Unchained - Anatoly Yakovenko on Solana’s Astounding Recovery and Its Future Plans - Ep. 578

Episode Date: December 5, 2023

Unchained is running its annual survey to better serve you. Please answer our annual survey here. Solana’s native token SOL has been one of the best-performing cryptos of the year, up more than 500% so far, but you wouldn’t have guessed that would be the case given how closely tied the blockchain was to FTX, which held huge amounts of SOL and was a big supporter of the platform. The blockchain also experienced numerous outages in 2022. But Anatoly Yakovenko, Solana’s co-founder, says the discipline imposed by FTX’s collapse, as well as improvements to the technology, have made Solana stronger.  On this episode of Unchained, Yakovenko talks about the impact of FTX’s collapse, his early impressions of Sam Bankman-Fried, the SEC’s designation of SOL as a security, how entrepreneurs are leaving the U.S. because of the regulatory risk, SOL’s share of the stablecoin market, and why he thinks it’s inevitable that finance will eventually run on something like Solana.  Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: How the Solana ecosystem weathered the FTX crisis How FTX’s collapse was like ripping off a band-aid for Solana Anatoly's initial impression of SBF as a “super genius” Why, despite SOL's strong 2023 performance, the Solana ecosystem hasn't experienced a corresponding growth in active developers What factors Anatoly believes contribute to the relatively low number of daily active wallet addresses in Solana How Solana addressed and rectified the outage issues that were so frequent in previous years Why Anatoly draws a parallel between Ethereum and Windows 95, and Solana and Windows 2000 Why he's not worried about Jump Crypto building a client for the blockchain The ongoing debate within Solana on open-source versus closed-source culture, and the potential for future shifts How the Solana Foundation is handling the SEC's classification of SOL as a security Whether there's a trend of developers and founders relocating from the United States in search of a more supportive ecosystem Why Solana holds a low market share of stablecoins across various blockchains, and the implications of this trend Why Anatoly considers trading volume a more critical metric than Total Value Locked (TVL) in assessing blockchain success How Web3 gaming has been flourishing on Solana Why Anatoly is confident that DeFi will find its rightful place on the Solana network The future plans for the Saga phone after its market challenges What Anatoly thinks is the number one focus for Solana for the near term Thank you to our sponsors! LayerZero Popcorn Network Arbitrum Foundation Guest: Anatoly Yakovenko, Co-founder of Solana Labs Previous appearance on Unchained: Will Solana Be the Execution Layer and Ethereum the Settlement Layer? Previous appearance on Unchained: Can Solana Seize Marketshare From Ethereum With Serum? Previous appearance on The Chopping Block: Anatoly Yakovenko on Why Solana Is Building the SAGA Links Unchained: Solana Saga review  Decrypt: Mad Lads NFTs Hit All-Time High as Backpack Taps FTX Lawyer for Exchange Launch  Op-ed by Anatoly on Fortune: Solana co-founder: 'To keep the next great American founder in America, Congress must regulate crypto. But first lawmakers should learn how it works' Learn more about your ad choices. Visit megaphone.fm/adchoices

No one's going to disrupt traditional finance for the fields feeling good about decentralization. It has to be cheaper and faster. This is how technology wins. Hi, everyone. Welcome to Unchained, your no-high resource for all things crypto. I'm your host, Laura Shin. Author of The Cryptopians. I started covering crypto eight years ago, and as a senior editor at Forbes, was the first Mainstream meter porter to cover cryptocurrency full-time. This is the December 5th, 2023 episode of Unchained. Arbitrum's leading layer two scaling solutions can provide you with lightning-fast transactions at a fraction of the cost, all while ensuring security rooted on Ethereum.

Arbitrim's newest edition, Orbit, enables you to build your own tailor-made layer 3. Visit Arbitrim.io today. Defi just got way easier with VaultCraft, Popcorn's No-Code DeFi Toolkit for building, deploying, and monetizing, automated yield strategies. From institutional service providers to defy DGens, anyone can use VaultCraft to supercharge their crypto with custom cross-chain yield strategies. Learn more on VaultCraft.io. The game has changed. The Google Cloud Oracle built for Layer Zero is now securing every layer zero message by default. Their custom end-to-end solution sets itself up to bring its

world-class security to Web3 and establish itself as the HTTP within Layer Zero messaging. Visit layer zero.network to learn more. Hi, all, before we dive into the discussion, a quick editor's note. On Friday, we ran a segment in the weekly recap about CZ's net wealth as a comparison to the fine finance had to pay. That calculation is based on an inaccurate number. Finance paid a $4.3 billion fine, not the $4.3 million amount we used. That amounts to 17.2% of CZ's estimated wealth at the time of publication.

And now on to the show. Today's guest is Anatoly Yakovenko, co-founder of Salana Labs. Welcome, Anatoly. Awesome to be here. You've had quite the year. First, there was the implosion of FTX, which was closely tied to the Salana ecosystem. And then remarkably, Saul has quadrupled in price from a year ago. And as far as I can tell, I think it's probably the top performing asset,

at least amongst the top cryptos. So I'd love to talk a little bit about that journey. Let's revisit early November 22. At that point, Salana was just coming off breakpoint, and then FTCS collapsed. And the price of Saul plunged by about 67% in a matter of days. You know, Salana NFT floor prices dropped. There was just a ton of uncertainty.

