Author: Kyle Samani, founder of Multicoin Capital; Compiled by: 0xjs@金财经

Multicoin Capital participated in Solana’s seed round of financing in May 2018. Since then, Multicoin Capital has also been investing in Solana’s native asset SOL. and the broader Solana ecosystem. We have previously published four investment papers on Solana. During that time. The first two versions were released approximately nine months before the mainnet produced its first block in March 2020. As the Solana Network evolves, so does our reference framework for how to think about the Solana Network and SOL assets.

Now Solana has become 100 billion US dollars in assets, the fastest growing developer ecosystem and has surpassed Ethereum’s main on-chain indicators (transaction volume, daily active addresses, revenue, total economic value TEV , DePIN payment, etc.). We'd like to share our thoughts on why we've been subscribing to SOL for strong returns, even as Soalna's market cap exceeds $100 billion.

This article is the fifth in our ongoing series of Solana papers. The first four articles are: 1. The separation of time and state; 2. The world computer should be logically centralized; 3. Technical scalability creates social scalability; 4. The hidden costs of modular systems.

In this article, I will argue that Solana is the leading public chain supporting the Internet capital market. Additionally, I believe Solana as a technology can outperform major traditional finance (TradFi) players (including NYSE, NASDAQ, CME, JPM, Goldman Sachs, and Morgan Stanley on the financial markets side, as well as payments Visa and Mastercard), while retaining the core properties of blockchains that TradFi has never provided (atomic composability and permissionless access for users, developers, and validators). Most importantly, I think the Solana ecosystem can achieve the following two goals at the same time, even if they seem to be contradictory:

1. Reduce 90-99% of end-user financial service fees

2. Obtain a higher total market capitalization than existing companies in traditional finance (TradFi)

Although traditional financial players such as the New York Stock Exchange and Nasdaq only provide a small part of the value in the financial stack , but Solana has gone through the unique DeFi protocols power a superset of the capabilities of these systems. Solana not only expands the total addressable market (TAM) of transactions by increasing access and performance, but it also captures value from more layers of the financial stack.

Broadly speaking,All financial services can be classified into two broad categories: payments and finance. I'll start by explaining how payments are a loss-making product of blockchain; after that, the bulk of this article will focus on the core infrastructure of Wall Street finance.

Providing the best global payment experience

There are many ways to transfer funds. The user experience of Apple Pay is great. Using a physical credit card is great. Using Venmo, PayPal, or Square Cash is also a good idea. Everything else is mediocre or worse - ACH, Wires, Zelle, Bill Pay, money transfers, etc.

But even if these legacy systems have a good user experience, they are prohibitively expensive. Wire transfer fees are $25, and credit card fees may exceed 2%. It’s crazy how costly it is for consumers and merchants to update ledger entries. This goes against basic common sense and goes directly against the natural intuition that electronic trading should be cheaper than simulated trading.

Solana simplifies the payment process and makes the user experience great. And the cost is almost zero. Please watch the video (https://youtu.be/LaNwHW_NBIs), Sling Money is completely built on Solana. This is the future of money movement.

The global payments company has a market capitalization of approximately US$1.4 trillion. Solana aims to reduce this cost by 90%. The only fee Solana itself charges users is gas, which is approximately 0.1 cents per transaction, or $0.001 per transaction. Even if the Solana network processed an average of 50,000 transactions per second over a year, this would only cost users a total of $1.5 billion. For comparison, Visa maintains thousands of transactions per second.

Payment is a loss-making product of the blockchain. Payments are critical to driving adoption, providing real utility to users and companies, but are not the primary source of profit for the blockchain or its ecosystem.

However, payments are crucial to the development of blockchain. The beauty of payments is that they are inherently viral. This leads to a natural increase in wallet adoption as Alice sends money to Bob, who then sends money to Carol.

Blockchain’s main source of profit is not payments, which are effectively $0. Instead, blockchain’s main source of profit is the naturally occurring fluctuations between asset prices, which manifest themselves in the form of Maximum Extractable Value (MEV). My co-founder Tushar explained further in his 2022 Multicoin Summit speech.

