Grayscale’s Deeper Dive into SOL

Tune in to our conversation with Raj Gokal, co-founder of Solana. Solana aims to improve blockchain scalability by using a combination of proof of stake consensus and so-called proof of history.

Ray Sharif Askary: Hi, everybody. Welcome to our deeper dive into Solana. I am fortunate enough to be joined here today by Raj Gokal and we are going to give people a few minutes to dial in and see what, wait maybe two minutes or so, and then we'll kick things off.

All right, let's get going. As much as I love, I love sitting awkwardly, I'm just gonna rename myself here. I am Ray Sharif-Askary, I lead investor relations for Grayscale. We are the world's largest cryptocurrency asset manager*. And again, I am fortunate enough to be joined by Raj from Solana, who is the co-founder.

Thank you so much for taking time to join us today and thank you everybody for dialing in.

You know, the purpose of these deeper dives is really to introduce investors to the underlying protocols for which we have products. You know, the developments that have been going on and to really try to make these protocols more tangible for investors, because for many people, as excited as they are about cryptocurrencies and blockchain, it's still pretty abstract. So we wanna break it down and we wanna make it more tangible.

So before we kick things off, I get to read some disclaimers. Nothing that we say today is investment advice. You should always consult your own broker or advisor. This call is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or sell any security and should not be relied upon as a basis for investment decisions. Clients of Grayscale may maintain positions in the digital assets discussed on the call and our private placements, including the Grayscale Solana trust are available only to accredited investors. So with that, let's kick it off. Let's get into the content.

So Raj, can you provide some background on yourself and how Solana came to be created? What was like the problem you were aiming to solve? Talk about the early days, give us the context.

Raj Gokal: Yeah, I think if the audience here remembers 2017 in crypto, it was very early at that stage. You know, Bitcoin was, you know, was a few years old and had kind of proven itself out over many years as a store of value and something akin to digital gold and Ethereum was in its, you know, second or third year and was positioned as a general purpose smart contract platform. And I think a lot of the industry around crypto was pretty captivated with the use, you know, the possible use cases and the dreams for disintermediating large marketplaces and having general purpose smart contracts for, you know, folks to be able to launch all kinds of tokens, you know, everything that we've seen play out today and more.

But I think there was a stark contrast in 2017 with the early successes that happened. So the one that always comes to mind for anyone that was paying attention at that time was CryptoKitties, which was a collectibles game that had, you know, tens of thousands of users concurrently. So it was kind of the first big successful user facing product on Ethereum. And it basically brought the entire network to its knees, gas fees you know, were driven up, latency for transactions, and finality, you know, became untenable. And I think it became pretty clear to the industry that scalability, you know, when it becomes a problem in these distributed systems, it becomes a very big problem, and it's one that, you know, needed solving at a pretty fundamental level.

So Solana was and is one of the approaches in the market to rebuild blockchain for, you know, global scale at the levels that we've seen with things like Visa and NASDAQ, which typically are at least like, you know, thousands or tens of thousands of transactions per second, where at the time, you know, and still today, Ethereum layer one can support about, you know, 14 transactions per second.

So my background is, I spent seven years in Silicon Valley in venture investing and then startups. Started, you know, a venture backed medical device and consumer wearables company. I was in digital health selling to health insurance companies, and I think, you know, we were really trying to rebuild healthcare. I think at that phase, there were a lot of folks that were looking at regulated industries like healthcare and saying, you know, what is a product wedge that we can use is to rebuild the whole industry and how value is delivered. And some of that was successful, but at the same time, there was a growing ground swell mostly amongst engineers about the idea that finance could also be rebuilt, and that, you know, maybe in a more fundamental way using things like Bitcoin and smart contracts, you know, that prime time was quickly approaching.

And so when I thought about what to do next after my sensor business and after helping Omada Health scale up and kind of trade all the health plans, I was thinking about doing something else in health tech, but I reconnected with Anatoly who had spent, you know, that entire time in our early careers. His story is from Qualcomm. So he was solving most of the hardest, you know, distributed systems and operating systems, and embedded systems problems at Qualcomm. And I think the most famous project that he worked on was Brew, which was the operating system that powered almost a billion flip phones and scaled from 2G to 4G. So Anatoly, if you've ever heard him on a podcast or you know, or YouTube, is just absolutely a technical genius. He's probably one of the best people in the world at scaling distributed systems and he's done it his whole career. And you know, he had a pretty clear idea for how these architectures should work in a way that gets out of the way of network bandwidth improvements and hardware improvements, which happen, you know, every year or two, you can reliably expect that hardware gets faster. So you know, the way that he reimagined blockchain architecture was you know, was one that we expect to scale forever and improve naturally with those hardware and network bandwidth improvements. And that's how Solana was born.