Then we realized just how much Saul the SPF Empire. had. And so during that period, what were your thoughts? What were your feelings about how to help Salana survive that crisis? Yeah, I was really worried about kind of the ecosystem founders, first and foremost. So the thought that really scared me was how many people had their runway in FTX, you know, and because they would be directly impacted, they wouldn't be able to pay their employees, things like that. But luckily, a very small percentage of them, had anything on FTX at all. And kind of the teams that did have some,

some had almost their entire raise, like backpack, but they still had some runway left. So most of the teams that we talked to had like 18 months or so. Like they were cut, you know, from like backpack raised like $15 million. They were planning on hiring and all this. And all of a sudden, their runway was cut down to like 18 months. So Raj and I did a lot of, like storytelling and like trying to get

the founders to understand that you really only should be thinking in 18 month terms that that's all you have really to take your shot anyway so it doesn't matter right like at the end of the day like you have you still have the same opportunity to go get product market fit built awesome products there's a lot of kind of those kinds of conversations with portfolio companies like salana ventures has which is part of Salana Labs has over 160 different investments across the ecosystem. We're not like the lead or anything like that, but we do put a lot of checks in.

So it's a lot of companies that we have to kind of manage and talk to and talk to the CEOs and stuff like that. And were people freaking out or did they kind of like heed your levelheadedness and just decide that, you know, this was a setback? not something existential or kind of what was the feeling at that time? I mean, some teams definitely were more panicked than others. I would say like kind of puts you in a fight or flight mode, you know, and like you kind of saw with Backback and put them into fight mode.

And they were like, yeah, we're not going to be able to hire five people. We'll just work five times as hard. And that like, you know, I don't know, it's been kind of the most amazing turnaround watching them launch Madlats, get back back out the door, and now build an exchange that's already live that's already had Pith trading from day one. Which is kind of amazing that they were able to do that in months, right? Like just coming off of the collapse of FTX. So like some folks really, really get a lot of founders, I would say,

get into fight mode because why, you know, that's kind of the kind of personality that attracts founders to begin with. Yeah, it was a good, good test. You know, every startup goes through points where you're on the brink of failure. And I think most founders kind of just grit their teeth through it. You know, you don't make it every time, but every company that did make it had to go through that period. Yeah, something that was interesting to me about the backpack thing was like some of the headlines made it seem kind of bad that certain FTX employees were involved with it. But the one main one was somebody who testified against Sam, and it was the lawyer who, in his testimony, he so clearly felt that what had happened was wrong. And so I was like, if you want anybody to be founder of an exchange, it's somebody who lived through that and had very strong feelings that, you know, it was ethically a bad situation. So anyway, it was just interesting. But, you know, as I mentioned in my earlier question, SPF's empire did hold over 10% of all Saul.

So when you realize that, you know, what were your thoughts about trying to navigate that? And I wondered, you know, if during this period, if the FTX estate has ever reached out to the Salana Foundation, it eventually ended up staking millions of tokens. And, you know, I'm not sure, like, how that happened or, you know, what your conversations have been. I'm not at the foundation, so I can't really comment on that. I think, like the, from my perspective, it doesn't really matter, like where how much stake anyone has. the protocol has to be robust regardless of state concentration. You have to assume that all in the future, it's always going to follow the power law

because simply that's just how the world works. So there is going to be some concentration of stake no matter what happens. And that's just kind of part of the design that you have to take into account. From most protocols from a security perspective, from a decentralization perspective, what really matters is the distribution of notes,

geographic and operational and things like that because any single node can detect a failure of the rest of the network committed an invalid state transition or something. So you just need one on us node at least to do that. So the more kind of independent operators you have, the better. And the second thing, which does touch a bit on stake, is kind of the censorship resistant piece, but that only matters for kind of the current, like real-time censorship resistance, because if like some part of the stake or something went haywire and started censoring things, the rest of the community can fork them out as long as one honest node remains and can

give them the state. So this is kind of like those debates around minor concentration or light of concentration. I think they're more or less theoretical. There's kind of like perception that goes through the markets of these things are going to there's now this this estate has to sell or and stuff like this generally my belief like is that events that the rest that there's a ton of information of like in markets get absorbed relatively easily this is again like as long as you have all the information out there and you know all the actors markets tend to do a really really good job dealing with that kind of stuff so like to me that like oh, Okay, so whatever.

Like from my perspective, it seemed like that was the smallest issue that we had to deal with. But actually, I do wonder because, you know, at the time that you had kind of like Alameda FTCS that had control over that solve, then it's kind of like a supportive, these are supportive entities, right? But then the FTCS estate is probably not. It's probably more in it for itself and, you know, the FTCS users. So does that change anything? Or do you still feel? Yeah, there was a belief, right?

Like when, especially in the early days, when FDX invested in Solana and they picked Solana to build Serum was that they were going to continue building a bunch of stuff. The reason why they wanted that much soul was because they were going to build a bunch of products on top, right? That was like their thing. They're going to invest a bunch of resources and do all this stuff. So like, but what ended up happened? was that they kind of like were very self-serving and what they were doing in terms of the

products they were building and how they were rolling them out. The tokens and stuff like that were like not high quality by any means. So like it felt like the Band-Aid got ripped off very, very quickly. That's a painful process, but like honestly like about a couple weeks later, I was like, okay, like it's probably better, right? Like it sucks, right? Like, temporarily about what we have now is just the core ecosystem folks that want to build on Solana because they love the technology. Like all the tourists are forced out. And that's like a not a bad place to be when you have when you still have that core.

And after doing those rounds of conversations and talking to everybody like, hey, do you guys a runway, stuff like that. I literally had founders tell me like, you know, honestly, we thought about like, should we leave, should we go to another change? Should we build an L2? And they're like the only way we can get the kind of technology that we want is here. So like for better for worse, like we're going to stick it out. So that was really, really awesome to hear. And like, those are the folks that want to help, right? Like I think as painful as that process was, it really created space for all these other people to succeed.