The rest of this article will focus on how and why Solana can outperform TradFi on traditional performance metrics, and how this will make SOL and the Solana ecosystem profitable.

CeFiand DeFi’s Market Efficiency

Solana is a decentralized network of thousands of nodes that reach consensus on a range of financial transactions at a rolling speed of 400ms (and is expected to reduce to 120ms in the next few years ).

The correct way to measure market efficiency is not by transaction delays, but by the spreads offered by market makers (MMs). Ultimately, what buyers and sellers experience is price. Human users (i.e. non-bots) cannot experience the difference between 50ms, 100ms and 200ms financial transactions. For context, the average human blink time is 100-150 milliseconds.

Market making in centralized finance (CeFi) is almost deterministic. Most market makers have their servers co-located with the CeFi exchange, and each market maker has an identical length of fiber optic cable connecting their servers to the exchange. Exchanges complete trades in microseconds, so market makers have real-time, high-precision visibility into their risk exposure.

Decentralized finance (DeFi) exchanges—such as Drift, Phoenix, Clearpools, Raydium, and Orca—in comparison, offer far less certainty than CeFi exchanges because:

1. Solana’s network leader is constantly rotating

2. Since validators around the world need to reach a consensus, the finalization time will increase

Therefore, market makers cannot Understand their risk exposure in real time with the same precision. In many cases, market makers may leave stale prices on the blockchain order book, and others may take advantage of these prices.

As a result, DeFi spreads are generally wider than CeFi spreads.

Let’s take a look at how these systems are changing to create a better experience for both makers and receivers.

Maker - Narrowing spreads through conditional liquidity

Things are changing. DFlow has just quietly launched Conditional Liquidity (CL) on Solana. As the name suggests, conditional liquidity refers to liquidity that is only available when taker orders meet certain predefined conditions. For the purposes of this article, the important condition is toxic versus non-toxic order flow.

How does CL work? CL stipulates that a given unit of liquidity can only be withdrawn if the taker is endorsed by a known front-end application. These include wallets such as: Phantom, Backpack, Solflare, and Fuse as well as frontends such as Drift, Kamino, Jupiter, and DFlow's own. This mechanism ensures that robots cannot consume CL because robot orders are not endorsed by endorsers. This is a huge improvement for MM as it virtually guarantees that even if theyEven if the quotes are delayed by a few seconds, they won't be eliminated.

Although CL is mechanically a new concept, it is directly inspired by practices widely adopted in TradFi. Robinhood is a pioneer in this area. Robinhood consistently provides customers with better prices than the national best bid and offer (NBBO) from the NYSE and Nasdaq. They have demonstrated this pricing improvement through trillions of dollars of transaction experience over the past decade. This makes sense, as market makers have good statistical reason to believe that Robinhood users are less toxic on average than trading directly on the NYSE or Nasdaq. Simply put, who would you rather deal with: Joe watching YouTube videos, or Citadel?

CL lets MM know that they are not facing the well-known Citadel.

For more background on how order flow segmentation can lead to better prices for retail traders, see here.

The beauty of DFlow CL is that it combines the best of both TradFi and cryptocurrency. It enables tighter spreads for Robinhood’s retail customers and the like, and provides real-time permissionless access and open auditability of the blockchain.

CL is an emerging concept. However, we expect it to become the dominant paradigm for on-chain liquidity quoting in the coming years, as market makers hate being fooled by stale quotes. Market making is fundamentally about quoting prices based on the maximum available information. There is no reason for market makers (whether passive or active) not to incorporate more information (i.e. conditional liquidity) into their pricing.

DFlow’s CL implementation on Solana is now 100% open source and charges no fees or taxes. The following is the GitHub repository.

Conditional liquidity is the most significant feature improvement in DeFi since Uniswap launched the xyk automated market maker (AMM) in late 2018. As it is adopted, it will reshape all discussions about UX, spreads, MEV, etc. in DeFi.

