Original Title: The Solana Thesis: Internet Capital Markets
Original Author: Kyle Samani
Original Translation: Odaily Planet Daily
Multicoin Capital explores how Solana can become a leader in the future internet capital markets and analyzes its advantages compared to traditional financial markets. Solana's efficient blockchain performance allows it to reduce costs in the payment sector and provide users with a better experience. Compared to traditional payment systems, Solana's transaction fees are nearly zero and it can handle a higher frequency of transactions.
Additionally, Solana offers more efficient market pricing in DeFi, reduces spreads through Conditional Liquidity (CL), enhances trading efficiency, and attracts more users. Solana also plans to improve price discovery speed and optimize global market liquidity through Multi-Concurrent Leaders (MCL).
Below is the original content, translated by Odaily Planet Daily.
Since its seed round financing in May 2018, Multicoin Capital has been investing in Solana's native asset SOL and its ecosystem. During this period, we have published four investment perspectives on Solana. The first two were published nine months before the mainnet launched its first block in March 2020. As the Solana network has developed, our cognitive framework regarding the Solana network and SOL assets has also evolved.
Today, Solana has become an asset with a market capitalization of $100 billion, boasting the fastest-growing developer ecosystem and surpassing Ethereum in most major chain metrics (such as transaction volume, daily active addresses, REV, TEV, DePIN payments, etc.). Against this backdrop, we wish to share our investment logic that SOL can still deliver strong returns even after exceeding a market cap of $100 billion.
This article is our fifth perspective on investing in Solana. The previous four include:
In this article, I will argue that Solana is the preferred public chain leading the internet capital markets. Furthermore, I will propose that Solana, as a technology, can surpass major players in traditional finance (TradFi) in core performance metrics (such as latency) — including financial market giants like the New York Stock Exchange (NYSE), Nasdaq, Chicago Mercantile Exchange (CME), JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS), as well as payment industry giants like Visa and Mastercard. At the same time, Solana retains core blockchain attributes that traditional finance cannot provide: atomic composability and permissionless access for users, developers, and validators.
More importantly, I will demonstrate that the Solana ecosystem can simultaneously achieve the following two goals, even though they may seem contradictory:
Reduce end-user financial service fees by 90%-99%;
Capture a higher total market capitalization than traditional financial giants.
Traditional financial giants like the New York Stock Exchange and Nasdaq provide only a small portion of value in the financial services stack, while Solana offers a superset of these systems' functionalities by running unique DeFi protocols that have matured over the years on its blockchain. Solana not only expands the total addressable market (TAM) for transactions by enhancing accessibility and performance but also captures value from more layers of the financial services stack.
Overall, all financial services can be divided into two main categories: payments and finance. In this article, I will start by explaining why payments are a loss-leading tool for blockchain; the main part will then focus on the infrastructure driving the core of Wall Street finance.
Providing the Best Global Payment Experience
There are currently many ways to transfer payments. Apple Pay offers an excellent user experience (UX). Using physical credit cards is also convenient. Venmo, PayPal, or Square Cash are decent options. Other methods, such as ACH, bank wire transfers, Zelle, bill payments, and remittances, are average or even poor.
Although some traditional payment methods have a good user experience, their fees are unreasonably high. Wire transfer fees can be as high as $25, and credit card fees can exceed 2%. For consumers and merchants, incurring such high costs just to update ledger records is counterintuitive and directly contradicts the notion that electronic transactions should be cheaper than traditional methods.
Solana makes payments extremely simple, with an outstanding user experience and fees that are nearly zero. Check out the video produced by Sling Money (built exclusively on Solana) to see how funds will flow in the future.
The total market capitalization of global payment companies is approximately $1.4 trillion, and Solana aims to reduce this figure by 90%. The only cost imposed on users by Solana is the gas fee, which is about 0.001 cents per transaction, or $0.001. Even if the Solana network processes an average of 50,000 transactions per second throughout the year, the total cost to users would only be $1.5 billion. In comparison, Visa currently processes only a few thousand transactions per second.
Payments are a loss-leading tool for blockchain. While payments are crucial for driving adoption and provide real utility for users and businesses, they are not the primary source of profit for the blockchain or its ecosystem.
However, payments are essential for the development of blockchain. The beauty of payments lies in their inherent virality. When Alice sends funds to Bob, and Bob then sends the funds to Carol, it naturally promotes the adoption and proliferation of wallets.