Yeah, yeah, I guess when I phrased my question, I should have added that they were supportive on the surface. So, you know, one other thing is, obviously, we recently saw that the criminal trial of Sam Bingman-Fried got wrapped up and he, you know, was found guilty in all seven charges. I actually don't know how close were you to Sam and, you know, do you have any takeaways from that whole saga? Like we were close enough to like where if there were product ideas or something like that that like labs or an ecosystem company was launching, we could talk to their engineers directly and kind of get stuff going. So that was like the relationship between like labs or anyone in the Salana ecosystem and FTX. It was more at the individual. I see right as the engineers, I write code as we call them ICs. It was like, I see to I see, we could get people connected without having to go through the middle layers of BD people and all this stuff before anything gets done.

So, like, that, when that works, that were great. But, like, as far as there, like, internal strategies and things like that, those were pretty opaque. And it seems like he held him pretty close within his cohort of, like, you know, insiders. But looking back, do you feel like there were red flags? that you only realized in hindsight? Honestly, like a lot of folks, my impression of him seem like, oh, this is like some super genius

that's just moving as fast as possible, right? And like, I don't know if it's the MIT diploma or whatever, like, there was that all about him that like kind of worked, right, as his like cult of personality. And just I assume like, oh, these guys have like a Sequoia wrote them half a billion dollar check. They must be like they must be doing all the right things.

You know, like it's really, really hard to like know. Yeah. Yeah. I mean, obviously, although the few people who, you know, had their inklings, they definitely now are feeling but kind of vindicated. So, you know, as I mentioned earlier, despite all these travails, Solana has, you know, just outperformed most everything this year. Do you think there are any particular kind of key moments in, you know, the journey this past year that helped Slana get to this place where it became a top performing crypto?

I think it's like folks like Armani and Backback, like that continued, that got into that fight or flight mode and stuck with fight, you know, and really doubled down and building products. I would say the Madlats launch was really, I think, in my view, kind of like the turnaround point. you could see that there's a very strong community around product development and shipping and like kind of very application-centric, which is very different from Ethereum. And that community is there and it's thriving and people are shipping stuff. And what they're shipping is being recognized, right? By, you know, by consumers and stuff like that. So you sort of like the Madlats launch, I think, in my mind was that moment.

But it really just highlights a lot of other teams like Margin, Camino, like, a bunch of other folks like Pith and stuff from Jupiter and Jito, like that have continued building, right, through the bear market. And even before FTX collapse, like starting, I would say with the Luna collapse, we were in the real bear market. Those folks just doubled down on product development and continued building. And when you see that success, it's as always, right, four years in the making, there's been a bunch of people that spent two years, at least, building a product and iterating and making it better.

And now they kind of see the fruits of their labor. So it's sort of like excitement about applications in Solana driving up the price. You know, I have to ask so because I have noticed, so according to electric capital, monthly active developers in Salana is down quite a bit. It's down to about less than 1,000 every month. And at the beginning of the year, it's more like about 2,500. So why do you think that's dropped? Devs are very macro-oriented. So as you see, like, kind of the bear market get really, really into full swing,

a bunch of developers leave. And then they come back and what you're really looking for, like, you know, the 1 in 20 stick around and like actually go start a company. and go actually build something. And you can see from the hackathons, like even the hackathon that happened right after FTX, there were more projects submitted than the previous one. So there's people kind of constantly coming in

and trying and building stuff out. The kind of broader number of devs is like a good indicator of like macro and growth, if you can compare it year to year and stuff like about. Okay. But you're so you mean like the economic forces of, the number of devs. Devs need money to do their job, right?

They have a constant opportunity cost. Do I work on this or do I keep working at my Google fan company? So the only reason that they do build things on the side, but there's this decision point, do I go full time on this thing or not? And that is a very financial decision for every developer because they have a very, very large opportunity cost. Any competent dev has a half a million job offer with like stocks and benefits from Facebook or whatever.

So like they have to like make that decision. The only reason why they would go build something, right, is because there's an opportunity to raise money or to get revenue. So those two things have to be present. And when like the capital market's shrunk right year to year by like, I don't know, 90% or something crazy like that, that really, really impact. the number of debts are going to enter the space and go full-time and start companies. Okay, yeah. Yeah, this actually reminds me of a portion from my book on Ethereum where the Ethereum Foundation was really in a bad spot.

And they got lucky that some people just believed in it so much that, you know, they turned down really lucrative jobs to work on it. So, you know, as we mentioned earlier, Saul is performing well in price. honestly, it probably doesn't hurt that Kathy would, you know, saying Salinas praises. But, you know, in addition to the number of devs being down, the blockchain also recently saw the lowest number of daily active wallet addresses in two years. So I wondered, you know, what you're making of that decline in activity and then, you know, what you have planned in order to foster some more growth.

Well, you kind of saw that I already turned around with the recently. It did come back up, yeah. And this, this to me seems also like very macro related. Like if there's nothing for retail to do and a lot of applications are like chasing retail traders effectively, they're going to be shrinking. And it kind of moves around from like the whatever ecosystem is providing the most rewards. I think as you see companies launch products, that's going to come back and bring back, you know, folks using the chain.

Okay. So aside from the FTX collapse, there, you know, prior were other trials and tribulations that Salana faced, particularly in 2022. There were a lot of outages that happened. And 2023 has been a really different story. So how is it that Salana was able to turn that around and, you know, really have minimal problems with uptime? Yeah. So last year, right before Breakpoint, we were able to ship local fee markets. And this is kind of an innovation that's unique to Solana.

