Solana Founder's Personal Account of an Eight-Year Journey: How to Recover from a 97% Drawdown

Original Title: How Solana Survived When Most Other Coins Fell

Original Source: NEW ECONOMIES

Original Translation: CryptoLeo, Odaily Planet Daily

During the bear market, a qualified SOL guardian is here once again to try to reinforce your belief. Solana co-founder Anatoly Yakovenko was interviewed by NEW ECONOMIES in November, discussing Solana's origin and development, going through the lows and recovery, and also touching on regulatory and stablecoin-related topics. In addition, Anatoly also outlined Solana's future vision. The following is the translation by Odaily Planet Daily (due to too many trivial details, the key content is rearranged in the first-person narrative):

Solana's Origin, From Side Project to Full-time

Solana originated from a stroke of luck and good timing. At that time, a friend and I were running a startup project, or more accurately, a side project. We were working on AI-related things, such as deep learning servers, and using GPUs to mine cryptocurrency to cover the costs of buying these GPUs. However, a question popped into my mind: why would people spend money to purchase our AI-related products? After two cups of coffee and a bottle of beer, my partner and I discussed mining, PoW, the Nakamoto consensus, algorithms, and why electricity usage is crucial in this process.

Most of my professional career was spent at Qualcomm as an engineer. Most people should know that Qualcomm is deeply involved in wireless protocols, radio technologies, and mobile phones. Your phone likely uses Qualcomm's products, some of which I helped develop.

We stayed up until 4 a.m. that day, and suddenly, I had a revelation. I thought of encoding the passage of time into a data structure and recalled the protocol originally used in cellular networks, called Time Division Multiple Access (TDMA). This concept first appeared in the 1960s and 1970s, very straightforward: divide time into slots, then use different time slots to transmit data to avoid interference and allow more information to pass through. The reason I thought of this is because Bitcoin and the PoW mechanism were facing similar issues.

If two block producers, two miners, generate blocks simultaneously, a fork occurs, causing network chaos and hindering normal information transmission. One of the blocks has to be discarded. So, if two block producers can take turns producing blocks, conflicts can be avoided, and protocol bandwidth utilization can be maximized. Roughly calculating, I found that its throughput was 1,000 to 10,000 times higher than that of Ethereum or Bitcoin at the time.

The idea emerged, and perhaps I should start a company. The smart contract platform really caught my interest because it provides a whole new application development environment for developers. These applications are different from any other you would build elsewhere, so you can't just build smart contracts on a regular AWS server. You need the blockchain's verifiability, encryption guarantees, and so on, which make it possible to write code that can handle funds.

At that time, many people believed that things like Wall Street's databases controlled funds, which were monitored by humans, and many products were just optimizing the work of these people. Smart contracts, on the other hand, are entirely different. The software itself is responsible for holding the funds, and it is the sole authoritative source of fund movement. So, to some extent, smart contracts disrupted the entire data model.

Entrepreneurship Start, Boldly Pursuing Established Things

Deciding to embark on entrepreneurship, I needed to persuade many people. My wife was the first person I needed to convince. She is an engineer and knows me very well. I always had a side hustle, always putting some ideas into practice in my spare time. We already had a child, and she said at the time, "Well, maybe this could work, but you can't be both a full-time worker, a father, and part-time entrepreneur. 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, she was working at a startup that was a competitor of Facebook in Colombia, and Facebook was in a very early stage at that time. The experience she gained there was that the market would go through about six months of hype, and everyone knew a product in active development would take up 80% of the market share. It would have some explosive features. If you missed that window, you would never catch up. So, by the end of 2017, I felt it was the ideal window to build a Layer 1 blockchain with specific attributes that could scale globally, truly addressing the entire global financial system.

For me, the biggest driving force in creating Solana was actually twofold: the need to go all-in and not wanting to miss out during the market frenzy. I think anyone reading this, if you are still hesitating about diving into fields like AI, waiting another six months or a year, you will really miss out on an opportunity. Act now, and if you've already started, even better.