The primary source of profit for blockchain does not come from payments (which are practically negligible) but from the natural fluctuations in asset prices, which manifest as Maximum Extractable Value (MEV). My co-founder Tushar elaborated on this in his 2022 Multicoin Summit talk.
The following sections of this article will focus on how and why Solana can surpass traditional finance (TradFi) in traditional performance metrics, and how this performance allows SOL and the Solana ecosystem to capture profits.
Market Efficiency in CeFi and DeFi
Solana is a decentralized network composed of thousands of nodes that reach consensus on a series of financial transactions every 400 milliseconds (expected to reduce to 120 milliseconds in the coming years).
The correct way to measure market efficiency is not by the latency of transaction confirmations but by the bid-ask spreads provided by market makers (MMs). Ultimately, what buyers and sellers experience is the price. For ordinary users (non-bots), the differences in transaction latency of 50 milliseconds, 100 milliseconds, and 200 milliseconds are not practically perceivable. For reference, the average time it takes for a human eye to blink is 100-150 milliseconds.
In centralized finance (CeFi), market making is almost deterministic. Most market makers deploy servers near CeFi exchanges, and the fiber optic cable lengths for each market maker are identical, connecting their servers to the exchange. Transactions are completed in microseconds, allowing market makers to understand their risk exposure with extremely high real-time precision.
In contrast, the determinism of decentralized finance (DeFi) exchanges (such as Drift, Phoenix, Clearpools, Raydium, and Orca) is far lower than that of CeFi exchanges due to:
The leadership nodes of the Solana network are constantly rotating;
The time to confirm transactions increases to reach consensus among validators globally.
As a result, market makers cannot understand their risk exposure with the same real-time precision. In many cases, market makers may leave outdated prices on the blockchain order book, which can be "picked off" by others.
Consequently, the spreads in DeFi are often larger than those in CeFi.
Next, we will explore how these systems are changing to provide better experiences for market makers and traders.
Market Makers — Narrowing Spreads Through Conditional Liquidity (CL)
Things are changing. DFlow recently launched Conditional Liquidity (CL) quietly on Solana. As the name suggests, conditional liquidity means that liquidity is only available when incoming orders meet certain predefined conditions. In this article, the most critical condition is distinguishing between toxic and non-toxic order flow.
How Does CL Work?
CL stipulates that liquidity can only be accessed if certain known front-end applications recognize the orders. These applications include wallets (such as Phantom, Backpack, Solflare, and Fuse) and DApps (such as Drift, Kamino, Jupiter, and DFlow's own front end). This mechanism ensures that bots cannot access CL because their orders cannot receive endorsement from "recognized parties." This is a significant improvement for market makers, as even if their quotes are delayed by a few seconds, they can almost ensure they won't be "picked off."
Although CL is a new concept in mechanism, it is directly inspired by practices widely adopted in traditional finance (TradFi). Robinhood is a pioneer in this regard. The prices offered to customers by Robinhood are often better than the National Best Bid and Offer (NBBO) on the New York Stock Exchange (NYSE) and Nasdaq. Over the past decade, they have empirically demonstrated this price improvement across trillions of dollars in trades. This is because market makers statistically have good reason to believe that Robinhood users are, on average, more "harmless" than institutional users trading directly on the NYSE or Nasdaq. Simply put, who would you prefer to trade with? Joe, the casual user watching YouTube videos, or a top institution like Citadel?
CL allows market makers to avoid facing institutional trading counterparts like Citadel.
For more background on how order flow segmentation can provide better prices for retail traders, please read this.
DFlow's CL combines the advantages of TradFi and the crypto industry:
It provides tighter spreads for retail traders like Robinhood users;
While also offering the real-time nature, permissionless access, and publicly auditable features of blockchain.
CL is still in its early stages, but we expect it to become the mainstream model for on-chain liquidity quoting in the coming years, as market makers dislike being "picked off" due to delayed quotes. The essence of market making is to quote based on as much information as possible. Whether passive or active, market makers have no reason to refuse to optimize pricing by adopting more information (i.e., conditional liquidity).
Currently, DFlow's implementation of CL on Solana is completely open-source and does not charge any fees or taxes. GitHub Repository.
CL is one of the most significant functional improvements in the DeFi space since the launch of the x*y=k automated market maker (AMM) by Uniswap at the end of 2018. As CL becomes more widespread, it will redefine many aspects of the DeFi user experience (UX), spreads, and maximum extractable value (MEV).
It is worth reiterating that CL will help market makers provide tighter spreads for ordinary users. We expect this to benefit market makers, users, SOL, and the Solana ecosystem.
