Our 3iQ Solana Staking ETF (TSX: SOLQ, SOLQ.U) combines Solana’s growth potential with a yield enhancement through staking, ultimately aiming to provide a superior vehicle for Solana exposure. But what is Solana?
Over the past two years, Solana has become one of the most prominent blockchain platforms in digital assets. What started as a developer-favorite is now attracting significant investor interest, as Solana’s unique performance characteristics and ecosystem momentum stand out in an increasingly competitive landscape.
Still, many investors are unsure what Solana actually is, how it works, and why it matters. This article offers a high-level look at the Solana network, and why it’s earning a growing share of developer and investor mindshare.
What is Solana?
The Solana blockchain was purpose-built to deliver extremely high throughput, low latency, and near-zero fees. At its core, Solana is a Layer 1 (L1) blockchain, which can be simply defined as a base-level network that supports smart contracts and decentralized applications (dApps). As outlined in the table below, Layer 2 blockchains are primarily designed to offload transaction processing from Layer 1 networks, enhancing efficiency and scalability.
|
Layer |
Description |
Examples |
|
Layer 1 (L1) |
The base network that validates and finalizes transactions independently, providing core security and consensus |
|
|
Layer 2 (L2) |
A collective term to describe scaling solutions for L1s |
|
Unlike Bitcoin’s Proof-of-Work (PoW) consensus mechanism, Solana is a public, permissionless, proof-of-stake (PoS) network. In Bitcoin’s PoW, participants validate transactions by solving mathematical problems, known as hash functions, in order to validate transactions and add new blocks to the blockchain. This process requires significant computational power and energy but ensures the network's security and decentralization.
By contrast, participants in Solana’s PoS network secure the network by staking SOL tokens and running validator nodes. The more SOL tokens a validator is delegated, the more likely they are to be chosen to produce blocks and validate transactions, thereby earning rewards. Developers can also freely build and deploy smart contracts and decentralized applications (dApps) on the network without needing permission, similar to how Ethereum operates.
The SOL token, used to pay transaction fees and participate in staking, is one of the top digital assets by market cap. Developer activity remains strong, with Solana Foundation grants, hacker houses, and ecosystem events continuing to drive momentum.
When and How Was Solana Launched?
Solana was launched in March 2020 by Solana Labs, a technology company founded by Anatoly Yakovenko, a former Qualcomm engineer with a background in distributed systems. Yakovenko identified blockchain network limitations caused by traditional consensus mechanisms requiring global transaction ordering before validation. His solution: a cryptographic timekeeping system enabling pre-consensus transaction ordering for faster block times, lower fees, and a smoother user experience.
Since first going live, Solana has experienced rapid growth. It saw a surge in activity during the 2021 and has again gained significant momentum during the current bull market as it continues to attract builders in areas such as payments, gaming, and decentralized infrastructure.
Despite reputational challenges following the collapse of FTX (which had been a major backer of Solana ecosystem projects) it has since recovered strongly, with developer activity, total value locked (TVL), and daily active users pointing to solid underlying network fundamentals.
How Does Solana Work?
Solana’s performance edge stems from an innovation called Proof of History (PoH), which works alongside PoS to timestamp transactions before they’re validated. This drastically reduces latency and enables parallel processing.
This design allows the Solana network to achieve approximately 59,000 transactions per second (TPS) at very low cost, offering clear scalability advantages. For context, this approaches Visa’s 65,000 TPS, positioning Solana within reach of global payment networks in terms of transaction capacity. In comparison, Ethereum and Bitcoin operate at around 30 TPS and 7 TPS, respectively.
This efficiency translates to extremely low transaction fees, often less than $0.01, even during peak periods. This contrasts sharply with Ethereum, where fees can exceed $10 during peak congestion and have been known to spike into the hundreds during demand surges such as NFT launches.
Solana combines PoH with a high-performance PoS layer, enabling:
- Block finality in seconds
- Transaction costs typically under $0.01
- Throughput in the tens of thousands of TPS
Solana in the Broader Crypto Landscape
Solana’s market positioning is clear: it is the high-performance blockchain designed for applications that demand fast, inexpensive, and scalable infrastructure. These include payments, games, real-time trading, and tokenized real-world assets.
While Ethereum continues to lead in security and ecosystem breadth, Solana is setting the pace in execution-focused use cases, particularly for projects like Jupiter (on-chain order books), Helium and Hivemapper (decentralized physical infrastructure), and mobile-first crypto applications.
Beyond its raw speed, Solana also enables superior user experiences in blockchain-native applications, from payments to DeFi.
Conclusion: A Blockchain Built for Real-World Scale
In terms of both performance and adoption, the Solana blockchain has emerged as a leading platform to realize Web3's original vision: fast, low-cost, scalable infrastructure capable of supporting real-world applications across various sectors. Moreover, Solana's relevance for institutional adoption is growing, evidenced by improvements to validator infrastructure, increasing support for programmable token standards, and momentum in real-world asset tokenization, indicating a network maturing to meet evolving market demands. Despite Ethereum's dominant market share as the largest smart contract platform, Solana is carving out its own niche through its execution speed, composability, and cost-efficiency, making it an attractive option for builders, developers, and investors.
If you have any questions or would like to explore how 3iQ Solana Staking ETF (TSX: SOLQ, SOLQ.U) fits into your investment strategy, please contact us at: info@3iq.io