Differing from BTC, ETH, Solana Pursues Transaction Efficiency

Solana is a high-performance blockchain, and the key use case we have always pursued is transactions. If you consider Bitcoin as a store of value/digital gold, then building a store of value is not an engineering challenge. In fact, to ensure settlement and global availability, some engineering technology is indeed required. Satoshi Nakamoto's PoW algorithm and the Bitcoin whitepaper did an excellent job in this regard. But you cannot develop a Bitcoin Plus version; you cannot compete in this market with Bitcoin by adding features or increasing throughput. Ethereum's goal is to use settlement as an application scenario, with the idea that, after completion of 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 aspect. Perhaps there is still some room for technical improvements in this regard, such as adding execution layers, but I am more interested in execution itself. In other words, building a global blockchain that can handle transactions, payments, and everything users need in their daily lives, all of which can be done in one system.

Perhaps the most unique aspect of Solana is its vision: no need for independent blockchains or layered structures; you can integrate all functions into one massive state machine and coordinate all operations at the fastest speed. To give you some data, Solana's transaction volume in the first month alone was equivalent to the total transaction volume of Ethereum in its entire lifecycle at that time.

Entrepreneurship Challenges, Funding, and Recruitment

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

For founders, being able to pitch the product vision and concept well is key; otherwise, you can never recruit people, sell products, or guide users, whether you are in B2B or B2C.

Pitching Solana was a completely new experience for me, and it is a process of learning and continuous improvement. That's why I think in Silicon Valley, you can build a huge list, force yourself to repeat thousands of efforts, and make sure you eventually reach the most valuable investors. The more familiar you are with this process, the better your pitching becomes.

For founders, you are striving to convey information in the most concise way. In a short 10-minute conversation, you need to figure out how much the other person already knows about cryptocurrency because you don't want to repeat what they already know. You also need to explain in the shortest time possible the specific problem the product is solving and its impact, and make them see the kind of change the world will undergo, a change based on the concept of cryptocurrency.

The strategy I used at the time (I'm not sure if this strategy applies to all founders) was to first pitch to the company, then to that partner, even if the company eventually dropped out, I could still convince the partner, seek a commitment, and they would be more likely to help me connect with other VCs they knew who were investing in this area. In the end, this allowed me to attend thousands of meetings, to find those focused on the crypto field and more willing to take risks at an early stage because the VC investors were also employees of the company, investing in the company and also doing private investments.

In fact, we had already completed a funding round at the time, which was almost over. It was the first quarter of 2018, and there was not yet a standard, secure, and reliable investment template for cryptocurrencies that could be quickly provided to investors. We spent 6 weeks having a lawyer draft the relevant documents. But during that time, Ethereum started to decline by about 10%, and many funds collapsed as a result, which was the first challenge we faced early on. Even so, many people were still willing to participate. They were not entirely crypto funds, not 100% invested in cryptocurrency; their balance sheets held more dollars, but they saw this investment as an opportunity. In the end, we completed this funding round, but the situation was quite unstable at the time.

At that time, I was sitting in the 500 Startups office with another co-founder, Raj (because one investor came from 500 Startups). He said, "I think I have to work hard, I have to work hard." At that time, I believed that once a product had an investment commitment, it was very likely to snowball and eventually become an actual check, but my advice was to continue fundraising until there was actually money in your bank account.

I think the second challenge was hiring. But I was very fortunate, during my time at Qualcomm, many of my former colleagues were eager to do something new, and all of them had over ten years of experience in low-level operating systems or protocols. For example, one of them who participated in the development of the Solana protocol had previously been involved in the formulation of the LTE specification. These are people who have a very deep understanding of networks, operating systems, GPUs, CPUs, and underlying chips, and they could understand what I told them, "Anyway, you're going to change jobs, so you can treat building Solana as a vacation."

I hired some experts in their respective fields whom I knew very well, and everyone quickly got into gear, started building what I thought was the most advanced network at the time. As it turned out, at launch, Solana was miles ahead of all its competitors.

From Founder Fit to Solana Achieving PMF

When it comes to work partners, the best way to describe my relationship with Raj is like dating – it requires full commitment. I was introduced to Raj by a mutual friend, and at that time, I didn't have much of an impression of him; he seemed like an ordinary person. The mutual friend who introduced us purposely said, "You are a great engineer, but other than that, you lack 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 a good fit." We got along very well, and my wife basically calls us a "work marriage."

Our decision-making process is indeed exhausting, but in that high-pressure, fast-paced environment, we would repeatedly argue certain points until we eliminate all obviously bad options, leaving only what I call the Pareto efficient option set, where we could choose A, B, C. All trade-offs seem fairly equal, and we discussed nearly all possible directions. At this stage, it's almost down to sheer luck.

