Compiled & edited by TechFlow

In a recent Bankless podcast, David and Austin Federa took a deep dive into the Solana network and its native asset, SOL. The two had a deep discussion on the cultural and philosophical differences between Solana and the Ethereum project. From a community perspective, there are some differences between the two, but Austin brought us a new perspective on the design philosophy of the Solana network and SOL asset.

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The following is the main content of this conversation, which was translated and sorted by Shenchao, who also output the main points:

Moderator: David, Bankless

Speaker: Austin Federa (@Austin_Federa), Head of Strategy, Solana Foundation

Is SOL Money? with Austin Federa, Head of Strategy, Solana Foundation

Video attribution: Bankless Podcast

Program: Link

Release time: August 10

Solana's core concept and network architecture

  • David mentioned that there is a deep connection between assets and culture in this field, and he wanted to know what values ​​​​SOL assets embody.

  • Austin used city planning to explain network architecture. Just like New York and San Francisco have different functions because of different planning. Similarly, what is done on the Bitcoin network is different from what is done on the Solana or Ethereum network.

  • David asked if SOL was going through a similar narrative development direction as Ethereum. Austin began to explain Solana's core idea, which is to create a global state machine that is as fast as traditional financial markets. He mentioned that Solana's initial goal was very narrow, mainly finance, and did not involve other parts of Web3 such as NFTs and social tokens. This is somewhat similar to the development trajectory of Ethereum, because Ethereum also started from a narrower application field and gradually expanded to a wider range of applications over time.

  • Austin added that it is necessary to keep the network as fast as possible and transaction costs as low as possible. He compared the different network architectures and economic models of Ethereum and Solana. Ethereum uses a multi-layer network architecture, which can expand and optimize the network more flexibly. Solana uses a single network layer, which can achieve higher performance and lower transaction costs.

  • In terms of economic models, both include transaction fees and inflation rewards, but Solana’s inflation rate decreases year by year, while Ethereum’s inflation rate is fixed.

  • Austin mentioned that Solana's goal is to compress everything into one stack, rather than spreading it across multiple layers like Ethereum. He explained some of Solana's technical features, such as using the QUIC network standard, local fee market, and stake-weighted QoS.

(Note from Shenchao: QUIC is a new transport layer network protocol designed to replace TCP, providing lower latency and higher performance. In a blockchain environment, low-latency and high-performance network connections are crucial because they can speed up the transmission of transactions and data.)

(QoS is a strategy to ensure the quality of data transmission. Stake-weighted QoS may mean that data transmission priority on the Solana network is determined based on some kind of stake. This means that participants with more stake in the network may receive higher data transmission priority.)

Solana's consensus mechanism, economic model and technical features

  • Austin emphasized that Solana’s design philosophy is built around speed and performance, and Solana’s goal is to become the fastest blockchain, which is achieved through its unique consensus mechanism and technology.

  • David mentioned Ethereum 2.0 and its plan to switch to Proof of Stake (PoS). Austin pointed out that although Solana and Ethereum are technically different, both aim to improve the scalability and performance of the network.

  • Austin described Solana’s PoS mechanism, where Solana’s validators need to stake SOL tokens to participate in network consensus, which helps ensure the security and honest behavior of the network.

  • Regarding Solana’s economic model, Austin explained that the main use of SOL is as collateral for the network to prevent the network from being attacked and to pay transaction fees on the network, which is very similar to Ethereum’s economic model.

  • Austin believes that if people believe that the demand for blockchain will increase, then SOL's economic model will be viable. He believes that the Ethereum community has done a good job in economic modeling because they have created a system that will have a deflationary effect even if Ethereum's adoption rate does not increase.

  • Austin mentioned that Solana’s goal is to keep transaction fees at the base layer very low. Even with the price of the Solana token (SOL) reaching all-time highs, transaction costs on the network remain very low. He explained that Solana’s original economic model was based on the prediction of a low SOL price. He said no one expected the network to gain user and developer adoption so quickly.

  • Austin mentioned the differences between Ethereum and Solana’s economic models, especially in terms of inflation and reward structure. He explained that Solana’s inflation is designed to reward participants who contribute to the network, such as validators and miners.

  • Austin noted that Solana's inflation rate will initially be 7%. Each year, this inflation rate will be reduced by 1.5% until it stabilizes at 1.5%. This year-by-year decreasing model is designed to gradually reduce the issuance of new tokens, thereby reducing inflationary pressure on the market. As long as the network continues to build blocks, there will be inflation rewards. This is similar to how Ethereum works, meaning that validators and miners are rewarded for their contributions to the network.

  • Austin also mentioned some other features of Solana, such as its high performance, low latency, and high throughput. He emphasized that these features make Solana a very attractive blockchain platform, especially for applications that require high performance and low fees.

  • Regarding the different applications of Ethereum and Solana, Austin pointed out that the nature of these applications is different. For example, Uniswap is designed for large transactions, and on Ethereum, Uniswap transactions are more expensive due to high transaction fees.

  • Austin mentioned Solana’s liquidity issues, noting that deploying applications like Uniswap on multiple chains would fragment liquidity.

  • Austin also mentioned Solana's Liquid Staking (LSD) ecosystem. Allowing users to stake their tokens and receive a new token representing their staked share. In this way, users can use these tokens in other DeFi applications instead of locking them up. He also mentioned liquidity staking solutions such as Lido and Marinade, which are liquid staking platforms designed for Solana.

Solana vs Ethereum’s MEV Strategy

  • David asked about Solana’s MEV strategy. Austin explained that because Solana’s transaction fees are so low, this allows the MEV bot to pursue smaller profit opportunities that might not be economical on other blockchains.

  • Austin pointed out that MEV on Solana is more like high-frequency trading, which means that on Solana, due to the fast transaction speed and small window of opportunity, MEV opportunities may be more brief and frequent. On Ethereum, MEV is more like fishing in a barrel, which may mean that MEV opportunities on Ethereum are greater but occur less frequently.

  • David said that Ethereum’s goal is to eliminate MEV, which means that the Ethereum community is working to reduce or eliminate the opportunities for miners and validators to use their positions to gain additional profits. However, Austin is skeptical, believing that as Ethereum develops and becomes mainstream, the goal of eliminating MEV may be challenged.

  • Austin explained Solana's equity-weighted QoS strategy, which is one of Solana's strategies to fight MEV. This may mean that on Solana, the priority of data transmission is determined based on some kind of equity (such as the holding or staking amount of SOL tokens).

  • He also mentioned Judo Soul, a stake pool token associated with the Judo MEV client. Users can delegate their stake on the Solana network to specific validators by purchasing Judo Soul tokens. When these validators make additional profits through MEV, Judo Soul token holders can also receive a portion of the returns. This provides users with an opportunity to participate and benefit from MEV without having to become a validator directly themselves.

  • Austin said he was skeptical that Ethereum would be able to implement a MEV burning strategy because it would require external data inputs that could be manipulated.

  • Although the community may punish those who do not follow the MEV burning strategy, this strategy may be difficult to implement in practice because it may violate the social contract of the Ethereum community and lead to community division or controversy.

  • Austin’s point is that while the MEV combustion strategy sounds attractive in theory, it may face many challenges and obstacles in practice.