In these eight years of Solana, Anatoly shares the behind-the-scenes story.

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Original Video: NEW ECONOMIES

Compiled by: CryptoLeo (@LeoAndCrypto)

In a sluggish market, a qualified SOL guardian is here to try to strengthen your confidence. Solana co-founder Anatoly Yakovenko participated in an interview with NEW ECONOMIES in November, discussing the origins and development of Solana, experiencing lows and recovery, as well as touching on regulations and stablecoin-related topics. Additionally, Anatoly outlined a grand vision for the future of Solana. Odaily Planet Daily has compiled it as follows (due to the abundance of trivial content, key points will be presented in the first-person narrative):

The origin of Solana, from side hustle to full-time

Solana originated from a moment of “timing, geographical advantage, and human harmony.” At that time, a friend and I started an entrepreneurial project, or more accurately, a side business. We were working on AI-related things, such as deep learning servers, and we were also using these GPUs to mine cryptocurrencies to pay for the purchase of these GPUs. But a question arose in my mind: why would people spend money on our AI-related products? After having two cups of coffee and a bottle of beer, my partner and I talked about mining, PoW, Satoshi Nakamoto's consensus, and algorithms, as well as why the use of electricity is so important in this process.

Most of my career has been spent as an engineer at Qualcomm. Most people should know that Qualcomm is deeply involved in wireless protocols, radio technologies, and mobile devices. Your phone likely uses Qualcomm's products, and it may also use products that I helped develop.

That day I stayed up until four in the morning, and suddenly I had a flash of inspiration. I thought about encoding the passage of time into a data structure. I remembered the protocol originally used by cellular networks, called Time Division Multiple Access (TDMA). This concept first appeared in the 1960s and 1970s and is very simple: it divides time into segments and then transmits data using different time slots, which avoids interference and allows more information to pass through. The reason I thought of this is that Bitcoin and the PoW mechanism face similar issues.

If there are two block producers and two miners generate blocks simultaneously, a fork will occur, and the network will be in a chaotic state, making it impossible for information to be transmitted normally. You will have to discard one of the blocks. Therefore, if the two block producers can take turns producing blocks, conflicts can be avoided, and the bandwidth utilization of the protocol can be maximized. I roughly calculated and found that its throughput is 1000 to 10000 times higher than that of Ethereum or Bitcoin at the time.

The idea came to me, maybe I should start a company. The smart contract platform really interests me because it provides developers with a whole new environment for application development, and these applications are different from those built anywhere else. So you can't just build smart contracts on regular AWS servers; you need the verifiability and cryptographic guarantees provided by the blockchain, etc. This makes it possible to write code that can handle funds.

At that time, many people believed that databases like those on Wall Street controlled the funds, all of which were monitored by people, and many products were just optimizing the work of these individuals. Smart contracts, on the other hand, are completely different; the software itself is responsible for holding the funds and is the sole authoritative source of the flow of funds. Therefore, to some extent, smart contracts have disrupted the entire data model.

At the beginning of entrepreneurship, boldly pursue what you believe in.

When I decided to start a business, I needed to persuade many people, and my wife was the first person I needed to convince. She is an engineer and knows me well. I have always had side projects and have been putting some ideas into practice during my spare time. We already have a child, and she said at the time, “Well, this might work, but you can't be a worker, a father, and also start a business part-time. You have to choose one: either go all in or give up.”

It was this statement that prompted me to make the decision to start a business. I remember she was in Colombia at the time, Facebook was expanding, and she was working at a startup that was a competitor to Facebook in Colombia, back when Facebook was still in its very early stages. The experience she gained there was that the market would go through about six months of a boom period, where everyone knew there would be a product in development that would capture 80% of the market share, which would have certain explosive characteristics. If you missed that window, you would never catch up. So at the end of 2017, I felt it was the best window period to build an L1 blockchain with specific attributes that could scale to cover the globe and truly handle all global financial systems.