I don't know if most folks know, but the way that Ethereum and I would say every other blockchain works is you have a single-threaded environment and that processes transactions. And it looks for the highest-paying transactions and just goes and runs through all of them. So the problem that happens is when you have like a hot NFT mint and a liquidation for some, you know, lending protocol and like a token launch, all three of those are competing for that block space. And it's happening so quickly that people will basically bid up up to whatever the economic opportunity of being first in the block, right, of being part of the block. And they're fighting each other because if you allow the NFTments, you're not going to get the

liquidation. So there's this like battle between different use cases that's happening in Ethereum. So with local fee markets, the way that it works in Salon is those that are actually isolated. So you can still have hotspots. You can still have like these major events. But if a fee spike happens because of an infatement, it doesn't impact like a visa payments or something like that. That took like a good while to develop in 2022.

And we saw the congestion problems that were caused by this. This is because you'd have like an NFTment and literally like bots would be sending 100 gigabits worth of traffic to be first in the block. And there is a solution for this, but like if the chain was like, if we copy the implementation of Ethereum and just raise the global fee, it really breaks the whole premise of Solana. Like Solana is really a multi-application operating system. I think of the difference between Solana and Ethereum is much like the difference between, you know, like Windows 2000 and Windows 95.

if people remember what that was. I was like an adult at that time, and I barely remember, so please enlighten us. So like Windows 95, a Windows operating system that was in those early days could only run one application at a time. So you would run the window that was facing you. It would run that app. It couldn't really run more than one.

So it was a single-threaded OS built for C-CII. EPUs, like processors that only had one core. And when hardware vendors realized that they cannot make a single processor any faster, they started adding cores, the problem was that operating systems just couldn't deal with that. They couldn't really actually manage it to run more than one OS, more than one application at a time. So it took a big pile of work to rewrite all of this and Microsoft spent, you know, like got, in ungodly amounts of money, tens of thousands of engineers,

putting over all the stuff to Windows 2000, which is a proper operating system that can run multiple applications on different cores and stuff. That's a hard engineering problem. So Solana is just that transition. So Solana's had its Windows 2000 moment. Well, we're the ones trying to build Windows 2000

while everyone else is still stuck in Windows 95. But we had to prove that that's possible. And if you can't prove that on the, economics, right? If you have an environment where NFTment raises the price for a payment, it means that the whole thesis that a single giant network can handle multiple applications and all the applications for finance at the same time, it kind of falls apart. Because like, okay, so it doesn't matter if you can run 50,000 TPS because if like I have one NFTment and it raises the price for my payment, kind of I'm going to run my own chain for

payment. So really like figuring out local fee markets was an existential like thing that we needed to do. And that shipped last year, last breakpoint. And you saw the performance and like kind of like like from a fee perspective and hotspots and congestion like all those problems were solved. And you can see like during major defy events or NFTments, things actually work. Like isolation only raises fees for that one hot event that has a hotspot. The best example of that was like when the Madlats NFT meant happened, you had helium was migrating to Solana. They were minting a million hotspots on the network as NFTs. So at the same time, the students happened and everything worked.

It was like the most boring day. I tweeted that that was boring. Kudos. No, it's definitely obviously a problem that's just, you know, we've seen time and again in blockchains. So at the same time, you guys are now kind of moving to a multi-client ecosystem. You know, there are two existing ones, but there's a couple new ones, FireDancer and Sig are in development. One of them, FireDancers, being developed by Jump Crypto, and I think maybe I could be wrong, that post-FTCS, there's some weariness sometimes of traders being involved in functions where, you know, there could be conflicts or an uneven playing field. So do you think there's any risk to having a training company create a client?

Or are there any things you would do to mitigate that? This is all open source code that anyone can look at and copy and use for whatever purpose they want. It's Apache 2.0 license, literally as publicly available as possible. So there's kind of like no risk. It doesn't matter who writes the code. But it's great that they're writing it because it's their like high frequency trading engineers that have spent years of optimizing hardware to handle, you know, 400 gigabits per second

of market data flowing through their systems. So it's a really, really well-designed implementation. And what's cool is without changing the Solano protocol at all, they're able to demonstrate that the components that they're building can handle 10, 20 gigabits of traffic. And that's millions of transactions per second. Well, you just sing the praises of working in open source. and I know that one of the criticisms of Solana is that there's a fair amount of closed source activity. When do you think that might change? Or what are your thoughts about that?

Yeah, that's like a pretty fair criticism, I would say. I think there's a lot of hardcore open source folks like Labs builds all the code, open source, FireDencers open source. A lot of the infra kind of like low-level folks come from Linux kernel and development. They build open source first by default. And I would say there's,

There's a different culture in the application developer space where they're, those are the people trying to like build a company and get revenue. And I think they don't value open source as much, I would say, as like the low level engineers. But that's slowly changing. You kind of saw even today like Get code just announced they're open sourcing their entire payment stack like 700,000 lines of code for their application. So that's pretty cool to see. And do you feel there's more that you could do to change

that culture? Or do you feel it's just naturally happening? You can't like force it. I grew up like in the 90s and learned to code in the 90s and there was this huge fight between BSD and Linux folks and a whole bunch of other. There was like the kind of like Mac, you know, fighting that you see between blockchain developers on crypto Twitter, people are fighting about which file system you'd pick in your Linux configuration in the 90s. So like I kind of lived for that already. And my. My philosophy is like set an example by doing and like just let people make their own choices. So everything that we ship is shipped with Apache 2.0 because this is what the Russ community prefers.