It's very taxing and requires strong endurance. It also requires mutual trust, believing in each other's judgment. I believe CEOs and early employees or co-founders need this kind of personality, where they can fiercely debate based on mutual trust but still feel that everyone respects each other. It's quite difficult, and I just enjoy arguing, and I don't mind losing. Many of the CEO's flaws or personalities will eventually influence company culture, and in the early days of a company, every factor sparks debate.

Working hard to build the product, completing development as soon as possible, but you can't anticipate all possible failures. Should you assume success and invest in developing some auxiliary features to solidify success and better launch the product? Or should you first focus on developing the product well, prove that you can do it, and then move on to the extras? In the early stages, especially when developing complex products, you have to make many such decisions.

For example, in books like Peter Thiel's "Zero to One," there is a lot of great advice, and the best advice you can get is to build a Minimum Viable Product (MVP), which means creating the smallest product that can validate your idea, but this is actually hard to define. So, you have to find your niche market. We spent some time doing this, and it was almost forced upon us, probably in the second year of our development cycle.

At that time, we had only about 12 months of funding left (we had a total of 24 months of funding reserves), and the product was still not functioning properly. We had to cut out all other features besides the existing ones, release the product quickly, and minimize the changes needed. This allowed us to seize a first-mover advantage, launching 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 on as much product risk as possible in order to build a top-tier product. This was indeed part of our vision, and by the end of that year, we had developed a series of features, taking on approximately eight technical risks. If you only try one technology, the success rate is 50%. But if you attempt eight technologies, the combined success rate drops to 1/256. So, the likelihood of failure is high, with various problems arising one after another. Then, you have to figure out how to fix them, iterate repeatedly, and finally bring the product to market.

However, precisely because of these decisions, we took on these risks early on and ended up with a range of differentiated features. These features are more or less effective. They are not perfect, but we did expand capacity, reduce latency, and, compared to any other platform, the development experience based on Solana is entirely different.

At the time, Ethereum was using a PoW mechanism, with a block time of approximately 12 seconds, but you had to wait for at least two blocks to confirm a transaction's finality. So, users had to wait 30 seconds to confirm a transaction, which was definitely a poor user experience. Additionally, the processing capacity of 7 or 11 transactions per second was too low for any scaled application.

At that time, we achieved final confirmation for thousands of transactions in just 400 milliseconds, or one to two seconds considering all server-side round-trip times. Seeing the performance of Solana, both users and developers were amazed because Solana was so different, even though the product itself was still imperfect at the time. It could run, but it would crash after about an hour.

After that, it was time to prepare for a stable launch, which was the most stressful part. You had to cut some things, such as our support for EVM, or support for a certain programming language, or the need for an advanced browser, or launching our wallet stack. To strip these away and quickly push out the most basic version to the market. But I think defining a minimum viable product that can achieve product-market fit, which is ultra-high capacity, low latency, and removing all other features, is very difficult because you have no idea how much you should sacrifice, and you don't know what developers truly care about. We were lucky because based on our previous experience developing an operating system and developer platform, we made most of the right choices, and the end results were very helpful.

But I think the most challenging part is the product's persistence. Cryptocurrency can bring many deceptive viral effects. Your token price may skyrocket, but in reality, there are no users, and you lose touch with them. We had almost no user base at the time, but the SOL token price was rising. We needed to take advantage of this opportunity to accumulate as many actual user cases as possible. If we missed this chance, it would be challenging to recover.

During the first hackathon, we were lucky as many people submitted their projects, but all the applications they built were just a bunch of random stuff. It wasn't until the second hackathon that I felt like, "Wow, it seems like we've found a direction," because the projects from the first hackathon went through three months of continuous improvement and eventually presented a very polished product that was fully functional and truly aligned with our overall vision for finance, transactions, and DeFi.

During the second hackathon, while judging the submissions, I noticed significant differences in the quality, usability, business model, and actual entrepreneurial ability of the projects. Seeing these companies raise funds during the hackathon, my immediate thought was that we now have product-market fit, belong to the core business, and have a path to profitability.

So I felt that this was the biggest change since Solana's launch. What I mean is, considering all factors, reaching this stage within a year of product release was simply too fortunate. Most companies take several years to find the optimal product-market fit, and I think truly building a company takes about ten years.

