Original Video: NEW ECONOMIES

Compiled by: CryptoLeo (@LeoAndCrypto)

In a sluggish market, a qualified SOL guardian is here to try to bolster your faith. Solana co-founder Anatoly Yakovenko was interviewed by NEW ECONOMIES in November, discussing the origins and development of Solana, its lows and recovery, as well as regulatory and stablecoin-related topics. Additionally, Anatoly outlined a grand vision for the future of Solana. Odaily Planet Daily has compiled the key points as follows (due to the abundance of trivial content, the key points are narrated in the first person):

The Origins of Solana: From Side Project to Full-Time

Solana originated from a moment of "timing, location, and people coming together." At that time, a friend and I were working on a startup project, or more accurately, a side project, where we were doing AI-related things, such as deep learning servers, and we were also using these GPUs to mine cryptocurrency to pay for the GPUs. But a question arose in my mind: why would people spend money on our AI-related products? After a couple of coffees and a beer, my partner and I started discussing mining, PoW, Satoshi's consensus, and algorithms, as well as why electricity is so crucial in this process.

Most of my career has been spent as an engineer at Qualcomm. Most people should know that Qualcomm is deeply involved in wireless protocols, radio technology, and mobile phones. Your phone likely uses Qualcomm products, and some may even be products I helped develop.

That day, I stayed up until 4 AM, and suddenly had a flash of inspiration about encoding the passage of time into a data structure. I thought of the protocol originally used in cellular networks, called Time Division Multiple Access (TDMA). This concept first appeared in the 1960s and 70s and is very simple: divide time into segments and use different time slots to transmit data, which prevents interference and allows more information to pass through. I thought of this because Bitcoin and the PoW mechanism face similar issues.

If there are two block producers, two miners generating blocks simultaneously, a fork will occur, and the network will be in chaos, making it impossible to transmit information normally. You have to discard one of the blocks. So, if you can allow two miners to take turns producing blocks, you can avoid conflicts and maximize the bandwidth utilization of the protocol. I roughly calculated that its throughput was 1000 to 10000 times higher than that of Ethereum or Bitcoin at the time.

With this idea in mind, I thought maybe I should start a company. The smart contract platform genuinely intrigued me because it provides developers with a completely new application development environment, and these applications are different from anything built elsewhere, so you can't directly build smart contracts on a regular AWS server. You need the verifiability, cryptographic guarantees, etc., provided by the blockchain, which makes it possible to write code that can handle funds.

At that time, many people believed that databases on Wall Street controlled the funds, monitored by humans, and many products were just optimizing the work of these people. Smart contracts, however, are entirely different; the software itself is responsible for holding funds and is the sole authoritative source of the flow of funds, so in a way, smart contracts disrupt the entire data model.

Boldly Chasing What You Believe in at the Start of Entrepreneurship

At the beginning of my entrepreneurial journey, I needed to persuade many people, and my wife was the first person I needed to convince. She is an engineer and knows me well; I have always had side projects, always putting some ideas into practice in my spare time. We already had a child, and she said, "Okay, this might be feasible, but you can't be a worker, a father, and a part-time entrepreneur at the same time. You have to choose one: either go all in or give up."

It was this statement that prompted my decision to start a business. I remember she was in Colombia at the time, Facebook was expanding, and she was working at a startup that was a competitor to Facebook, which was still in its early stages. What she learned there was that the market goes through about six months of a boom period, where everyone knows that a product in development will capture 80% of the market share, possessing certain explosive characteristics. If you miss that window, you will never catch up. So at the end of 2017, I felt it was the best window to build an L1 blockchain with specific attributes that could scale globally and truly handle all global financial systems.

For me, the biggest motivation to create Solana was: first, I had to go all in, and second, I didn't want to miss out during a market boom. I think anyone reading this who is still hesitating about diving into AI or other fields should wait another six months or a year; you will really miss the opportunity. Act now, and if you have already started, that's even better.

Unlike BTC and ETH, Solana Pursues Transaction Efficiency

Solana is a high-performance blockchain, and the key use case we have always pursued is transactions. If you view Bitcoin as a means of storing value/digital gold, then building a value storage mechanism is not an engineering challenge. In fact, ensuring settlement and global availability does require some engineering techniques. Satoshi's PoW algorithm and the Bitcoin white paper excel in this regard. However, you cannot develop a Bitcoin Plus version; you cannot compete with Bitcoin in this market by adding features or increasing throughput. Ethereum's goal is to treat settlement as an application scenario, with the idea that after execution and settlement at the final checkpoint, you can use the Ethereum ledger as a reliable source of truth.