To reiterate, CL will enable market makers to provide more stringent quotes to ordinary users. We hope this will be beneficial to market makers, users, SOL and the Solana ecosystem.

Takers – Exploiting Alpha by reducing latency

Financial markets should incorporate all publicly available information into asset prices. They usually do this. However, price discovery for most assets occurs on one server in one place, while information that affects prices is generated around the world.

The TradFi market microstructure is designed around low-latency traders who want to be co-located with the exchange matching engine.

IfIf you as a retail trader observe that an event in Singapore will affect the price of TSLA, you still have to send a message to NJ next to the market maker. This is fundamentally unfair to the takers and unnecessary to the market makers.

The first correct perspective on this question is that observers of this information should be able to place orders based on this new information with a validator located in Singapore rather than New Jersey. This market participant should receive this alpha for being the first to observe this information and add the order to the global order book as quickly as possible.

Today, Solana, like other leading blockchains, has only one Leader at any time. But this will soon change, as Solana is moving towards Multiple Concurrent Leaders (MCL).

Under MCL, there will not be only two Leaders at any time, but dozens. With MCL, participants who observe real-world information can and will incorporate this information into asset pricing more quickly.

The key to optimizing price discovery is not to reduce the latency of a single matching engine by a nanosecond, but to make updated price information available to people around the world by pushing price discovery to the edge.

Counterintuitively, decentralization enables recipients to minimize transaction time delays, thereby maximizing information dissemination in financial markets.

By definition, decentralized price discovery is better than centralized price discovery. The world is big and diverse.

Horizontal Scaling TAM…

From the London Stock Exchange to the Chicago Mercantile Exchange to the Tokyo Stock Exchange, most of the world's major exchanges trade an asset (such as a stock or commodity). But blockchain reveals a reality: all units of value (currencies, commodities, stocks, derivatives positions, debt, meme coins, governance tokens, utility tokens, NFTs, etc.) can be represented on a permissionless blockchain For standardized tokens.

Today, most assets traded on the blockchain are blockchain-native assets. That is, they are created and issued natively on-chain. This includes DeFi tokens, DePIN tokens, NFTs, and more. But more and more assets are issued on the chain, and these assets represent TradFi assets, including U.S. stocks, bonds, real estate, U.S. Treasury bonds, mezzanine debt, etc.

Eventually, nearly all assets will be traded on systems like Solana that are global in nature and permissionless. This doesn’t necessarily mean that people will stop trading on the NYSE, Nasdaq, and CME, but it does mean that more and more trading volume will be done on-chain rather than on TradFi venues. This is only natural as blockchain is inherently global, permissionless, 24/7 and more accessible to retail traders,It’s also easier for developers to integrate than TradFi.

Integrating private keys and tokens into any application is a piece of cake, whether it is a Telegram bot, a lightweight Android app or a WeChat applet. The difficulty of interfacing with the vast number of heterogeneous systems that represent the global TradFi system increases exponentially. Their APIs are much more complex, settlement times are slow and inconsistent, and in many cases, TradFi institutions don't face retail traders at all.

Because blockchain is public and permissionless, it clearly increases participation in all forms of financial markets. Ultimately, asset issuers don’t care on what trajectory their assets trade. Asset issuers just want to make sure that anyone who wants to buy their assets can do so. Today, most company CEOs don’t believe that issuing shares on-chain will increase their pool of potential shareholders, but that will change in the coming years as global cryptocurrency users grow from about 500 million to several billion.

Not only do we believe that cryptocurrencies will support all TradFi assets, we also expect that it will support many new assets that simply could not exist before. One of my favorite examples is Parl, which offers perpetual contracts based on the average price per square foot of completed real estate transactions in a specific market on a rolling 30-day basis. Parcl allows you to go long Austin, short San Francisco, and use the equity value of each position to collateralize the other!

There are even teams developing products and issuing NFT to represent single bottles of whiskey, wine, and watches on the chain!