From Swagger to a Devastating Blow, Solana's Fight for Survival

Then came one of the worst lows we experienced—The FTX incident. It is well known that FTX was one of our biggest investors and partners. At that time, we were holding the third Breakpoint conference, a massive event that attracted about 1600 developers. Our tickets were sold out, and on the return flight, FTX collapsed.

The situation at that time was like this—while on the plane, feeling everything was going smoothly, FTX collapsed, causing a crypto crash, and the market plunged into a depression. It was a massive collapse that could have destroyed the entire ecosystem. Solana was founded in the early stages of the 2018 bear market when Ethereum was dropping by 10% every week. So we were very cautious, never over-hired, and had enough internal funds and resources to develop and improve the product.

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

Fortunately, we conducted a large-scale survey, which showed that 85% of the companies were fine, but 15% of the companies were completely devastated. Among these companies was a very promising one, Armani's Backpack, who was developing a wallet at the time. They had just completed a funding round of about $10 million, and all funds were stuck on FTX, unable to withdraw. They were left with only a few million dollars and were planning to double the team size, build a product, complete the remaining seed round of funding. At that time, they had only about six people, and I think most companies would have closed down, but they successfully made it through.

Despite losing a significant portion of their funding, Backpack doubled down on their efforts, truly focusing on their product. I believe they turned the tide by releasing the Mad Labs NFT series and establishing an exchange. I think Armani's anger towards FTX and the desire to build a better exchange drove this transformation. It's like the energy that comes with a founder driven by anger, and I feel that when they launched Mad Labs, they captured the attention of the NFT market and the entire industry for a full two weeks. This felt like a complete turning point, and you will see many companies redoubling their efforts and bouncing back.

It's like the bull market returning. One of the biggest lessons I learned from it is that building a company during a bull market is actually very challenging, especially in the cryptocurrency space, because signal distortion is very severe. You don't know who your core users are, and you don't know which features are truly important for your product and growth.

But in a bear market, if you have 10 to 20 loyal users who regularly use your product, especially in the financial sector, if you understand very well what value your product can bring to them and continuously optimize it, making it better every week, then in a bull market, you will see tremendous growth. First, these users will become your biggest advocates, and second, your product will be highly optimized for a specific use case.

The product already has product-market fit, and the financial industry is highly cyclical. During a bull market, time risk will generate significant trading volume and revenue, so you need to have your product highly optimized and ready to scale, no matter what your business model is.

So, seeing those companies I interviewed after the FTX collapse was really interesting. They basically all said, "We will continue to optimize the product. We have enough funding. Let's see what will happen next year." All of these companies succeeded and did extremely well.

The most severe was when SOL's price plummeted 97% from its peak, and most people thought SOL was dead.

Now I feel it's great to have a co-founder who loves crises. Some people are naturally better suited to operate in a crisis because your decisions are constrained, and you must act quickly. Most of what we did was communicate with founders who kept developing their companies, trying our best to help them grow, achieve product-market fit, and help them remove obstacles as much as possible. But we couldn't provide funding support at that time because the funds were completely depleted.

The FTX incident, I was very surprised by Sam, just as you saw in the interview, he is that kind of super nerd, MIT quant analyst, geek. They actually went completely bankrupt. But I think about how big the potential losses in that chaos could be, it's truly incredible.

With more robust regulation, will there be even more chaos in the future of crypto?

I think on the engineering side, the frequency of hacks has dropped significantly, largely due to the innovation in smart contracts decreasing, many use cases of blockchain have been explored. Smart contracts are starting to become commoditized, once deployed, you only need a certain amount of CPMM automated market maker, you no longer have to take on the huge engineering risk of building another one.

Similarly, there are Bonding Curves, lending protocols, and so on, you will see the attack surface has narrowed. Anytime there's a lot of innovation in the smart contract space, it comes with a lot of risk. In addition, I think now there are better tools, formal verification, better testing, and a deeper understanding of the relevant attack vectors, people are doing better in deploying these aspects. Risk has dropped significantly, with the launch of new financial systems, their risks are lower, simply because they rely more on on-chain technology.

Regulatory issues are indeed a major issue faced by many exchanges or institutions, if regulations are too strict, it will take too long and cost too much. For example, obtaining a license may take two years, but you can't wait two years to gain market share. Projects will choose to move their business to less regulated jurisdictions overseas and take advantage of banking infrastructures with less robust regulations than the US to establish their business, resulting in various problems. I believe many of the failures in the last economic cycle were fundamentally due to this.