I never thought about competing in the settlement phase; perhaps there is still some room for technical improvements, such as adding an execution layer, but I am more interested in the execution itself. That is, building a global blockchain capable of handling transactions, payments, and everything users need in their daily operations, all of which can be accomplished within one system.

What makes Solana unique may be its vision: no need for independent blockchains or hierarchical structures; you can integrate all functions into one massive state machine and collaborate to complete all operations at the fastest speed. To give you a data point, the transaction volume completed by Solana in its first month was equivalent to the total transaction volume of Ethereum throughout its lifecycle at that time.

Challenges of Entrepreneurship: Funding and Recruitment

There were many challenges in the early stages of entrepreneurship. For any founder, making progress in the first important approval stage may be the biggest obstacle, and the vast majority of companies fail at this stage. I remember having thousands of meetings; around the end of 2017, I listed all the venture capital firms in Silicon Valley that might invest in cryptocurrency. Fortunately, I was in Silicon Valley at the time, which I think is why it remains a startup hub: you can meet thousands of people in a short time and try to pitch your startup idea.

For founders, being able to effectively pitch the product vision and concept is key; otherwise, you will never be able to recruit people, sell products, or guide users, whether you are doing B2B or B2C.

Pitching Solana was a new experience for me and a process of learning and continuous improvement. This is why I believe you can build a massive list in Silicon Valley, forcing yourself to repeat thousands of efforts to ensure you eventually reach the most valuable investors. The more familiar you are with the process, the better your pitch becomes.

For founders, you are trying to convey information in the most concise way. In a brief 10-minute conversation, you must figure out 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 time possible the specific problems the product is solving and its impact, and help them see what changes the world will undergo based on the concept of cryptocurrency.

The strategy I used at the time (I don't know if this strategy applies to all founders) was to first pitch the company, then pitch that partner. Even if the company ultimately passes, I can persuade the partner to seek a commitment, making them more likely to connect me with other venture capital firms they know that invest in this field. Ultimately, this allowed me to attend thousands of meetings and find those focused on the crypto space who were more willing to take risks in the early stages, as the venture capitalists investing were also employees of the company, investing for the company and also making private investments.

In fact, we had already completed a round of funding and were almost done. It was the first quarter of 2018, and there was no standard, secure, and reliable investment template for cryptocurrency that could be quickly provided to investors. We spent six weeks having lawyers draft the relevant documents. But during that time, Ethereum started to decline by about 10%, and many funds went bankrupt as a result; this was the first challenge we faced in the early stages. Even so, many were willing to participate; they were not entirely crypto funds and did not invest 100% in cryptocurrency; their balance sheets held more dollars but viewed this investment as an opportunity. In the end, we completed this round of funding, but the situation was quite unstable at that time.

At that time, I was sitting in the 500 Startups (now renamed 500 Global) office with another co-founder, Raj (because one of the investors came from 500 Startups). He said, "I feel like I have to work hard, I have to fight." At that time, I thought that once the product had an investment commitment, it was likely to snowball and eventually turn into actual checks, but my advice is to keep fundraising until you really have money in your bank account.

I think the second challenge is recruitment. However, I was lucky; many former colleagues from Qualcomm were eager to do something new, and these people had over ten years of experience in underlying operating systems or protocols. For example, one of the developers involved in the Solana protocol had participated in the development of LTE specifications. These individuals, who had a deep understanding of networks, operating systems, GPUs, CPUs, and underlying chips, could understand what I was saying to them: "Anyway, you are going to change jobs, so you can consider building Solana as a vacation."

I hired some experts in their respective fields whom I knew very well, and everyone quickly got into the groove, starting to build what I believed was the most advanced network at the time. It turned out that at launch, Solana was already several streets ahead of all its competitors.

From Founder Alignment to Solana Achieving PMF

When it comes to work partners, the best way to describe my relationship with Raj is that it's like being in a romantic relationship, requiring full commitment. I was introduced to Raj by a mutual friend, and at the time, I didn't have much of an impression of him; he seemed like an ordinary person. The mutual friend specifically said, "You're a great engineer, but you lack other experience. You need someone who can complement you. Raj has previously founded a company and did very well, but he has no engineering experience at all, so you two are a good fit." We got along well, and my wife basically referred to us as a "work marriage."

Our decision-making process is indeed exhausting, but in that high-pressure, fast-paced environment, we would repeatedly debate certain viewpoints until we eliminated all obviously bad options, leaving only what I call the Pareto efficient option set (where there is no room for further improvement). We could choose A, B, or C, and all the trade-offs seemed similar. We had discussed almost every possible direction, and at this point, it was almost down to luck.