So Anatoly started writing The White Paper in 2017, we raised money in early 2018, and launched the Main Net in 2020. And since then, the network's been growing and scaling and has adoption that I think has even surprised us.

Ray Sharif Askary:  So before we get into, I think you actually gave people the answer. So we'll see if people are listening, but I have a couple of poll questions before we continue with the rest. So let's kick these off. Do people know what Solana is? Let's see the answers are coming in. Is it a blockchain focused on peer-to-peer transactions? Publicly traded blockchain based crypto work with smart contract functionality. Platform for minting a diverse and curated collection of space alien NFTs, or a Hyperloop project meant to connect San Francisco and LA? I'm gonna go with C. All right let's see. Sounds like people are pretty up to speed.

Raj Gokal:  So the reality is like the first three really are technically correct, because it's a general purpose blockchain. There is a token that is used for kind of the equivalent of what gas fees are on Ethereum. So the sole token is used for accessing the Solana blockchain. It's a general purpose blockchain. And you know that question mentioned NFTs. It is, you know, the network with the most NFTs minted in the last, you know, eight months. And it's also used for DeFi and for peer-to-peer transactions. So it's a general purpose platform.

Ray Sharif Askary:   I wanna talk more about NFTs.

So let's do the one more poll question here, which you've already answered, but who was listening? In what year was Solana created? 2020, 1857, 2017 or 2018. If you see me giggling, you can guess who, who made these answer choices?

Okay, not bad. People did pretty well with this one. So I wanna, you know, we talked about technical geniuses. I am somebody that is not a technical genius. So I would like you to just take a big step back and explain, you know, what exactly Solana is to me like I'm five years old and maybe also throw in kind of a quick overview on what a smart contract is in layperson terms.

Raj Gokal: Yeah, sure. So Solana, yeah, in five year old terms it's always a kind of difficult to explain, but I think, you know, the simplest way to put it, if you know how email works, you know, email is a protocol. It's not a program. It's not a company. Email is just a format for how, you know, many computers can talk to each other over the internet. And all Blockchains are also protocols and Solana is a protocol for moving value and for executing smart contracts.

So what is a smart contract? A smart contract is, you could think of it like a program that can run as a protocol , where instead of having a centralized database, that you know, that Facebook owns and protects access to, only Facebook can read and write to that database, and they're effectively charging users and advertisers to be able to publish to that database and read from that database, or instead of NASDAQ having a centralized database that represents the ledger for all, you know, asset trades, or instead of JP Morgan having a centralized database that they use to keep track of bars and lenders and account balances, a smart contract can govern the use of an open database that anyone can publish and access. And that's what tokens are used for. They're, you know, effectively open permissionless assets that can be traded without anyone's permission to serve as credits that access this open permissionless database.

So Solana, you know, as I mentioned before, focused on building this, you know, value network, this open permissionless database in a way that brings costs down to the physical limitations. So we wanna be bound by physics wherever we can, if you know, if there's a cost to the hardware and you know, and the actual machines around the world in you know, over a hundred countries that run the network, that should effectively be the cost of running the network. There's a cost of network bandwidth for messaging across the network to, you know, to maintain consensus, that should be, you know, the cost to participants.

So Solana is, you know, the cheapest, fastest version of these, you know, permissionless blockchains and it intends to always be. I've definitely violated the five year old rule because I'm sure most five year olds wouldn't be keeping up by now.

Ray Sharif Askary: No, I think you did great. So can I think about it as these are highways and Solana is a fast highway that people can use and sometimes other highways get congested and there's a lot of traffic in these different platforms or like highways.

Raj Gokal: Yeah, I think that's a way to think about it. And I think, you know, imagine a highway where, you know, as it gets cheaper to, you know, as concrete gets cheaper, the highway just naturally expands, right? So whereas asphalt gets cheaper. And imagine that this is a world where asphalt is always getting cheaper. That's Morey's Law. So since the sixties, the price performance of computing has been increasing by about 2X every two years, which is why all of our phones are getting faster, all of our computers are getting faster. And so you know, with that trend we expect for Solana to improve and it already has over the last couple years.

Ray Sharif Askary: So on that note, and I think, you know, you explained it really well, and I don't even know if we need this, but sometimes people like me like to see things visually. Is there anything from like a demo or anything you can show us that can help people think about Solana in the network?

Raj Gokal: Yeah. Let me pull up a couple things and let's see if I can share. So can everyone see my screen?

Ray Sharif Askary: We see a browser.