Now the US has the stablecoin bill, and the SEC has also reformed, making it much easier to start a business here. But the US is indeed behind, Japan, France, and the UK have already enacted cryptocurrency-related laws, making cryptocurrency development easier. Japan may be the best place; people in developed countries are all getting into cryptocurrency. That's why projects like FTX Japan have been so successful, they are actually far ahead, it's just that compared to the US, the Japanese market is indeed small.

Future Outlook, Solana's Vision is to Swallow Financial Services

There is no engineering or technical reason to stop Solana's development, Solana's grand vision is that it can handle payments, transactions, contracts, IPOs, and all other businesses, all of which can be done on a single chain through the same execution engine. Speed up the circulation of the US dollar, participate in the IPO market, complete any transaction globally, this is an engineering effort that requires a lot of blood, sweat, and tears, optimizing and making it perfect takes a lot of time, but from an engineering perspective, there is no reason to stop its existence.

So this is what we really want to build. If this system exists and has Product-Market Fit (PMF), and everyone is using it, then you can actually reduce the financial cost to the lowest achievable level, equivalent to the physical cost. This can also be referred to as the ultimate state of software eating the (financial) world.

The Solana ecosystem has many advantages as it is a market that has been developing for a longer time, growing faster, and still in continuous growth. However, I believe the competition to achieve this vision will be very intense. I am not sure if we will see a blockchain as massively scaled as Google, capable of handling 99% of critical transactions. There are two main reasons for this: One, countries with unique regulatory systems and firewalls may have their own blockchains; and two, everyone wants a piece of the pie.

Even Google has launched its own chain. What will happen to fintech companies and related enterprises in the future, such as who will lead retail investors to which platform, and how these integrations will take place is currently uncertain. But I believe Solana is that platform, so we await eagerly.

With developments heading in this direction, what I truly envision for the future is that U.S. companies in Silicon Valley wanting to go public can do so through a simple method I refer to as a "From-Scratch Linux IPO," completing an IPO faster and at a lower cost. Entrepreneurs like myself who want to do this can use an immutable on-chain smart contract that can be written into the S1 filing submitted to the SEC, stating that you are using this contract to directly list on this public blockchain for business, which will have auction attributes. I can directly list my equity on-chain, which will become the true source for the cap table and allow the public access to this information at any stage of the company's founding without having to pay any fees to any investment banks. There will be no indirect costs; all incentive measures and any fees you'd typically pay to banks can be used to incentivize automated market maker (AMM) liquidity provision.

This would be my ideal way of operation because once this happens, it will significantly alter how companies obtain capital and how the public engages with early-stage companies.

I believe a crucial part of the American Dream is the free market. You know, I came to the U.S. from the Soviet Union in 1982, and at that time, the internet was emerging, and companies like Microsoft and Amazon were also rapidly developing. They were like building the future, and now these companies have become trillion-dollar behemoths. I think in the '90s, people could buy Amazon stock, which was undoubtedly a huge gift from America, or rather a giant endorsement of American values. And now, the number of U.S. public companies is possibly at its lowest since the '70s, or the period with the least number of IPOs. So, if we can provide tools for founders to be able to IPO at the lowest cost, fastest speed, and least legal fees, I believe this will significantly change the entire industry landscape.

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

Extra: Crypto Future, the World of Stablecoins

I see cryptocurrency being effectively adopted by Wall Street and some global institutions, with stablecoins being a key driver of this institutional adoption trend. The passage of the "Genius Act" by Congress has created a framework for issuing stablecoins and starting to achieve product-market fit that is far superior to any fund interface that a traditional bank can offer. Even building all financial technology products on top of traditional banks does not compare to using stablecoins. So, this will be a major driving force, with an expectation that stablecoins worth $100 trillion will be issued in the next 5 to 10 years. The current issuance of stablecoins is about $250 billion (note: actually over $300 billion), which is expected to grow by several tens of times, and this liquidity will flow into all financial-related industries you can think of.

If you are a founder and passionate about 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 stablecoins, or build your own stablecoin for a specific purpose.

Translator's Insight

From concept to action, Solana has gone through highs, lows, and rebirth in nearly 8 years. The Solana co-founders are some of the most industry-loving founders I've seen, with advanced technology, operational knowledge, risk management skills, crisis experience, and confidence and execution capability for the future vision. This is a true crypto Builder. At this moment, the heart of a SOL Knight is warming up again.