For me, the biggest motivation to create on Solana is: first, you must give it your all, and second, you don’t want to miss out when the market is booming. I think anyone who sees this and is still hesitating about diving into AI and other fields should wait another six months or a year; you will really miss the opportunity. Take action right now, and if you have already started, that’s even better.

Unlike BTC and ETH, Solana pursues trading efficiency.

Solana is a high-performance blockchain, and the key use case we have always pursued is transactions. If you view Bitcoin as a store of value/digital gold, then building a store of value is not an engineering challenge. In fact, ensuring settlement and global availability does require some engineering techniques. Satoshi Nakamoto's PoW algorithm and the Bitcoin white paper excel in this regard. However, you cannot develop a Bitcoin Plus version; you cannot compete with Bitcoin in this market by adding features or increasing throughput. Ethereum's goal is to use settlement as an application scenario, with the idea that after execution and settlement at the final checkpoint, you can use the Ethereum ledger as a reliable source of truth.

I have never thought about competing in the settlement phase; perhaps there is still some room for technical improvements in this area, such as adding an execution layer, but I am more interested in the execution itself. In other words, building a global blockchain that can handle transactions, payments, and everything else users need for their daily operations, all of which can be done within a single system.

What makes Solana most unique may be its vision: without the need for independent blockchains or hierarchical structures, you can integrate all functionalities into a massive state machine and collaboratively execute all operations at the fastest speed. To give you a data point, the transaction volume completed by Solana in its first month was equivalent to the total transaction volume of Ethereum throughout its lifecycle at that time.

Entrepreneurial challenges, financing and recruitment

There are many challenges encountered in the early stages of entrepreneurship. For any founder, making progress in the first important approval phase can be the biggest obstacle, and the vast majority of companies fail at this stage. I remember having thousands of meetings back then, and around the end of 2017, I listed all the venture capital firms in Silicon Valley that might invest in cryptocurrency. Fortunately, I was in Silicon Valley at the time, and I think this might be the reason why Silicon Valley remains a startup hub to this day: you can meet thousands of people in a very short time and try to pitch your startup ideas.

For founders, being able to effectively promote the product vision and concept is key; otherwise, you will never be able to attract people, never be able to sell products, and never be able to guide users, whether you are doing B2B or B2C.

Pitching Solana is a brand new experience for me, as well as a process that allows for learning and continuous improvement. That's why I believe you can build a huge list in Silicon Valley, forcing yourself to repeat the effort thousands of times to ensure that you eventually reach the most valuable investors. The more familiar you are with the process, the better your pitch will be.

For founders, you are striving to communicate information in the simplest way possible. In a short 10-minute conversation, you must ascertain how much the other party knows about cryptocurrency, as you don't want to repeat what they already know. You also need to explain the specific problems the product is addressing and its impact in the shortest time, and show them what changes the world will undergo, changes that are based on the principles of cryptocurrency.

The strategy I used at the time (I don't know if this strategy applies to all founders) was to first pitch to the company and then pitch to that partner. Even if the company ultimately decided to abandon the project, I could still persuade the partner to make a commitment, making it more likely for them to help me connect with other venture capital firms they knew that invested in this field. In the end, this allowed me to participate in thousands of meetings and find those companies that focus on the crypto sector and are more willing to take risks at the early stages, because the venture capitalists investing are also employees of the companies; they invest in the company and also make personal investments.

In fact, we had just completed a round of financing at that time, and it was almost coming to an end. It was the first quarter of 2018, and there was not a standard, secure, and reliable investment template for cryptocurrencies that could be quickly provided to investors. We spent 6 weeks having lawyers draft the relevant documents. However, during this period, Ethereum began to decline by about 10%, and many funds went bankrupt as a result, which was the first challenge we encountered in the early stages. Even so, there were still quite a few people willing to participate; they were not entirely cryptocurrency funds, nor were they 100% invested in cryptocurrencies. Their balance sheets held more dollars, but they saw this investment as an opportunity. In the end, we completed this round of financing, but the situation was quite unstable at that time.