And since we're building in Rust, that's kind of we go with the flow. Maybe if we're building in C and VGPL or whatever because it's closer to Linux. But that's it's kind of like my feeling is it like if you set a good example, you kind of get your cohort of people around that also want to kind of to build the same way as you, and we'll get the ball rolling this way. Yeah, I would say that like kind of all the cool developers are open source. So if you're looking for which products to use, it's like a really, really good, easy filter. Yeah, one thing I feel that I'm noticing over and over again, but also just from watching your Twitter feed, is that I actually feel like because you're a bit older, I have a feeling maybe

we're somewhere in the same ballpark in terms of age, that. You don't get ruffled by things the way that I think some other maybe younger people do. Just like even the way you answered that, but also like I, I've seen your Twitter feed like when they're outages and people are attacking you. And yeah, I just get the feeling like you have more experience and it makes you more chill. But, okay, I have a question about something that might have shaken your chill. In June, the SEC sued finance and Coinbase and named Saul. as a security in the lawsuits. And I wondered, you know, what your feeling was about that. You know, are there certain situations that Sana Labs or the Foundation are thinking about

handling this situation? What are your strategies around? How to approach this situation where you're sort of indirectly accused of a legal activity in this enforcement action, but you're not named as a defendant. Yeah, they didn't actually name any wrongdoing by Labs or Foundation or myself or anyone. So they went after the exchanges. So like there isn't much that we can do. And like based on kind of the track record that they've had, it really seems like it's going to be up to Congress to kind of sort this mess out. Like so from our perspective, we're kind of like in wait and C mode, what happens, right? Like the fit bill looks really, really promising. Like from the analysis that we can tell from the market structure bill that that's floating around Congress.

like Solano would 100% be decentralized based on like what the cure and bill says. So from my perspective. Yeah, the one, I think that's the one where we saw that divide between the younger and older Democratic members like pushing it forward. Right, okay. Yeah, you can definitely tell. So like it's like basically like I think there's not much we can do from besides kind of wait and see.

right? Like from my point of view, like I'm very bullish in the United States eventually figuring things out. Like, you know, it's the worst system. It's also the best system of government. It eventually does the right thing, but it goes, it does everything else first, you know, unfortunately. So in a moment, we're going to talk more about that. But first, a quick word from the sponsors who make this show possible. The scorebed app here with trusted stats in real-time sports. news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees? Or... The score bet. Trusted sports content, seamless sports betting. Download today.

19 Plus, Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to conicsonterio.ca. The game has changed. The Google Cloud Oracle built for layers. is now securing every Layer Zero message by default. Their custom end-to-end solution sets itself up to bring its world-class security to Web3 and establish itself as the HTTPS within Layer Zero messaging. Visit Layer Zero.network to learn more. Popcorn just made Defy way easier with Volcraft, your No-Code Defy Toolkit for building,

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all with security rooted on Ethereum. From defy to gaming, Arbitrum 1 plus Nova is home to over 500 projects, and with the recent launch of orbit, Arbitrom welcomes you to build your very own tailor-made layer 3, or, as the Arbitrum ecosystem calls it, an orbit chain. directly on the Arbitrum Tech Stack. Designed with you in mind, Arbitrum empowers you to explore and build without compromise. Propell your project and community forward by visiting Arbitrum. com. Back to my conversation with Anatoly. So I have to say, I, you know, ran to your op-ed and fortune about crypto entrepreneurs and developers leaving the U.S. I have to say it was very well written. It was also quite touching. You talked about how you immigrated here from Russia when

you were 11, you know, my, my parents are immigrants. Like, I, I just resonated with a lot of what you said. And so I urge all listeners to read it. We'll put a link in the show notes, but talk a little bit about, you know, kind of what you're seeing in terms of that, like this flow of entrepreneurial activity leaving the U.S. and talk a little bit about, you know, what you think the U.S. could do to turn this around. Yeah, the, so, like, the problem is that the uncertainty around, like, what is okay and what is not creates risk for the CEOs that are starting these companies. Even though United States is the best place to raise capital, to build a company, to get your core team of engineers, it's as the

best talent, the risk is there and it's substantial and it's personal risk to the CEOs. And there's not a lot of like like risk to go offshore. So like if you're a lot of CEOs like a lot of folks that build companies or immigrants. So they have not myself, there's no way I'm going to go back to Ukraine. And like when I left, it was still a Soviet Union. But like a lot of people do have like, you know, especially folks that are families in Asia, it's easy for them to leave and like raise capital here, leave and then go build a company there. So like that's definitely happening. And that's really unfortunate because it's brain drain. It's like literally the definition of brain drain. Like what was happening in the Soviet Union, like as soon as you could leave, you left,

like it's happening in the United States. And it's with like the best founders, the people that want to like build companies. It's a really, really unfortunate. And even if for the folks that stay, what they quickly realize is that like the legal fees create their own risk because they're so substantial that they impact runway significantly. Like, it's millions of dollars to deal with lawyers to do anything with crypto in the United States. And you don't really get like a 100% full-proof like answer on any question. So regulation is supposed to actually reduce the cost of legal compliance, right?

Like, it's supposed to standardize it and make it super easy and cheap for companies to be in compliance. And that's completely absent right now from the industry in the United States. But like every, like, you know, Japan has like passed laws. Like every like, I think G7 company has, G7 country has addressed like the legal question of crypto in some way by now, except the United States. Yeah. Yeah. So it seems like you're, you're pinning your hopes on those bills.