Raj Gokal: Okay. So let's, you know, let's start with, first of all, anyone who's used Ethereum in the past probably knows about MetaMask, which is a Chrome extension that acts as a self-custody wallet. Self-custody means that the funds that are stored have zero, you know, zero dollars in my MetaMask. But you know, that means that the funds that are here in the wallet are not held by a centralized third party. So in the analogy that I used earlier of JP Morgan maintaining a ledger, you know, JP Morgan also maintains custody of assets. Here you know, this is a self-custody wallet. Phantom is the Solana, the biggest and most used and adopted Solana wallet. So Phantom is also a Chrome extension that you can download. You can use it in Brave and Safari as well. And you can see your Soul Balance, you can hold tokens, you can also hold NFTs, you know, in this tab within this wallet. So you know, applications that exist on Solana, if you go to solana.com/ecosystem, this you know, this list is very, it's almost always out of date. Hopefully, that's not good. So if you go to solana.com and then click on ecosystem you can see many of the applications that are built using Solana, and I'll show you, let's say, you know, Magic Eden, I'll show you Audius.

And what else can we show you here? We can show you Metaplex. We can show you Saber. We can show you Mango, Mango Markets. So you know, this is an interesting example. Remember what I mentioned about NASDAQ, Mango Markets is, you know, like NASDAQ, it is an exchange, it looks and feels like a centralized exchange, like something that would use or interface users to NASDAQ, but this runs as an entirely on-chain application. So what you're seeing here is an order book, similar to what you'd see in NASDAQ, but each of these bids and asks and cancels every time a user or a bot submits a bid or ask or cancel order, those are on-chain transactions. So you know, this is only possible using something like Solana where, you know, these transactions are about 10, 10 to 20 dollars for a million transactions versus something like Ethereum, you know, where it's tens of dollars per transaction typically.

Solana is also composable. So you know, within Mango there's also a borrowing and lending market that can be used for margin trading within this decentralized exchange. And that borrowing and lending facility can be used outside of this interface, it can be used even, you know, at command line if I wanted to. I could access borrowing and lending, and that's all the same borrowing and lending markets, the same money markets as what exists in Mango. Magic Eden is another example. And I think it's always important to show multiple examples when you talk about a blockchain because, you know, remember Solana's not just a trading, you know, DeFi blockchain, and by the way, you can see my Phantom wallet trying to connect here, because that's the way that I log into this decentralized exchange. I log in by connecting my wallet. And it's a peer-to-peer transaction. Anything that I do with my self-custody funds, they're accessing this program as a protocol, but there's no intermediary, nobody in between the custody funds. And it's the same thing here with Match Eden.

So you know, everyone may have heard of NFTs in the last year, really, really blowing up and taking off. There has been, I think, 9 million NFTs minted on Solana. And one of the earliest famous examples is Degen Ape Academy. So it sounds crazy to most folks who haven't, you know, dived into this stuff, honestly it was pretty surprising and crazy to us as well. We didn't ever expect for the blockchain to be used for this type of thing, but it turns out that, you know, profile photo collections, so these are all generated from on-chain contracts and have, you know, traits like this sailor outfit, the sunglasses, these are all traits with different rarity levels. And those rarity levels determine the scarcity of one profile photo within a collection. And that's what tends to determine price. So you know, this one is 88 SOL, that means it's about, you know, $9,000. And sometimes, you know, users are minting these for only one SOL So users, you know, really are kind of, they're, it's almost like a meme exchange. You could think of it that way.

 And these profile photos, you know, carry with users across all platforms. So you can always set a profile photo in games, in Twitter, in Reddit, and they're immediately recognizable. Twitter even authenticates profile photos and can show the on-chain representation of that picture. But Magic Eden is a general purpose NFT exchange. So you can trade any NFTs. This one is an access pass to Overtime, which is a fantasy sports like March Madness bracket application. And so NFTs are in this very early stage of approving themselves out and showing what they're useful for. I would think of these profile photos as kind of like, if anyone remembers using the internet for the first time and using email for the first time, one of the first things that really spread through the whole internet was that dancing baby gif. You know, and for whatever reason, it was just something that everyone latched onto, everyone knew about it. And you know, because it was so popular, it actually drove adoption of this much more important underlying technology, which was email. We're at that phase right now.

