Why we never invested in Solana.
We decided that it would be helpful to others to start posting the reasons why we pass on specific projects or specific areas. As with every investment decision, saying NO has the same risks as saying YES, so why treat those two differently?
The first project we will want to talk about is Solana.
When we were pitched Solana, we heard all the “technical” fundamentals of an “ethereum killer”:
⁃ High TPS
⁃ Cheap gas fees
⁃ Yield for staking
⁃ ….
Let’s break down how exactly why the above characteristics need to be thought better before making an investment decision based on what “could be the next ethereum”:
High TPS means way less security, and definitely, TPS != finality. For a blockchain not to be fast, it needs to compromise some of its decentralized characteristics. How do you achieve high TPS and finality among thousands of nodes running in different hardware across the globe? Increasing the block size means having more transactions in every block. Still, it also means that these blocks need more time to get validated, have much more expensive hardware (less affordable), and are more centralized (because there is a physical distance between two nodes running in Asia and the US). On top of that, you will be filling up space (bigger blocks and more blocks -> wasted space, especially if there are no transactions in them).
Cheaper comes from bigger blocks (less competition for block space) and, of course, design decisions. This is not bad but needs to be put into the context of how you maintain cheap at scale. Unfortunately, there is no answer to this.
Yield. There is a lesson in life that either you learn early or you don’t: There is no such thing as free lunch. Yield means inflation. Inflation means higher prices (or less value of the underlying asset). You will get dumped from those in the game earlier whenever there is a high yield. Expecting that, at some point, it will become deflationary is just wishful thinking.
We look for answers to the above points when we talk to L1 blockchains teams, and Solana did not have satisfying answers for the above, so it was a red flag on the technical side.
On the non-technical side now. Solana - and to be fair, most of the L1s we see - have a ton of pre-mined tokens issued to the investors. This is, by definition, security (by US law). SOL and the rest will never be coins. They are just another form of liquid securities.
Finally. The plan to gain adoption. There was non-other than just bribing the developer with free tokens.