This is tiring and requires a lot of endurance. It also requires mutual trust, believing in each other's judgment. I think CEOs and the initial employees or co-founders need this kind of character; they can have intense debates based on mutual trust, but still feel that everyone respects each other. This is quite difficult; I enjoy debating, and I don't mind losing. Many of the CEO's shortcomings or personality traits will ultimately affect the company culture, and in the early stages of the company, any factor can trigger a debate.

We worked hard to build the product and complete development as quickly as possible, but you can't anticipate all possible failures. Should you assume you will succeed and then invest funds to develop some auxiliary features to solidify that success and better launch the product? Or should you focus on developing the product well first, proving that you can do it, and then work on other enhancements? In the early stages, especially when developing complex products, you have to make many such decisions.

For example, in entrepreneurial books like Peter Thiel's "Zero to One," there are many excellent pieces of advice, and the best advice you can get is to build a Minimum Viable Product (MVP), which is the smallest product that can validate your idea, but this is actually hard to define. So you have to find your niche market. We spent some time doing this, and it was almost forced, probably in the second year of our development cycle.

At that time, we had about 12 months of funding left (a total of 24 months of funding), and the product still wasn't functioning properly. We had to cut all other features except for the existing ones, release the product as soon as possible, and minimize the changes needed. This allowed us to seize the market opportunity and launch a product that was completely different from all other products on the market.

In a way, during the first year of developing Solana, I wanted to take on as much product risk as possible and aimed to create a top-notch product. This was indeed part of our vision. By the end of that year, we had developed a series of features and taken on about eight technical risks. If you only take a risk on one technology, the probability of success is 50%. But if you try eight technologies, the probability of all eight succeeding is only 1/256. So, the chance of failure is high, and various problems arise, and then you have to find ways to fix them and make adjustments repeatedly to push it to market.

But because of these decisions, we took on these risks early on and ended up with a series of differentiated features that were more or less effective. They weren't perfect, but we did expand capacity and reduce latency, and the development experience based on Solana was completely different from any other platform.

At that time, Ethereum was using a PoW mechanism, and the block generation time was about 12 seconds, but you had to wait for at least two blocks to confirm the finality of a transaction. So, users had to wait 30 seconds to confirm a transaction, which was definitely a poor user experience, and a processing capacity of 7 or 11 transactions per second was too low for any scale of application.

We achieved final confirmation of thousands of transactions in just 400 milliseconds, and including all round-trip times on the server side, it was only one to two seconds. So users or developers who saw Solana's performance were amazed because Solana was so different, even though the product itself was still quite imperfect. But it could run, although it would crash after about an hour.

Then came the timing of stabilizing its market launch, which was also the most stressful thing. You had to cut some things, like supporting EVM, or supporting a certain programming language, or needing an advanced browser, or launching your own wallet stack, etc. Stripping these away and pushing the most basic version to market as quickly as possible. But I think defining a Minimum Viable Product that can achieve product-market fit (PMF), which is ultra-high capacity, low latency, and removing all other features, is very difficult because you have no idea how much you should sacrifice, nor do you know what developers really care about. We were lucky because we basically made most of the right choices and achieved the final results based on our previous experience in developing operating systems and developer platforms.

But I think the hardest part is the product's sustainability; cryptocurrency can bring many deceptive viral effects. Your token price may skyrocket, but in reality, there are no users, and you become disconnected from them. At that time, we didn't have much of a user base, but the SOL token price was rising, and we needed to take advantage of this opportunity to accumulate as many actual user cases as possible. If we missed this opportunity, it would be hard to recover.

We were lucky at the first hackathon; many people submitted their works, but the applications they created were all kinds of messy things. By the second hackathon, I felt, "Wow, it seems like we've found direction," because the works from the first hackathon, after three months of continuous improvement, resulted in a very polished product with complete features that truly aligned with our overall vision for finance, trading, and DeFi.

During the second hackathon, while judging the entries, I noticed a huge disparity in quality, usability, business models, and actual entrepreneurial capabilities (such as whether they could raise funds and survive). Seeing these companies secure funding during the hackathon made me feel that we now had product-market fit, and it was part of our core business with a path to profitability.

So I think this was the biggest change since Solana's launch. I mean, considering all factors, to reach this stage within a year of product release is incredibly fortunate. Most companies take several years to find the best product-market fit, and I believe it takes ten years to truly build a company.