And another thing I'll show is Audius. So similar to how you can run, you know, something like NASDAQ or Coinbase on-chain in the form of something like Mango Markets, Audius is an on-chain, oops sorry, it's an on-chain version of like Spotify. So this is all music streaming in a peer-to-peer way. All of these songs are stored on-chain. If I hit a like button or you know, a repost button or add something to my playlist, those are all on-chain transactions. And why that's important is that, you know, in this type of system, royalties can all be paid directly to artists with no intermediaries. Remixes can pay, you know, a fraction of royalties back to the original creators. If artists collaborate on a song, you know, the same way that if they collaborate on visual art and listed in something like Magic Eden, they can have royalty splits, you know, throughout all time happen on-chain and deposit directly in their Phantom wallet as creators. They don't have to handle these splits in manual ways. And to users, why this is important is, they know that this music is never going away. Many users of Spotify and SoundCloud, for example, have scar tissue from moments where record labels come in and they remove all the music, or you know, the centralized service shuts down and all of their playlists go away. You know that with Audius that's never gonna happen because this is a permanent on-chain program.

Last thing I'll show is you know Metaplex, which is a protocol that drives a lot of these marketplaces, like Magic Eden. This is a protocol where anyone can create and publish NFTs and sell them on-chain with on-chain auctions. And this is the protocol that handles some of those royalty splits that I talked about earlier. So now there's been nine and a half million. I think there's another million NFTs getting minted every like 20 days, and that's growing.

And is another example of a- That link was broken. Saber is another example of an on-chain exchange. This one is particularly focused on the ability to trade out different dollar back stablecoins in a very efficient market. So if you know, if your audience has used things like USDC and USDT, I think there's currently a couple billion dollars, maybe more, of USDC on Solana. And if you wanna trade that out for USDT and have an efficient market for doing so, Saber specializes in that. And again, this is still an exchange that's completely decentralized. It runs as an on-chain smart contract. And so I can connect to it, you know, the same way that I could to Mango through my Phantom app. So this is my universal login for all these applications, to the Solana blockchain.

Sorry, that's a long demo. It's also multiple demos in one, but I think, you know, this is just a taste of the thousands of applications that have been built on Solana and are live today. And you know, we expect that to grow to hundreds of thousands, millions, and you know, lots of competition to play out between these different use cases like NFT marketplaces and margin derivatives exchanges and the like.

Ray Sharif Askary:  That demo was great. And it looks like you showed us for those that are more familiar with the Ethereum ecosystem and the MetaMask wallet and OpenSea, you showed us the analogs. Clearly this is a burgeoning ecosystem, and on that note, you know, Electric Capital did a study that showed that between 2020, the end of 2020 and 2021, you know, the number of developers working on Solana went up by 5X. What do you think? Can you talk more about that and what was driving that?

Raj Gokal: Yeah, I think, you know, if you look at the chart of developers on Solana, it's pretty consistently growing. You don't see developers, you know, that are moving off of Solana to go to other chains. You see developers mainly moving off of other chains to go to Solana, particularly Ethereum, if they've been smart contract developers in the past. And then you also see a share of new developers, we estimated at something like, you know, 50 to 80% depending on what vertical you're talking about. In gaming, for example, you know, often we'll hear from Venture capitalists that, you know, something like 80 to 90% of their new deal flow in gaming is all building on Solana. So I think that, you know, the first thing I just wanna say is that, you know, in any given week or month, the reason the developers are coming or what they tend to be building, it can be completely new and it's rapidly shifting and changing over time.

But what we do see as a consistent growth, and I think it comes from a few areas, one is just word of mouth. You know, the reason that that Solana developers tend to stay is that, you know, they're really appreciative of the extremely difficult work that was required to build something this performant. I think, you know, if you think back to 2017, when we started building something that's this robust and performant at a time when there were only tens of thousands of users and starting that work all the way back then is something that was very, you know, high conviction. It was very difficult. It took a lot of focus and I think engineers really appreciate, you know, the way the architecture was built for performance all the way up. And they trust that that performance is always gonna be, you know, the best in the industry.

The other part is just network effects. So, you know, the way that I describe Mango Markets being able to, you know, serve as a borrowing and lending market, even outside of the interface of Mango or Audius in the ability to play music from Audius within a game that's built on Solana or using even Mango Market order books to trade assets within a game, everything on the Solana ecosystem is composable with each other because it's one big state machine. It's one unsharded chain, and across the rest of the market, you know things like Avalanche Engineer and even Ethereum's path to scale, it's all different versions of sharding. So rollups on Ethereum, you'll see applications that are launched on one rollup and they're rather inaccessible to other applications that are built on another rollups.

Those are problems that haven't been solved. And certainly haven't been, you know, solved in production. A lot of the solutions are kind of theoretical at this point. On Solana it's here, it's live today, and I think developers really just love that they can launch applications right away and start focusing on user acquisition and growth and funding and hiring because they're trying to build the next Spotify, they're trying to build the next NASDAQ, and they don't wanna worry about, you know, having to switch their Layer One protocol. So I think, you know, on one hand architecturally, it's just a very sound decision when CTO's are making the decision. It's kind of a no-brainer. But also that network effect extends to user behaviors as well.