From what I talk to like members of Congress, it seems like there's definitely a generational divide. And I think it'll eventually pass because the younger folks are smart, ambitious, they want to see United States win, like, in crypto just as they want to see it win and everything else. So, like, I think it'll pass eventually. So I've heard you talk about how stable coins on Solana are a no-brainer, partially because of the speed of Solana and low cost. And I've noticed that, you know, Solana has some announcements with Visa, with Shopify. But at the moment, Solana just has 1% of stablecoin activity. So what are your thoughts on how the Solana ecosystem can increase that? How do you measure activity, I guess is my question.

Oh, I looked up a pie chart of stable coin. That's where I pulled out, so I'm not sure where they're getting their number from. So you can look at like issued amount of stablecoin issued. Salana actually maybe has 1%, but it has actually quite significant volumes of stable coins moving through it. So because it's so cheap and fast to use the network, you just kind of see different activity.

Like when people look at the top line numbers of TVL or something like that, my engineering brain is that the TVL should be no more. Oh, it was sorry, TVL. I misphrase my question, not activity, but yeah, I think the price chart was TVL. Exactly. Because I remember I got there from a $1.5 billion salina staple coin number. So yes, okay, that's...

You shouldn't have a dollar more TVL than necessary to support volume, right? Like, all the access TVL is useless. It's actually capital at risk doing nothing. But you should have... Wait, wait, wait, you don't think it says anything about the level of adoption. Like, you know, when you see, you know, multiple, like dozens of billions of dollars of stablecoin market share on Ethereum and Tron, you don't think that shows some level of adoption? If it's not being used, what does it matter if it's sitting there is just a number in a

computer? So like what matters is like, I would say volume is much more important. Okay, but I have a question. Are you saying that you don't think the stable coins on Ethereum and Tron are being used? I think you have to backtrack from that and then see how much of the TVL is actually like useful. Okay. Right? Like, so I would start. from that. Like, I think when you look at like Salana, like, there's 50 billion of volume per month of USC, which is like pretty significant. That's pretty cool. So like my mind, like those are kind of the more important numbers to look at like the actual activity and things like that. Even if the like individual amounts are small or you don't need that much TVL to support it,

that TVL should only be there to support like somebody actually doing something, right, with the money, not just sitting there. All right. So your original vision for Solano was to make it a home for Defi. You know, you would talk about things like giving it NASDAQ level speed. I know you're not a fan of TVL, but I need to mention Solana has $600 million in TBL on Solana. So, you know, it doesn't appear that it's like, you know, a place for Defi yet. So do you still view that as like part of the mission or the vision for Solana? And if so, why do you think that hasn't happened yet? Yeah. So just like the stablecoin TVL, like you actually saw volume on Solana go higher than TVL this month, which is pretty cool.

So daily volume in terms of like just people trading was higher than TVL. And it's completely- And was that due to gaming? Because the chain is so cheap and fast you can build different markets. It's like Uniswap, I think, trades like once a minute on Ethereum. There's like, I think, thousands of trades per minute on any market on Solana. Right. So you have like a totally different environment that's much, much closer to traditional finance.

Like when you look at like traditional finance, the amount of TVL on NASDAQ or DTCCC, right, is quite different compared to volume than what you see in DFI. So from any financial point, like, if you're trying to analyze how are these system efficient in any way, Ethereum is horribly inefficient compared to traditional finance. Salana is much, much closer. And I would want it to be even closer. If we can like completely invert that number, like reduce TVL and increase volume, that would be a win because that looks more like traditional finance. There's less capital at risk, but it's doing more. right and the fees are lower and you know velocity's higher so in my mind that's kind of the the more important part and you saw like volumes with product launches from folks like pith from

jupiter and margin and stuff like that when people launch products you know like some of those get used you know founders figure out product market fit and that actually increases activity that's useful so we kind of see that loop happening already on salana so you feel the best metric to track activity on Salana is volume. Because, you know, obviously, so TVL is another popular one, as we've discussed, and it's not something that you feel is accurate or reflects activity on Salana. But another one is actually fees. And I noticed, you know, that's quite low on Salon, but is it just because Salon is less expensive is that? So you feel like there's certain metrics that just don't reflect the success of Salana. There's no way these technologies can

disrupt traditional finance if they're more expensive and slower? It's just not going to happen. Wow, that's a very pithy quote. Zero chance. No one's going to disrupt traditional finance for the feels feeling good about decentralization. It has to be cheaper and faster. This is how technology wins. But then this takes me back to my initial question,

which is why is it then that Defi hasn't quite taken off or are you saying that it has, but it's just. It's very different. It looks more like traditional finance. You have higher volumes per per like dollar at risk. And that's cool. Like I think like, uh, you actually can see the percentage of Salon of volume versus Ethereum is now like 20, like 15 to 20%.

Just pretty cool. Oh, okay. Okay. Right. So like it's, it's starting to approach. Like if that flips, that would be. be a big deal. To me, that would mean, like, a very, a very huge achievement. But that depends on the product teams, launching these products and getting to market, grinding for PMF.

Yeah. Yeah, I actually remember, Vitolik did tell me, I think, one of the most significant moments was, I think, when he saw Ethereum transactions eclipse, Bitcoin's. So, yeah, apparently. I don't mean transaction count. I mean, like, DFI volumes from trading. I think some are around 15 to 20%, like daily volumes of Ethereum on Solano already. 15 to 20% of DeFi volume on Ethereum. Is that what you're saying? Yeah. Oh, got it.

Okay. Okay. Not transaction numbers, but like the volumes, like the nominal volumes themselves. Right. In dollars. Yeah. Okay. So I also have to ask about gaming on Solana because I think that's an area where, you know,

there is a lot of activity. Star Atlas is generating millions of transactions per day. There's dozens of salon-based games that are listed in the Epic Game Store. So, you know, why do you think that that's taken off and where do you think it could go? And, you know, how do you try to foster that? I mean, like, I think I would say a huge reason why that's, like, happening is because of Metaplex and Helios. So they just shipped really good APIs for minting NFTs and indexing. That's high quality that makes it really easy for devs to go build out those integrations. Game developers really start out with SOTS is a very unique example because they're really trying to build everything from the ground up crypto first.