At that time, I was sitting in the office of 500 Startups (now renamed 500 Global) with another co-founder, Raj (because one of the investors came from 500 Startups). He said, “I think I need to work hard and fight for it.” At that time, I believed that once a product had an investment commitment, it was very likely to snowball and grow bigger and bigger, eventually turning into actual checks. However, my advice is to keep raising funds until you really have money in your bank account.

I think the second challenge is recruitment. However, I am lucky that many former colleagues I worked with at Qualcomm are eager to do something new, and these individuals all have over ten years of experience in underlying operating systems or protocols. For example, one of the contributors to the Solana protocol development was involved in the drafting of the LTE specifications. These people have a very deep understanding of networks, operating systems, GPUs, CPUs, and underlying chips, and they can understand what I told them: “Since you are going to change jobs anyway, you can consider building Solana as a vacation.”

I hired some experts from their respective fields whom I know very well, and everyone quickly got into the zone, starting to build what I believed to be the most advanced network at the time. It turned out that Solana was ahead of all its competitors by several streets right from the launch.

From the alignment of the founders to Solana achieving PMF.

When it comes to work partners, the best way to describe my relationship with Raj is like being in a romantic relationship, requiring full commitment. I met Raj through a mutual friend who specifically said, “You are a great engineer, but you have no other experience. You need someone who can complement you. Raj has previously founded a company and did very well, but he has no engineering experience at all; you two are very compatible.” We get along very well, and my wife basically refers to us as a “work marriage.”

Our decision-making process is indeed exhausting, but in that high-pressure, fast-paced environment, we repeatedly debate certain viewpoints until we eliminate all obviously bad options, leaving only what I call the Pareto efficient option set (Pareto efficient means there is no room for further improvement in the discussion). We can choose A, B, or C; all the trade-offs seem to be about the same, and we have almost discussed every possible direction. At this point, it’s almost down to luck.

This is very tiring and requires strong endurance. At the same time, it also requires mutual trust and belief in each other's judgment. I think the CEO and the initial employees or co-founders need this personality; they can have intense debates based on mutual trust, but still feel that everyone respects each other. It's quite difficult; I just enjoy debating, and I don't mind losing. Many shortcomings or traits of the CEO will ultimately affect the company culture, and in the early stages of a company, any factor can trigger a debate.

Strive to create products and complete development as soon as possible, but you cannot anticipate all possible failures. Should you assume that you will succeed and then invest funds to develop some auxiliary features to solidify success and better launch the product? Or should you first develop the product well, prove that you can do it, and then add other enhancements? In the early stages, especially when developing complex products, you must make many such decisions.

For example, books on entrepreneurship like “From Zero to One” by Peter Thiel contain many excellent pieces of advice, and the best advice you can get is to build a Minimum Viable Product (MVP), which is to create the smallest product that can validate your idea, but this is actually quite difficult to define. So you must find your own niche market. We spent some time doing this, and it was almost forced, probably in the second year of our development cycle.

At that time, there were only about 12 months of funds left (a total of 24 months of reserves), and the product still could not operate normally. We could only cut all other features except for the existing ones, release the product as soon as possible, and minimize the changes needed. This allowed us to seize the market opportunity and launch a product that was completely different from all other products on the market.

To some extent, in the first year of developing Solana, I wanted to take as many product risks as possible and aimed to create a top-notch product. This was indeed part of our vision. By the end of that year, we developed a series of features and took on about eight technical risks. If you only take the risk of trying one technology, the probability of success is 50%. But if you try eight technologies, the probability of all eight succeeding is only 1/256. Therefore, the chance of failure is quite high, with various problems arising, and then you have to find ways to fix them, making repeated adjustments before pushing to the market.

But it is precisely because of these decisions and the risks we took early on that we have a range of differentiated features, which are effective to varying degrees. They are not perfect, but we have indeed expanded capacity and reduced latency, and the development experience based on Salana is distinctly different from any other platform.