So if you, you know, everyone that was just watching the demos you saw, you know, what the experience looks like using the Phantom wallet, Phantom exists across iOS mobile, and now there's an Android app as well. And there are multiple versions of those wallets and users tend to be pretty sticky to these wallets and the best user experiences in wallet, in user facing wallets, are all on Solana. Phantom is generally, it's pretty widely accepted across crypto to be the best wallet experience in all of crypto, not just, you know, within Solana. And the reason for that is, you know, designers love building for Solana because they can make the user experience they want to see, regardless of thinking about the performance or laginess, or cost, or representing fees to users. They just, you know, can show their user a transaction, what the transaction is, that it's getting signed, and show their account balances. And they can create really delightful experiences around going through that journey rather than, you know, factoring in several minutes of wait times, or trying to communicate to a user, you know, how they might be able to change their gas fee to get their transaction prioritized and deal with, you know, with failure estate for transactions, because the network is too congested. On Solana it just feels more like what people are used to. And I think that really resonates with users and with developers and designers.

Ray Sharif Askary: Let's change gears a little bit, this was the next question on my list, but I'm skimming the questions that -there's like dozens of them- that have been coming up from the audience, and you know, can you speak about Solana in the context of other smart contract platforms? So Ethereum, Luna, Avalanche, you know, what makes Solana different, how we should think about that in that context?

Raj Gokal: Yeah. You know, the differences are pretty multifaceted. So I think we've already talked about the types of applications that are getting built on Solana, you know, the developer experience, the user experience for sending transactions. And I think just to reiterate on the sharding versus non-sharding approach to scaling, I think that's probably the biggest, starkest difference between Solana and everything else in the market. There is not another blockchain that has even claimed to try to get to Solana's level of scalability, without some version of sharding. And sharding, you know, brings a lot of complexity for users. Users need to worry about, you know, shifting their assets between different shards. They need to think about, you know, moving between different layer twos and different rollups on Ethereum and developers need to, you know, deal with how to attract these complexities away from users if they're gonna use sharded blockchains to achieve scalability.

On Solana, it's just one chain, it's one state machine, it's one network for users and all wallets access the same network. And so, you know, that doesn't happen. The reason for that is, you know, it goes back to proof of history. Solana has paralyzed block production, and no other chain has that. And, you know, we had to make that decision, you know, three or four years ago, right? I guess more like four or five years ago at this point, and build a chain from the ground up to achieve that. So I think that's the biggest, you know, difference.

And for anyone who is, you know, Paying attention to kind of blockchain network statistics, I think, you know, anyone who's watching Solana traffic can tell you that every, you know, every second Solana is processing more transactions on that one global state machine than the entire rest of the blockchain industry all the products, all the layer twos combined, and that spread is increasing over time. So things like, you know, Luna and and other blockchains. I think Terra's a good example where they've really focused in on the application layer, and they're launching lots of really slick, intuitive user experiences using their own Tendermint chain, which is one shard of the cosmos blockchain ecosystem. And so they've decided to, you know, use I think a pretty growing trend, which is anybody can launch their own blockchain, but Terra's also interoperable with Solana and now they're bridging their assets over to Solana. So all of these are interoperable with one another. I think the way to think about Solana is that it is the one shard across all of blockchains that is the biggest, it's the highest throughput and it's the cheapest. And so we kind of see it as like the execution layer, anything that you wanna do that's user facing that you want to be fast and snappy and have on-chain settlement is ultimately gonna end up on Solana even if it started somewhere else.

Ray Sharif Askary: So this is a great, so we have a poll question, our final poll question. Solana is very fast. How fast is Solana? I'm gonna pull this up. How long does the Solana transaction take on average?

Raj Gokal: Yeah, so actual finality, oh, sorry. This is I guess your a-

Ray Sharif Askary Yeah, so you don't, you wait, don't answer it, cause I want other people to answer it and then you can, after we've gotten, we've seen what people think.

All right. Can you see the results Raj?

Raj Gokal I can. Yeah. And so this question is, again, everything in blockchain has a few different answers. So 0.4 seconds I guess is probably, you know, the most accurate cuz 400 milliseconds, which is 0.4 seconds is the block time on Solana. And that's a fixed, you know, that's a fixed amount of time for every new block to get produced. Finality is often sub-second on Solana. So that means, you know, all the validators have witnessed and validated a transaction and it's never gonna be rolled back. And occasionally it can get above one second, but this is, you know, generally we're talking about sub-second, one second time horizons for transactions.

