we never overhired, and the company had ample internal funding and resources to develop and improve the product.

I was terrified at the time. Many Solana ecosystem projects that raised funds on FTX actually left their funds on FTX because if their funding chain broke, it would be all over. There would be no way to replenish the funds, and all the funds would be completely exhausted.

Fortunately, we conducted a large survey, which revealed that 85% of the companies were doing well, while 15% were completely bankrupt. One promising company among them was Armani's Backpack. They were developing a wallet and had just completed a funding round of approximately $10 million, all of which was tied up in FTX and inaccessible. They only had a few million dollars left and were planning to double their team size, build a product, and complete their remaining seed funding round. At the time, they only had about six people. I think most of these companies would have failed, but they survived.

Despite losing a significant portion of their funds, Backpack doubled down and truly focused on the product. I believe they turned things around by launching the Mad Labs NFT series and establishing an exchange. I think Armani's anger towards FTX and his desire to build a better exchange fueled this shift. Like the energy of a founder driven by anger, I think they captured the attention of the NFT market and the entire industry when they launched Mad Labs, holding that attention for a full two weeks. It felt like a complete turning point; you see many companies doubling down and revitalizing themselves.

Just like a bull market comeback. One of the biggest lessons I learned is that building a company during a bull market is actually very difficult, especially in the cryptocurrency space, because the signal distortion is so severe. You don't know who your core users are, or which features are truly important to your product and growth.

However, during market downturns, if you have 10 to 20 loyal users who frequently use your product, especially in the financial sector, and if you have a deep understanding of the value your product brings to them and continuously optimize it, making it better every week, then you will see tremendous growth during bull markets. This is because, firstly, these users will become your biggest ambassadors, and secondly, your product will be highly optimized for specific purposes.

The product already has a good fit with the market, and the financial industry is highly cyclical. During a bull market, time risk can generate huge trading volumes and revenues. Therefore, you need to make your product highly optimized and ready to scale, regardless of your business model.

So it's really interesting to see the companies I interviewed after FTX crashed; they were basically all saying, "We'll keep optimizing our product. We still have enough funding. Let's see what happens next year." All of these companies succeeded, and did an excellent job.

The most serious issue was that the price of SOL plummeted by 97% from its peak, leading most people to believe that SOL was dead.

I now feel incredibly fortunate to have a co-founder who loves crises. Some people are naturally better suited to operating during crises because your decision-making is constrained, and you have to act swiftly. Our main focus was communicating with founders who wanted to continue developing their companies, helping them grow, achieving product-market fit, and clearing obstacles for them as much as possible. However, we couldn't provide financial support at the time because we were completely out of funds.

Regarding the FTX incident, I was quite surprised by Sam's situation. As you saw in the interview, he was the kind of super nerd, a quantitative analyst from MIT, a geek. They went completely bankrupt. But I find it unbelievable to think about the potential damage caused by that chaos.

With improved regulation, will the crypto space experience even more chaos in the future?

I believe the frequency of hacking attacks on engineering projects has decreased significantly, largely due to reduced innovation in smart contracts and the fact that many uses of blockchain have been explored. Smart contracts are becoming commoditized; once deployed, you only need a certain number of CPMM (Automated Market Maker) providers, eliminating the need to take the huge engineering risks of building another one.

Similarly, with Bonding Curve, lending protocols, and others, you'll see a reduction in the attack surface. Any significant innovation in the smart contract space is accompanied by considerable risk. Beyond that, I believe we now have better tools, formal verification, better testing, and a deeper understanding of relevant attack vectors, and people are doing a better job of deploying them. The risk has decreased significantly, and with the launch of new financial systems, their risk is even lower, for the simple reason that they rely more heavily on on-chain technology.

Regulatory issues are a major problem for many exchanges and institutions. If regulations are too strict, they become excessively time-consuming and costly. For example, obtaining a license might take two years, but it's impractical to wait two years to gain market share. Projects often choose to relocate their operations overseas where regulations are less stringent, leveraging the less robust banking infrastructure in those markets. This leads to a host of problems. I believe many failures in the last economic cycle stemmed from this very issue.

The US now has stablecoin legislation, and the SEC has reformed itself, making it much easier to start a business there. However, the US is indeed lagging behind. Japan, France, and the UK have all enacted cryptocurrency-related laws, making cryptocurrency development much easier. Japan is probably the best place; people from developed countries are all getting involved in cryptocurrencies. This is why projects like FTX Japan have been so successful; they are actually far ahead, but compared to the US, the Japanese market is indeed smaller.