But vast majority of game devs, they're thinking game first and crypto features later. And for that to happen, for that to be easy, the cost of using the infra has to be cheap. It's got to be comparable to like their AWS costs. Otherwise, it's not feasible. It's just not going to work also, right? Like the technology has to be cheaper and faster than the centralized versions or it won't succeed. So, like, folks like Metaplex, like Helios, have built really, really good APIs, ship things like compressed NFTs to where you can mince literally like a million NFTs for,

I don't know, about $100 or something like that at this point. Oh, wow. Well, yeah. So speaking of NFTs, inscriptions have come to Solana. they actually recently helped push up daily transactions to an all-time high. So you laughed. What are your thoughts on?

It boggles the mind. It's kind of like the opposite of what I'm saying. Technology needs to be cheaper and faster. Inscriptions are fully on-chain assets where all the data and metadata is on-chain. It's not really necessary from a security perspective because all you need is like the proof, like a hash of that data.

But this is what people want. And from like, you know, from me as like the operating system developer layer, like, sure, if this is what they want, we will make it cheaper. We will scale it. We will make it as fast and as cheap as possible. But it is pretty funny that it's kind of like the inscriptions

are the opposite of compressed NFTs. But do you feel like you're learning something from that? Like, are you kind of saying, oh, wait, the way I'm thinking about this, like there's something new here, like maybe this is a different direction, things will go or. What's cool is that like,

this is all happening organically in the ecosystem by external devs. And if they're seeing success, that's awesome, right? Like we, I want to support them or whatever, unblock him in any way. Like the operating system should be completely agnostic to the applications that are running on it. And if they figured out a way to get product market fit and like, create value for their users, right, that are having fun,

and they have revenues, paying engineer salaries to go do this stuff. That's great. Like, we will help them in any way we can. So it's awesome that they're seeing traction. I think NFTs are kind of a weird memetics base. That's really hard to understand. It's like a mixture of art and like memes and like, yeah, it's, I don't want to make assumptions about where it's going.

I think the stuff that's kind of like obvious that people have predicted, oh, NFTs are going to make gaming a success or something like that have taken much, much longer to actually achieve because consumers generally still don't get it. And it's going to take a really long time, I think, for that thought process for people to change, that they'll actually value digital assets. I think for the vast majority of consumers, digital things,

are not assets that they own, right? They're kind of very fine with renting them from iTunes and Amazon Prime. that they're okay with renting the movie instead of owning it. So like when that mind shift happens, I don't know, like maybe gaming is that first place where folks that are like hardcore gamers really, really want that trophy that they earn in the game. But we'll see. Like it's still not proven.

Well, so, you know, a couple of questions ago, I did say, oh, your original vision was that there was going to be this financial activity and it was going to be the NASDAQ for blockchains and stuff. But now that you're actually seeing like what's taking off and it's surprising you and even, you know, making you think this doesn't make sense. Like, where do you think Solana will go? Like, what do you know, what kind of activity do you think you'll see on it? And do you have like a revised vision for what it could be? One of the reasons why we kind of went for this idea of how do we make finance work and finance work better than it was because that was the hardest.

engineering problem. Like we felt that if we could solve that, even if we were wrong, and these systems are not built for finance, that it would make every other use case cheaper and faster, and that's always a win. I still think that finance is the most important use case, and it's the one that we should kind of focus on as engineers. And also for that reason is because, okay, so if it's not, doesn't matter, payments are going to be cheaper, like gaming is going to be cheaper, NFTs are going to be cheaper and faster all the user experiences are going to be much, much faster. So it's all good, right? Like, from that perspective. But I think ultimately, like, it's inevitable that finance is going to run on

something like Solana. If you kind of think of like the science fiction financial system, like a thousand years from now, you're not imagining a whole bunch of people, right? Like at a bank, it's a computer, right? And it's a computer that's very, very fast that can move all of these, all this information and risk as fast as physics allow at the speed of light. And that's already possible with today's technology. Like it's going to take, you know, a bit of blood, sweat and tears to go and take all this open source code and get the hardware and the network, all this stuff optimized to that point. But it's, but it is like already possible. There's kind of no scientific blockers. It's just engineering from this point on. So that's like, in my mind, it's inevitable. Like,

even if we don't succeed, like somebody else is going to eventually build Salana and will run all of the world's finance. Well, so I have to say I'm still a little bit surprised hearing all this because I do think that there's a perception that Salana is becoming more like this consumer chain. You know, it's like the deals with Visa and Shopify and the gaming and it just feels just different. So do you have any thoughts about that perception or? So like trading in finance is I would say like the hardest to switch over because of the amount of regulatory work that it takes to do anything. Like if I could wave a magic wand, there would be stocks trading on Solano now. Like but that's a like that is blood, sweat and tears, right?

To get like a stock issued on a decentralized network. There's been very few of those like that have happened and they're all very much. so limited in what you can do with them that they don't work with the rest of defy and kind of nobody finds them interesting. So like for the vast majority of kind of like the fun, interesting things that you'd want to do in finance, it's going to be a super slow process

because of like I would say regulation. But eventually like that domino is going to fall because again, finance benefits from transparency that you get from a blockchain, from reliability that you get from these decentralized systems and from like the cryptographic security that you get, right, and the settlement guarantees. It's just better.