Ray Sharif Askary: That's fast. And it looks like people thought it was even faster. If you look at these answers, that's pretty interesting. So knowing that, you know, obviously we- get rid of this poll, Solana's fast, you know, has a really high transaction per second compared to other chains. We've also had outages in the past. Can you talk about these outages? What caused them?

Raj Gokal: Yeah. So the Solana main net, you know, has been in beta since 2020, and I think the level of developer adoption and the amount of cross calling between these applications and the unpredictability of users coming in in waves of, you know, hundreds of thousands at a time.

In 2021, I think we started to see a lot of complexity on-chain transactions that was anticipated. We just didn't know, you know, is it gonna take five years for on-chain activity to reach this level of complexity or is it gonna take, you know, a year? And I think basically the growth was so fast that, you know, levels of kind of architectural roadmap progress needed to be accelerated to be able to handle a level of adoption that, you know, in 2020 was kind of leading to a state where validators were halting the blockchain and halting block production. And the easiest thing to do instead of resolve, you know, these noisy states in the network, was to just halt the network and restart. I think in 2021 we stopped seeing outages. There was one outage in September, but past that we launched another upgrade where, you know, ultimately when you see congestion on the network, that's hard for, you know, for the network to keep up, you see performance degradation instead. So a little bit of slowness, some failed transactions, but not outages, not network halting. And so that's where we're at today.

In the last, I guess since September, you know, five or six months, there haven't been any outages anymore. There have just been a couple times where performance is degraded and that's largely because again, something that was always planned in the roadmap, just better metering of network resources, you know, wasn't in the roadmap and it wasn't prioritized until we started to see things like, you know, hundreds of thousands of people coming and showing up for IDO's, which are, you know, token launches. And so, you know, really the next, I guess in the last two releases, there have been patches applied to make sure that performance degradation doesn't affect users. And in the next couple releases we're gonna see more substantive fee markets and compute resource metering to kind of avoid that problem. We think at least for the next like five or 10X leg of growth in transaction throughput.

So today we're seeing, you know let's say when we first saw the, you know, the first outage I think the network was at maybe like 400 transactions per second. And then, you know, that was the level where we saw some complexity we needed to solve with just, you know, blood, sweat, and tears in engineering. Today we're at about 3000 transactions per second. I think what we expect is every, you know, three to 10X in transaction throughput, there are just engineering challenges that'll come up and we need to solve them as fast as possible.

In the meantime, we don't expect to see any more outages, but congestion and periodic slowdowns and failed transactions can totally happen. I think that's, you know, equivalent to when Twitter was in its early stages of growth, you know, five, 10X'ing every few months, and often the network would just show like a fail well to users.

Ray Sharif Askary: So growing pains associated with exponential growth, scaling, scaling the network.

Raj Gokal: Yeah, that's right. And I think, you know, these are really in peak moments. So Solana and the crypto ecosystem is very oriented around drops and we're getting a lot better at dealing with drops where there are hundreds of thousands of concurrent users.

And also I think, one thing I didn't mention is bots. So, you know, for these drops, you know, sophisticated traders and buyers of NFTs and tokens have been building bots to basically spam the network. And that's how they gain access to tokens and NFTs. Fee markets will basically make those bots useless. And so that's what we expect to come in the next couple releases.

Ray Sharif Askary: So you had a host at a Hacker House in New York. Do you wanna talk about what that was and are there other projects to you that are interesting that you would wanna share?

Raj Gokal:  Yeah, so the Hacker House in New York was one of, you know, I think there have been over 10 at this point, Hacker Houses that are in major cities around the world, starting in the US, you know, San Francisco, Miami, New York, Chicago. Each of these Hacker Houses has a little bit of a different cultural feel.

So LA for example, you know, you see a lot of like TikTok creators, folks that are trying to figure out how they can become creators within the NFT ecosystem. And then there were a lot of like entertainment focus teams, gaming teams, and decentralized social media teams and you know, celebrities passing through. In New York it was a very, very technical audience. And I would say there were probably 200 monitors set up and desks with a stage and people can demo and present what they're working on and kind of talk about the space. And there were, I think over 1500, close to 2000 builders came in and, you know, set up at those desks at various points throughout the week. So the focus I think in New York was a really good cross section of all the verticals that are thriving on Solana because there was a whole corner focused on game development and people were doing play tests and having people just walk up and learn how you can trade in game assets as NFTs or earn in-game currency as on-chain tokens.