Looking to the future, Solana's vision is to devour financial services.

There are no engineering or technical reasons preventing Solana's development. Solana's grand vision is to handle payments, transactions, contracts, IPOs, and all other business processes, all within a single execution engine and on a single chain. Accelerating the flow of dollars, enabling participation in IPO markets, and completing any transaction globally—this is an engineering feat requiring immense effort and time to optimize and perfect. However, from an engineering perspective, there is no reason to stop its existence.

So this is what we really want to build: if this system exists and has Product-Market Fit (PMF), and everyone is using it, then you can actually reduce financial costs to the same minimum level as physical costs. This can also be described as the final state of software devouring the world (i.e., the financial world).

The Solana ecosystem has many advantages because it's a market that's been developing for a longer time, is growing faster, and is still growing. However, I think the competition to achieve this vision will be extremely fierce. I'm unsure if a blockchain as large as Google's will emerge, capable of handling 99% of important transactions. There are two main reasons for this: first, countries with unique regulatory systems and firewalls might have their own blockchains; second, everyone wants a piece of the pie.

Even Google has launched its own blockchain. What will happen to fintech companies and related businesses in the future? For example, which platform will be responsible for guiding retail investors? How will these integrations be carried out? It's still uncertain, but I think Solana is that platform, so let's wait and see.

Moving in this direction, what I truly want to see in the future is for companies in the US and Silicon Valley that want to go public to complete their IPOs faster and at a lower cost through a simple method I call a "Linux IPO from scratch." Founders like myself, if they want to do this, can use immutable on-chain smart contracts. This can be written into the S1 filing submitted to the US SEC, stating that you are using this contract for a direct listing on this public, commercial blockchain. These contracts have auction properties, and I can directly list my equity on the chain, which will become the true source of the equity structure table and allow the public to access this information at any stage of the company's formation, without paying any fees to any investment banks, without any indirect costs, and all incentives and any fees you would normally pay to banks can be used to incentivize AMMs to provide liquidity.

This would be my ideal way of operating because once this happens, it will dramatically change how companies obtain capital and how the public engages with early-stage companies.

I believe one of the most important components of the American Dream is the free market. You know, I came to the United States from the Soviet Union in 1982, when the internet was emerging and companies like Microsoft and Amazon were growing rapidly. They were building the future, and today these companies are trillion-dollar giants. I think that the fact that people could buy Amazon stock in the 1990s was undoubtedly a huge gift to America, or rather, a huge value proposition. And now, the number of publicly traded companies in the United States is probably the lowest since the 1970s, or the lowest number of IPOs. So, if we can provide founders with the tools to complete an IPO at the lowest cost, the fastest speed, and with the fewest legal fees, I think that will dramatically change the entire industry landscape.

I think this is part of a really cool sci-fi future where everyone in the world can access financial services at the lowest possible cost and at near the speed of light. I think it's one of the coolest projects I could be involved in.

Bonus Chapter: The Future of Crypto – Stablecoins Dominate

I'm seeing cryptocurrencies being effectively adopted by Wall Street and some global institutions, with stablecoins being a major driver of this institutional adoption. The Genius Act passed by Congress created a framework for issuing stablecoins and beginning to achieve product-market fit, far superior to any traditional bank's funding interface. Even building all fintech products on top of traditional banks is far less efficient than using stablecoins. Therefore, this will be a major driving force, with expectations of $10 trillion worth of stablecoins being issued over the next 5 to 10 years. Currently, the total issuance of stablecoins is around $250 billion (note: it has actually exceeded $300 billion), representing a several-fold increase, and this liquidity will flow into every financial-related industry you can imagine.

If you are a founder with a passion for fintech, or if you want to build a fintech company, I would probably suggest building your business around stablecoins. You could choose to interface with existing stablecoins and manage various different stablecoins, or build your own stablecoin for a specific purpose.

Translator's Reflections

From concept to action, Solana has experienced highs, lows, and rebirths over the past eight years. Solana's co-founders are among the most passionate founders I've ever met. They possess advanced technology, understand operations and risk mitigation, have weathered crises and navigated them successfully, and are full of confidence and execution in their future vision—these are true crypto builders. At this moment, the heart of a Solana defender is warming up once again.