Solana’s TAM is expanding in every direction. Wall Street is slowly moving on-chain, and developers are building a variety of new financial markets on-chain.

…and capture value from innovation

Everything in this article so far has treated Solana as a matching engine. But with the help of DeFi protocols such as Drift, Jupiter, Kamino, and marginfi, the Solana ecosystem can provide:

1. All imaginable financial services

2. For everyone in the world Say

3. Improve transparency and auditability, thereby significantly reducing the risk of chain contagion

4. Capital efficiency is higher than TradFi.

Today, the largest DeFi primitives on Solana are 1) spot trading, 2) lending, and 3) perpetual futures trading. These are roughly equivalent to 1) NYSE/NASDAQ, 2) large banks servicing consumer and prime loans as well as FCM, and 3) Chicago Mercantile Exchange. These are for the United States only. Solana competes to provide financial services to everyone in the world.

While many Solana backers include Anatoly (co-founder of Solana Labsand CEO) and I have called Solana the decentralized Nasdaq, but the TAM of Solana and its ecosystem is far greater than Nasdaq. Solana is trying to power all financial services around the world; it is much more than a matching engine.

The incredible thing about Solana is that all these different financial instruments can be combined with each other natively and atomically without the need for explicit approval or support from the application developer. This concept of using existing smart contracts as Lego building blocks to build more useful services is what most people in the industry call composability. This enables faster experimentation and growth because developers can build on a foundational set of contracts, integrations, and liquidity, all of which create value in a virtuous cycle for stakeholders in the Solana ecosystem. This means Solana-based products can innovate faster and deliver better consumer experiences.

Solana itself does not provide financial services. But the stack Solana created supports hundreds (soon to be thousands) of financial services that enable trillions of dollars in risk transfer every year. Although gas costs are near 0 and trending downward, Solana directly profits from the growth of these financial services through Maximum Extractable Value (MEV).

As my partner Tushar said at the Multicoin Summit in 2022 and 2024, asset ledgers like Solana can be valued based on the MEV they capture. Every new financial service generates incremental MEV, a portion of which Solana can capture. For Solana, which has generated over $100 million in MEV today from a single application, outside of those application-specific revenues, everything here is still in its infancy.

In the fourth quarter of 2024, the Solana network received over $800 million in REV (this does not include SOL inflation), which is approximately $3.2 billion on an annualized basis. That compares to about $0 a year ago. This is despite the fact that few TradFi assets are issued on Solana and the major DeFi protocols on Solana are relatively immature, with most being only a few years old.

Solana’s TAM is growing in three dimensions:

1. DeFi protocols continue to mature, adding new features and functions and creating more MEV opportunities.

2. Entrepreneurs are building new financial markets on the chain, such as computing, telecommunications, energy markets, and blockchain collectibles markets (Blockchain-Enabled Collectibles Marketplaces, BECMs), etc.

3. From memecoin to US stocks, more and more assets are being issued on the chain.

These not only increase Solana’s TAM, but also reinforce each other. For example, the more assets are issued, the more collateral is available for borrowing.

Solana’s compound interest rate is getting faster and faster.

Internet Capital Market

The Solana ecosystem is making every effort to promote the vision of realizing the Internet capital market. Solana simultaneously improves execution for market makers through conditional liquidity and improves takers through multiple concurrent leaders. Additionally, the Solana ecosystem is expanding its TAM both horizontally (by supporting a wider range of TradFi and crypto-native assets) and vertically (by capturing some MEV from the numerous financial services built on top of Solana).

This is a great opportunity to create a global, permissionless financial system:

1. Allow those with information advantages to capture the benefits of each asset class alpha

2. Across the smallest spreads at the same time

3. Enjoy the lowest fees

4. With leverage from global sources, it is transparent and can be audited in real time< /p>

5. Maximize capital efficiency through atomic composability across locations and protocols.

This is the vision of the Internet capital market. This is Solana's vision.