There also, you know, obviously is a very strong financial engineering community in New York. And so there were new DeFi protocols getting launched, new Payments protocols, one of the teams at the New York Hacker House within a week built a text message protocol to be able to, so I could just send you a text message, and just by opening the link you have a wallet that has, you know, let's say three or $4 in it, whatever I sent to you and the link is the wallet. If you send that link to someone else, that's now their wallet, or you can change the link or take custody of those assets in your own wallet like Phantom. So right now we're at that stage where, you know, it's like the early internet, people are just figuring out those basic building blocks for new applications and users to, you know, to make use of this technology. And they're still figuring out what can be made because literally sending money with a text message as if it were cash is something that didn't exist, you know, five years ago, much less with the type of performance that Solana provides where it's effectively free.

So I think what we see at the Hacker House is a combination of people onboarding for the first time, learning how to develop and build, building some of these little primitives and Lego building blocks. And then some that are, you know, existing teams, Venture funded. Solana at this point has over 2 billion dollars of Venture funding in ecosystem teams across hundreds of teams. And often these teams will send, you know, five or six engineers to Hacker houses if they're somewhat local or nearby, and because of the composability because of the fact that anyone can effectively partner with another application on-chain just by knowing that it exists and calling to that application, a lot of the times, you know, connecting with the in-person developer ecosystem is really important because then you sense of, you know, who's launched these applications, what their vision is, and how you might be able to connect your applications into something bigger.

Ray Sharif Askary: So what’s your vision and one more question for you that we have written and then we'll take questions that have been coming in. What's your vision for the future for Solana and what are the biggest challenges?

Raj Gokal:  Yeah I mean I think, look we've, you know, we've benchmarked the network to the levels of throughput that Visa can handle at its peak. And I think what I'm interested in seeing is, you know, any applications that can take advantage of that kind of performance. And I think we're still scratching the surface. And right now, you know, with that 3000 transactions per second, there are about two and a half million active wallets. So we're still in the very early days, you know, what did the internet look like when there were 2 million, 3 million users, it was basically hobbyists that we're just talking to each other. I think what we're expecting to see in next year is, particularly gaming, is you know, the gaming community, the existing gaming industry and a cottage industry of small, independent new gaming teams are all refining the user experience and making it really intuitive and understandable what it means to have, you know, custody of your own assets and the ability to transact peer-to-peer to anyone in the world on, you know, on a blockchain network.

And so I think, you know, what I expect to see is a bunch of big breakout gaming hits, where you know, it feels like they are marketplaces, they're exchanges, and they're kind of a toy all at the same time. And I think, you know, we're gonna see young people really latch onto this stuff the way that they latched onto TikTok. And it was, you know, obvious and native and intuitive for them to basically live their entire life on video. You know, now it's gonna be very intuitive and obvious for young people to live their life basically in these games and earning real money. And I think that is gonna, you know, flow out into user behaviors that aren't just games, but you know, real serious applications.

So I think our vision is that Solana is, you know, the price discovery engine for all of these assets, all of this activity, and that it's you know, it's liquid in one global marketplace, and the applications built on top are just, you know, very unfettered in the way that the internet in the early nineties and early days of web too, just felt like a playground. I think that's what we are excited about.

Ray Sharif Askary: What a time to be alive. Alright, let's take some questions. There are a ton of questions. I'll tackle a couple of easy ones that I can do quickly. Okay. Grayscale, we have a product for Solana. if you are an accredited investor and you want to buy Solana through the form of a security, you can buy it through our private placement. To do that, go to our website, or you can write us info@grayscale.com or you can reach out to me on Twitter. The minimum is $25,000. Someone asked about buying Solana in your IRA. Our products, our private placements, yes, you can buy them through self-directed IRAs. Again, feel free to reach out to us, and we will help you with that. So going through some of these, decentralization was a theme. How decentralized is Solana? Is it less decentralized as a trade off for how efficient it is?

Raj Gokal: Yeah, so decentralization is, you know, in my mind it can be broken down into a few components. So how distributed are the machines that are running the network? How distributed is the user base? How distributed it is the ownership of, you know, tokens and assets on the chain? And then I think, you know, besides distribution, there's also censorship resistance. And I think censorship resistance is the part that's easy to measure and a little more substantive than just distribution, but let's start with distribution.

So today, if you go to Solanabeach.io, you can see the list of validators. And there are over 1600 validators in over a hundred countries right now that are running machines permissionlessly that are independent parties that are running the Solana software. And that's, you know, order of magnitude, that's on par with if you're in Bitcoin, if you're in Bitcoin, you know, multiple thousands, they're bigger today, but Solana is growing a lot faster. So even just as little as a month ago, I think this network was below 1500 validators, and today it's over 1600. So it's growing very quickly. It's a two year old network. Distribution takes time. The network started with 40 validators, at the beginning of last year I think it was around 140 and now it's at 1600. So I think what we expect is the performance is gonna hold up even once the distribution and the number of validators goes, you know well past where Ethereum and Bitcoin are today.