At that time, Ethereum used a PoW mechanism, and the average block generation time was about 12 seconds, but you had to wait for at least two blocks to confirm the finality of a transaction. Therefore, users needed to wait 30 seconds to confirm a transaction, which definitely resulted in a poor user experience, and the processing capacity of 7 or 11 transactions per second was too low for any scale of application.

At that time, we achieved final confirmation of thousands of transactions in just 400 milliseconds, and if we account for all round-trip times on the server side, it would be only one to two seconds. So users or developers who saw the performance of Solana were amazed, because Solana is so different, even though the product itself was still quite imperfect at that time. But it could run, although it would crash in about an hour.

Next is the scheduling for stabilizing the launch, which is also the most stressful thing. You need to cut some things, such as supporting EVM, or supporting a certain programming language, or needing a high-level browser, or launching your own wallet stack, etc. Strip these away, and push the most basic version to the market as soon as possible. But I think defining a minimum viable product (MVP) that can achieve product-market fit (PMF), which means ultra-high capacity, low latency, and removing all other features, is very difficult because you don't really know how much to sacrifice, and you don't know what developers actually care about. We are fortunate because we largely made the right choices based on our previous experience in developing operating systems and developer platforms, which greatly helped us achieve the final result.

But I think the hardest part is still the durability of the product. Cryptocurrency can bring a lot of deceptive viral effects. Your token price may skyrocket, but in reality, there are no users, and you are disconnected from the users. At that time, we didn't have a solid user base, but the price of the SOL token was rising, and we needed to take this opportunity to accumulate as many real user cases as possible. If we missed this opportunity, it would be very difficult to recover.

We were quite lucky at the first hackathon; many people submitted their projects, but the applications they created were all sorts of messy things. By the second hackathon, I felt like “Wow, it seems like we found our direction,” because the projects from the first hackathon had undergone three months of continuous improvement, and the final products were very polished, fully functional, and truly aligned with our overall vision for finance, trading, and DeFi.

During the second hackathon, while reviewing the entries, I noticed that there were huge differences in the quality, usability, business models, and actual entrepreneurial capabilities of the projects (such as their ability to raise funds and survive). Seeing these companies secure funding during the hackathon made me feel that we now have product-market fit, which is part of our core business and provides a path to profitability.

So I think this is the biggest change since Solana was launched. I mean, considering all factors, it's just fortunate to reach this stage within a year of the product launch. Most companies take several years to explore and find the best product-market fit, and I believe it really takes ten years to build a company.

From flourishing to sudden setbacks, Solana seeks survival in crisis.

Then came one of the worst troughs we experienced in the industry - the FTX incident. As we all know, FTX was one of our largest investors and partners. At that time, we were in the middle of hosting the third Breakpoint conference, which was a large-scale event that attracted about 1,600 developers. All our tickets were sold out, and as a result, FTX collapsed on the return flight.

At that time, the situation was like this: on the plane, I felt everything was going smoothly when FTX collapsed and the crypto market plummeted, leading to a bleak market. This was simply a large-scale crash that could potentially destroy the entire ecosystem. Solana was founded at the beginning of the 2018 bear market, when Ethereum was dropping 10% weekly. Therefore, we are very cautious, and we never overhire; the company has sufficient funds and capital to develop and improve products.

I was very scared at that time. Many Solana ecosystem projects that were financed on FTX actually left their funds on FTX, because if their funding chain broke, it would be over, and there would be no way to replenish the funds; all the funds would be completely depleted.

Fortunately, we conducted a large survey, and the results showed that 85% of the companies are doing well, while 15% have completely failed. Among these companies, there is one promising company, which is Armani's Backpack, that was developing a wallet at the time. They had just completed a round of financing, around 10 million dollars, and all the funds were on FTX and could not be withdrawn. They only had a few million dollars left at that time and were planning to double the team size to create a product and complete the remaining seed round financing. At that time, there were only about six of them, and I thought most companies would go bankrupt, but they succeeded in getting through.