From Enthusiasm to Sudden Setback: Surviving the Crisis of Solana

Then we experienced one of the worst lows in the industry—the FTX incident. As we all know, FTX was one of our largest investors and partners. At that time, we were holding our third Breakpoint conference, which was massive, attracting about 1,600 developers. Our tickets were sold out, and then on the return flight, FTX collapsed.

That was the situation; on the plane, when you feel everything is going smoothly, FTX collapses, and the crypto market crashes, leading to a bleak market, which was essentially a large-scale collapse that could destroy the entire ecosystem. Solana was founded at the beginning of the 2018 bear market when Ethereum was dropping 10% weekly. So we were very cautious; we never overhired, and the company had sufficient funds to develop and improve the product.

I was very scared because many Solana ecosystem projects that had raised funds on FTX actually left their funds on FTX, because if their funding chain broke, it would be over; there would be no way to replenish funds, and all funds would be completely exhausted.

Fortunately, we conducted a large survey, and the results showed that 85% of the companies were doing well, while 15% were completely finished. Among these companies was a promising one called Armani's Backpack, which was developing a wallet. They had just completed a funding round of about $10 million, and all their funds were stuck on FTX and could not be withdrawn. They were left with only a few million dollars and were planning to double their team size to build a product and complete the remaining seed round financing; at that time, they had only about six people. I thought most companies would go under, but they managed to survive.

Despite Backpack losing a significant portion of their funds, they doubled down on their efforts and truly focused on the product. I believe they turned the situation around by launching the Mad Labs NFT series and establishing an exchange. I think Armani's anger towards FTX and the desire to build a better exchange contributed to this transformation. It was like the energy that comes from a founder driven by anger; I felt they attracted the attention of the NFT market and the entire industry when they launched Mad Labs, and it lasted for a full two weeks. It felt like a complete turning point, and you could see many companies doubling down and bouncing back.

It was like the return of a bull market. One of the biggest lessons I learned from this is that building a company during a bull market is actually very difficult, especially in the cryptocurrency space, because the signal distortion is severe. You don't know who your core users are, nor do you know which features are truly important for your product and growth.

But during a market downturn, if you have 10 to 20 loyal users who frequently use your product, especially in finance, if you understand very well what value your product brings to them and continuously optimize it, making it better every week, then during a bull market, you will see tremendous growth because, first, these users will become your biggest advocates, and second, your product will be highly optimized for specific use cases.

The product already has product-market fit, and the financial industry is very cyclical. During a bull market, time risk can generate enormous transaction volumes and revenues, so you need to have your product highly optimized and ready to scale, regardless of what your business model is.

So it was interesting to see the companies I interviewed after the FTX collapse; they were basically saying, "We will continue to optimize the product. We have enough funds. Let's see what happens next year." All these companies succeeded and did very well.

The most severe issue was that SOL's price dropped 97% from its peak, and most people thought SOL was dead.

Now I think it's great to have a co-founder who loves crises; some people are naturally better suited to operate in crises because your decision-making is constrained, and you have to act quickly. What we did the most was communicate with those founders who continued to grow their companies, trying to help them grow, achieve product-market fit, and clear obstacles as much as possible. But we couldn't provide financial support at that time because funds were completely exhausted.

Regarding the FTX incident, I was very surprised by Sam; as you saw in the interview, he was that kind of super nerd, a quant analyst from MIT, a geek. They completely went bankrupt. But thinking about the potential losses caused by that chaos is truly unbelievable.

In a more regulated environment, will there be more chaos in the future of cryptocurrency?

I believe the frequency of engineering-related hacks has significantly decreased, largely due to the reduction in innovations in smart contracts, as many uses of blockchain have already been explored. Smart contracts are beginning to commoditize; once deployed, you only need a certain number of CPMM automated market makers, without the need to take on significant engineering risks to build another one.

Similar trends can be seen with Bonding Curves, lending protocols, and so on, where the attack surface for hackers has shrunk. Whenever there is a surge of innovation in the smart contract space, it is accompanied by many risks. Additionally, I think there are now better tools, formal verification, improved testing, and a deeper understanding of relevant attack vectors, leading to better deployment practices. Risks have decreased significantly, and with the launch of new financial systems, their risks are lower for a simple reason: they rely more on on-chain technology.

Regulatory issues are a major challenge faced by many exchanges or institutions. If regulations are too strict, it can lead to excessive time and costs. For example, obtaining a license might take two years, but you can't wait two years to gain market share. Projects may choose to move their operations to overseas locations with less regulation and utilize banking infrastructures that are not as well-developed as those in the U.S., resulting in various problems. I believe many failures in the last economic cycle stemmed from this.