And so there's the state of it today, and there's what it can handle. We think it can handle, you know, distribution that's best in class. The censorship resistance typically is measured as the number, the minimum number of participants in the network that would be required to all, you know, coordinate and collude to be able to censor one transaction or halt the network. And in a proof of state network like Solana, that's the 33% threshold, which means how many people do you need to get together to have 33% of stake across these validators? And that number on Solana Beach is very clearly highlighted because this is a number that everyone in the Solana ecosystem cares about, and today that's 20. In proof of work networks, it's not 33%, it's 50% because that's the amount of hash power you need to control to be able to censor transactions throughout the network. And in Bitcoin and Ethereum when you consider the mining pools that are collecting hash it’s estimated to be around 3 or 4. So today, you know, we think that Solana is, you know, in a certain sense, more censorship resistant and is on a path to more distributed network validation than even in the most, you know, what are considered to be the most decentralized networks in the world, which are Bitcoin and Ethereum.

But I think, you know, the market associates decentralization so heavily with Bitcoin and Ethereum because they were first, they were first to establish themselves as decentralized, and I think, you know, people in Ethereum ecosystem especially are very religious about decentralization that I think Solana is gonna have to probably, you know, 2X or 3X it's number of nodes before people really consider it to be a viable, you know, competitor to Ethereum on decentralization. And people that are born and, you know, and made a lot of money on Ethereum may never actually accept Solana as decentralized, and that's just a branding issue. I think it's, you know, it's kind of a perception issue, but what we like to focus in on is the numbers and validators (indiscernible) coefficient, which is censorship resistance, those are the numbers that matter.

Ray Sharif Askary: Can you talk about, someone asked about Solana Pay, adoption in the roadmap going forward?

Raj Gokal: Yeah so Solana Pay, you know, if you consider this network to be basically capable of doing what Visa does, but with effectively no transactions, you have to ask yourself, well why isn't it used for that? And why hasn't crypto been used for Payments in a big way? And I think, you know, the answer is there's a lot that stands in the way. There's a lot that needs to be built on top of those rails for actual adoption to happen. And so the Solana Pay team is led by Sheraz Sheer, who was part of the founding team at Google wallet. He led BD at Amex for eight years. And also the product lead on that team is the former head of product from Venmo. So these are folks that really understand Payments and understand, you know, how hard it is to get a new Payments network to be adopted by merchants and users around the world. And we're not taking for granted the idea that just because it's cheaper and there are, you know, effectively no transaction fees and it's nears zero latency that it'll just naturally get adopted.

So the way Solana Pay started was let's make it really easy for our merchants to be able to, you know, accept Solana transactions and stablecoins at point of sale by being able to throw up a QR code that when scanned generates a transaction for a predetermined amount. And let's make it really easy for anybody that already has Solana wallets, to be able to go through that Payment flow. And so that was where Solana Pay started. Today there are over 600 merchants that have adopted that interface for Payments and what we expect to see, and we're working with, you know, big existing Payments companies to, you know, to help pave the road here, but what we expect to see is that some of the thousands of developers that are already building on Solana are gonna rebuild, you know, what today exists as like point systems and loyalty systems, and reward systems, but they'll do it in ways that are much smarter, that take advantage of all of the design space and the, you know, the testing frameworks that allow us to see how well these types of systems, you know, work to incentivize adoption of a new payment system.

So I think we're in a stage where it's early. Merchants love it because, you know, they're not paying any fees on transactions that come through Solana Pay, and they can instantly use the balances that accrue in DeFi so they can start earning yield on them right away. But I think, you know, what's really gonna create a big leg up of growth for Solana Pay is when some of these developers start shipping, you know, new incentive mechanisms to facilitate growth. And you know, that's what's happening in the Hackathon that just ended. We saw a few dozen teams that use Solana Pay to build new products. You know, we're at day one though of seeing what happens when merchants start adopting them.

Ray Sharif Askary: So thank you so much. We're actually at about time, we're almost at 3:00 PM. Raj, this was so helpful. I've got a ton of really positive feedback through the chat that people have been sending us. Thank you for taking the time to be on with us today. Thank you everybody for joining. To the extent you do have questions around, you know, anything that Grayscale can be helpful with, please reach out to us. And I hope that everybody has a great rest of their day. Bye everyone.

Raj Gokal:  Thanks everyone. Take care.