Despite the significant loss of funds by Backpack, they have doubled down on their efforts and truly focused on their product. I believe they turned the situation around by launching the Mad Labs NFT series and establishing an exchange. I think Armani's anger towards FTX and the desire to build a better exchange contributed to this shift. It's like the kind of energy that comes from a founder driven by anger; I feel they captured the attention of the NFT market and the entire industry when they launched Mad Labs, which lasted for a full two weeks. It felt like a complete turning point, and you will see many companies doubling down and revitalizing themselves.

Just like the return of a bull market. One of the biggest lessons I learned from it is that building a company during a bull market is actually very difficult, especially in the cryptocurrency space, because signal distortion is quite severe. You don't know who your core users are, nor do you know which features are truly important for your product and growth.

But during market downturns, if you have 10 to 20 loyal users who frequently use your product, especially in the financial sector, and if you have a deep understanding of the value your product can bring to them and continuously optimize it to make it better each week, then during a bull market, you will see tremendous growth. This is because, firstly, these users will become your biggest advocates, and secondly, your product will be highly optimized for specific use cases.

The product has already achieved product-market fit, and the financial industry is very cyclical. During a bull market, time risk can lead to a huge trading volume and revenue, so you need to ensure that your product is highly optimized and ready for scaling, regardless of what your business model is.

So it's really interesting to see the companies I interviewed after the FTX collapse, as they were basically saying, “We will continue to optimize our products. We have enough funds. Let's see what happens next year.” All of these companies succeeded and performed exceptionally well.

The most severe issue was that the price of SOL dropped 97% from its peak, and most people thought SOL was dead.

I think it's great to have a co-founder who loves crises. Some people are just more suited to operate in times of crisis, as your decisions will be limited, and you must act quickly. What we do the most is communicate with founders who continue to grow their companies, trying our best to help them grow, achieve product-market fit, and clear obstacles as much as possible. However, we were unable to provide financial support at that time because funds were completely depleted.

The FTX incident surprised me about Sam; as you saw in the interview, he is the kind of super nerd, a quantitative analyst from MIT, a geek. They actually went completely bankrupt. But I think thinking about the potential losses caused by that chaos is truly unbelievable.

Will there be more chaos in the crypto future under a backdrop of improved regulation?

I believe that the frequency of hacking attacks in engineering has significantly decreased, largely due to the reduction in innovations related to smart contracts, as many uses of blockchain have already been explored. Smart contracts are starting to become commoditized; once deployed, you only need a certain amount of CPMM automated market makers, without having to take on the huge engineering risks of building another one.

Similar to Bonding Curve and lending protocols, you will see a reduction in the attack surface for hackers. Whenever there is a surge of innovation in the field of smart contracts, it is accompanied by many risks. In addition, I believe that with better tools, formal verification, improved testing, and a deeper understanding of related attack vectors, people have also done a better job of deploying these aspects. The risks have significantly decreased, and with the launch of new financial systems, their risks are lower, for a simple reason: they rely more on on-chain technology.

Regulatory issues are indeed a major problem faced by many exchanges or institutions. If regulations are too strict, it can take a long time and incur high costs. For example, obtaining a license might take two years, but it is impractical to wait two years to gain market share. Projects may choose to move their operations to overseas locations with less regulation and leverage banking infrastructures that are not as well-developed as those in the U.S. to establish their business, which ultimately leads to various problems. I believe that many failures in the previous economic cycle fundamentally stem from this.

Now the United States has a stablecoin bill, and the SEC has also turned over a new leaf, making it much easier to start a business here. However, the U.S. is indeed lagging behind; Japan, France, and the UK have all introduced laws related to cryptocurrencies, making the development of cryptocurrencies much easier. Japan might be the best place, as people from developed countries are all getting into cryptocurrencies. This is precisely why projects like FTX Japan can be so successful; they are actually far ahead, but compared to the U.S., the Japanese market is indeed smaller.

Looking ahead, Solana's vision is to engulf financial services.

There are no engineering or technical reasons preventing the development of Solana. Solana's grand vision is that it can handle payments, transactions, contracts, IPOs, and all other businesses, all of which can be accomplished through a single chain within the same execution engine. Accelerating the circulation of dollars, participating in the IPO market, and completing any transaction globally is an engineering task that requires a lot of hard work and effort. Optimizing it and bringing it to perfection will take a significant amount of time, but from an engineering perspective, there is no reason to prevent its existence.