Now, with the stablecoin bill in the U.S., the SEC has also undergone a transformation, making it much easier to start a business here. However, the U.S. has indeed fallen behind; Japan, France, and the UK have already introduced cryptocurrency-related laws, making it easier for cryptocurrency development. Japan may be the best place, as people from developed countries are getting into cryptocurrency. This is why projects like FTX Japan have been so successful; they are actually far ahead, although the market size in Japan is indeed smaller compared to the U.S.

Future Outlook: Solana's Vision to Dominate Financial Services

There are no engineering or technical reasons preventing the development of Solana. Solana's grand vision is that it can handle payments, transactions, contracts, IPOs, and all other businesses, all of which can be completed within the same execution engine on a single chain. Accelerating the circulation of dollars, participating in the IPO market, and completing any transaction globally is a massive engineering effort that requires a lot of hard work and time to optimize and perfect, but from an engineering perspective, there is no reason to prevent its existence.

So this is what we truly want to build. If this system exists and has PMF, and everyone is using it, then you can actually reduce financial costs to the same minimum level as physical costs, which can be described as the ultimate state of software eating the world (i.e., the financial world).

The Solana ecosystem has many advantages because it is a more mature, faster-growing market that continues to grow. However, I believe the competition to realize this vision will be very fierce. I'm not sure if there will be a blockchain as large as Google that can handle 99% of important transactions. There are two main reasons for this: first, countries with unique regulatory systems and firewalls may have their own blockchains; second, everyone wants a piece of the pie.

Even Google has launched its own chain. What will fintech companies and related businesses look like in the future, such as guiding retail investors to which platforms, etc.? How these integrations will occur is still uncertain, but I believe Solana is that platform, so we will wait and see.

In this direction, what I really want to see in the future is that companies in the U.S. and Silicon Valley that want to go public can do so through a simple method I call "Linux IPO from scratch," achieving IPOs faster and at lower costs. Founders like me, if they want to do this, can use on-chain immutable smart contracts that can be written into the S1 documents submitted to the SEC, stating that you are using this contract to go public on this commercialized public blockchain, which has auction properties. I can directly list my equity on-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 establishment without paying any fees to investment banks, incurring no indirect costs, and all incentives and any fees you typically pay to banks can be used to incentivize AMMs to provide liquidity.

This would be my ideal way of operation because once this happens, it will greatly change how companies obtain capital and how the public accesses 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 U.S. from the Soviet Union in 1982, when the internet was rising, and companies like Microsoft and Amazon were growing rapidly. They were like building the future, and now these companies have become trillion-dollar giants. I believe that in the 90s, people could buy Amazon stock, which was undoubtedly a huge gift from America or a significant value proposition of the U.S. However, the number of publicly listed companies in the U.S. is possibly at its lowest since the 1970s, or it is the period with the fewest IPOs. So if we can provide founders with tools to complete IPOs at the lowest cost, fastest speed, and with the least legal fees, I believe this will greatly change the entire industry landscape.

I think this is part of that very cool sci-fi future, where everyone globally can access financial services at the lowest possible cost and at speeds comparable to the speed of light. I feel this is one of the coolest projects I can be involved in.

Epilogue: The Future of Cryptocurrency, the Era of Stablecoins

I see cryptocurrencies being effectively adopted by Wall Street and some global institutions, with stablecoins being the main driver of this institutional adoption trend. The "Genius Act" passed by Congress creates a framework for issuing stablecoins and starting to achieve product-market fit, which is far better than any funding interface provided by traditional banks. Even building all fintech products on traditional banking is not as good as using stablecoins. So this will be a major driving force, with expectations that $10 trillion worth of stablecoins will be issued in the next 5 to 10 years. Currently, the issuance of stablecoins is about $250 billion (note: it has actually exceeded $300 billion), which is equivalent to a growth of several times, and this liquidity will flow into all financial-related industries you can think of.

If you are a founder passionate about fintech or want to build a fintech company, I might suggest you build your business around stablecoins, either by integrating with existing stablecoins and managing various stablecoins or by creating your own stablecoin for specific purposes.

Translator's Reflection

From concept to action, Solana has experienced peaks, valleys, and rebirth over nearly eight years. The co-founders of Solana are among the most passionate founders I have seen in the industry; they have advanced technology, understand operations and risk mitigation, have faced crises and emerged unscathed, and are full of confidence and execution power regarding their future vision. They are true crypto builders. At this moment, the heart of a SOL guardian is gradually warming up.

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