Like, technology is strictly better. So one other thing that I want to ask about in terms of kind of the consumer play is, you know, you had the Salinas Saga phone that launched in April. I believe, and correct me if I'm wrong, that there's only been about 2,500 units that have sold, which is an underwhelming number, unclear whether or not there was a vulnerability. There were reports of that.

also it's just not clear that was even true. Absolutely not. It was like the weirdest report. They like rooted the phone and then they showed a Bitcoin wallet that they hacked. And this does not like Solana stack does not support Bitcoin. It was like the most bizarre thing. Okay. Whatever that company was, I wouldn't use them for security analysis.

Okay. Well, out of curiosity, I wondered how much you spent on developing that phone. So we worked with a third party, right, awesome, to build this device. And it's, I think, a really, really good device. We got really good reviews from the people that got it, the Salana super fans. They loved it. There was a review on Unchained. Do you use that as your main phone?

I flip between this one and, like, my iPhone because I've got, like, too many business apps and stuff and connections. So it's hard for me to, like, support all the security certificates and stuff. like that are kind of hooked up to my iPhone. Oh, got it. Okay. So I'd say my work phone is my iPhone. This is kind of my NFT phone. Oh, I see.

Okay. Well, you know, so I'm assuming, correct me if I'm wrong, that that was like a disappointment that it didn't sell better. You know, what are your plans to, are you going to roll out another one? Are you just going to try to get more apps in that in the store, more discounts? Like, what are your plans with the phone? Yeah, we're debating this internally. Like, we really needed to hit, like, I think, 25,000 to 50,000 units to feel like there is a hardcore user base for developers to be compelled to ship applications.

And, like, what's also changed, I would say, over the last, like, year and a half is the mobile interfaces, like, progressive web apps plus pass keys have really shrunk the difference between a dedicated. device to like the kind of tools that developers can use to get that experience on like a regular phone. So like the progressive web apps bypass the app store so developers don't need to pay the fees. So they kind of have that side loading feature even on iOS now. Pass keys that work on Android and iOS, they let the user skip the seed phrase generating part completely. Even though you don't get a trusted display that gives you that full wallet security, your surface area as much is shrunk dramatically, right? You're not dealing with seed phrases anymore. I would say, like, we'd have to really think about it and decide, is there a place for like a, almost like a smart wallet, like a much

cheaper version that like somebody like is an iPhone user would use it as like a secondary device? but we haven't like seen a ton of signal whether that's like a compelling enough kind of thing to sell like 50,000 units of. Okay. Okay. So I guess we'll just wait for more updates. Yep. Well, tell us more about what's on Solana's roadmap in terms of improvements, what you're

excited about and what new applications or use cases you think that those developments will enable. I mean, the number one thing is like getting Firedancer out to Mainnet. So it was really cool as they had a milestone where they were, They have this what they call Franken Dancer. So it's partially FireDancer Code, partially Salana Labs code that's running in Tesnet. And it's proving out a big portion of their networking stack. So I'm hoping that it's kind of downhill for them and they can ship and quickly iterate and get to full MayNet support next year.

So that's really the number one priority because that eliminates the single point of failure of having a single implementation. So once you have two live on Mainat, the probability of a bug in both is virtually zero because they were built by different teams and different languages that have their own full understanding of the protocol. So that to me is... Maybe I misunderstood. I thought that Gito Labs also was live on MainNet. And so I thought there were already two clients, but there's not. Gito is a fork of the Salana Labs client.

So it is like a separate team that forked the open source code. So you can consider it a separate client. but the implementation is very close to the same. Got it. So you get some benefits because as a separate team, different bus factor, right? So like some of that redundancy is there, but it's not the same as if like from scratch,

rebuilt from the ground up by totally different team. Okay. Yeah. And how do you think about like the potential for kind of this new client with a new team creating the potential for like consensus? forks or just other issues. That's part of the challenge.

But obviously, Ethereum was able to figure out or to run with four clients. Like, it's an engineering challenge. We're all smart engineers. Hopefully we catch these bugs. You know, there's a lot of folks testing and figuring this out. I'm hoping that they'll catch all these bugs before MENA, but you never know. But it's much, much safer to have multiple clients because then catastrophic bugs become livenous failures, and those are really unfortunate and embarrassing, and people yell

at me on Twitter about it. It's not as bad as a catastrophic failure. Yeah, yeah. I mean, it's definitely a good thing to have, but you're right, that implementation is tricky. It's tricky. All right, well, Anatoly, is there anything I didn't ask you about that you would want to mention? Oh, man, I think we covered a lot. You know, I don't know. Yeah, we've covered everything. I'm pretty excited, like, seeing during this breakpoint how many product launches we had. I think they were close to like almost 50 different product launches from different teams across the ecosystem. And that's, to me, is like the biggest signal that people are building stuff because you need products to attract users and like that whole cycle is moving forward,

which is really, really cool to see. Great. All right. Well, where can people learn more about you? and Solana. You can follow me on Twitter. I'm A.E. Yakovenko on Twitter, but you can go to Solana.com and learn all about Solana. Perfect. Well, it's been a pleasure having you on Unchained. Thank you.

Thanks so much for joining us today. To learn more about Anatoly and the state of the Solana ecosystem, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with up from Kevin Pukes, Matt Pilcher, Juan Aranovich, Megan Gavis, Nelson Wong, Shoshank, and Margaret Curia. Thanks for listening.

Unchained is now a part of the CoinDesk Podcast Network. For the latest in digital assets, check out markets daily seven days a week with new host, Noel Acheson. Follow the CoinDesk podcast network for some of the best shows in crypto.