So this is what we really want to build. If this system exists and has PMF, and everyone is using it, then you can actually reduce financial costs to the same minimum level as physical costs, which can also be said to be the ultimate state of software eating the world (that is, the financial world).

The Solana ecosystem has many advantages because it is a more mature, fast-growing market that continues to expand. However, I believe that competition to realize this vision will be very intense. I am not sure if there will be a blockchain as large as Google that can handle 99% of important transactions. There are two main reasons for this: first, countries with unique regulatory systems and firewalls may have their own blockchains; second, everyone wants a piece of the pie.

Even Google has launched its own chain. What will fintech companies and related enterprises do in the future? For example, which platform will guide retail investors, and how will these integrations take place? It's still uncertain at the moment, but I believe Solana is that platform, so we shall see.

In the direction of development towards this, what I truly want to see in the future is that companies in the U.S. and Silicon Valley wishing to go public can complete their IPOs with a simpler method that I call “zero-to-Linux IPO” at a faster speed and lower cost. Founders like me, if we want to do this, can use on-chain immutable smart contracts, which can be written into the S1 filings submitted to the SEC, indicating that you are using this contract for a direct listing on this open commercial blockchain, which has auction properties. I can directly list my equity on-chain, which will become a true source of the equity structure table and allow the public access to this information at any stage of the company's establishment without paying any fees to any investment banks and without any indirect costs. All incentives and any fees you usually pay to banks can be used to incentivize AMM to provide liquidity.

This will be my ideal way of operation because once this happens, it will greatly change the way companies obtain capital and the way the public accesses early-stage companies.

I believe one of the most important components of the American Dream is the free market. You know, I came to America from the Soviet Union in 1982, when the internet was on the rise, and companies like Microsoft and Amazon were also continuously growing. They were like building the future, and now these companies have become giants with market capitalizations in the trillions of dollars. I think in the 90s, people could buy Amazon stock, which was undoubtedly a huge gift from America, or a significant value proposition from America. And now the number of publicly traded companies in the U.S. may be the lowest since the 1970s, or it is the period with the fewest IPOs. So, if we can provide founders with tools to complete IPOs at the lowest cost, the fastest speed, and with the least legal fees, I believe this will greatly change the entire industry landscape.

This is a part of a very cool sci-fi future, where everyone in the world can access financial services at the lowest possible cost, and the speed is comparable to the speed of light. I think this is one of the coolest projects I can be a part of.

Epilogue: The Future of Cryptocurrency, the Era of Stablecoins

I see that cryptocurrencies are being effectively adopted by Wall Street and some global institutions, with stablecoins being a major factor driving this institutional adoption trend. The “Genius Act” passed by Congress creates a framework for issuing stablecoins and beginning to achieve product-market fit, which is far better than any funding interface that traditional banks can offer. Even building all fintech products on top of traditional banks is not as good as using stablecoins. Therefore, this will be a major driving force, with people expecting that stablecoins worth $10 trillion will be issued in the next 5 to 10 years. Currently, the issuance of stablecoins is about $250 billion (note: it has actually exceeded $300 billion), which is equivalent to growth by several times, and this liquidity will flow into all financial-related industries you can think of.

If you are a founder with a passion for fintech, or if you want to build a fintech company, I might suggest that you build your business around stablecoins. You can choose to integrate with existing stablecoins and manage various different stablecoins, or you can create your own stablecoin for specific purposes.

Translator's Insights

From concept to action, Solana has experienced peaks, valleys, and rebirth over nearly 8 years. The co-founders of Solana are among the most passionate founders I have seen in the industry. They possess advanced technology, understand operations and risk management, have faced crises and emerged unscathed, and are full of confidence and execution power regarding the future vision. This is a true crypto Builder. At this moment, the heart of a SOL guardian is gradually warming up.

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