Counterparties — Capturing Alpha by Reducing Latency
The essence of financial markets is to incorporate all publicly available information into asset prices. While they often achieve this, price discovery for most assets typically occurs on a specific server, while the information affecting prices is spread globally.
In traditional finance (TradFi), market microstructure is designed around low-latency traders whose servers are co-located with the exchange's matching engine.
For example, if you are a retail trader in Singapore observing an event that may affect TSLA prices, you still need to send the message to New Jersey in the U.S., which happens to be near the market makers. This is clearly unfair to counterparties and overly generous to market makers.
From a fundamental principle, the optimal solution is that market participants who observe information should be able to place orders based on new information to the nearest validator, rather than to a validator far away in New Jersey. These participants should earn excess returns (Alpha) for being the first to observe the information and submit orders to the global order book the fastest.
Currently, like other mainstream blockchains, Solana has only one network leader at any given time. However, this is about to change, as Solana is moving towards Multiple Concurrent Leaders (MCL).
In the MCL model, there will not only be one leader at any given time but dozens. Through MCL, those participants who observe information in the real world can more quickly incorporate that information into asset pricing.
The key to optimizing price discovery is not to reduce the latency of a single matching engine to nanoseconds, but to empower information holders around the world to update prices by pushing price discovery to the "edge."
Decentralized price discovery is inherently superior to centralized price discovery. After all, the world is a vast and diverse place.
Expanding the Total Addressable Market (TAM)…
Most major exchanges globally, such as the London Stock Exchange, Chicago Mercantile Exchange, and Tokyo Stock Exchange, typically trade only one type of asset (such as stocks or commodities). However, blockchain reveals a reality where all units of value—whether currency, commodities, stocks, derivative positions, debt obligations, meme coins, governance tokens, utility tokens, NFTs, etc.—can be represented in standardized token form on a permissionless blockchain.
Currently, most assets traded on the blockchain are on-chain native assets, which are those created and issued directly on-chain, including DeFi tokens, DePIN tokens, NFTs, etc. However, an increasing number of assets are being issued on-chain that represent traditional financial (TradFi) assets, including U.S. stocks, bonds, real estate, U.S. Treasury securities, mezzanine debt, etc.
Almost all assets will eventually be traded on global, permissionless systems like Solana. This does not mean that people will completely stop trading on the NYSE, Nasdaq, and Chicago Mercantile Exchange (CME), but rather that an increasing volume of trades will shift from traditional financial platforms to on-chain trading. This is a natural trend, as blockchain is inherently global, permissionless, and operates 24/7, making it easier for retail traders to access and for developers to integrate.
Integrating a private key and a token into any application is very simple, whether that application is a Telegram bot, a lightweight Android app, or a WeChat mini-program. In contrast, interfacing with various heterogeneous systems representing traditional financial systems around the world is much more complex. Their APIs are more complicated, settlement times are slow and inconsistent, and in many cases, traditional financial institutions do not even directly face retail traders.
Due to the openness and permissionless nature of blockchain, it significantly increases participation in all forms of financial markets. Ultimately, asset issuers do not care where their assets are traded; they just want to ensure that anyone who wants to buy their assets can do so. Today, most CEOs do not believe that issuing stocks natively on-chain can expand their potential shareholder base, but as global cryptocurrency ownership grows from an estimated 500 million to billions, this perception will change in the coming years.
We not only believe that cryptocurrencies will support all traditional financial assets, but we also expect them to support many new types of assets that previously could not exist. One of the most interesting examples is Parcl, which provides perpetual contracts for the average price per square foot of real estate transactions completed in a market over a rolling 30 days. With Parcl, you can "go long" on the Austin real estate market and "short" the San Francisco market, using the equity value of each position as collateral for another position!
There are even teams developing products to put single bottles of whiskey, wine, and watches on-chain in the form of NFTs!
The total addressable market for Solana is expanding in all directions. Wall Street is slowly migrating on-chain, and developers are building various new financial markets on-chain.
…and Capturing Value Through Innovations in the Technology Stack
So far, this article has discussed Solana's role as a matching engine. However, through DeFi protocols (such as Drift, Jupiter, Kamino, marginfi, etc.), the Solana ecosystem can provide:
All imaginable financial services
To everyone globally
With significantly reduced chain risk possibilities due to higher transparency and auditability
And with higher capital efficiency than traditional finance.
Today, the largest DeFi primitives on Solana include: 1) spot trading, 2) lending, 3) perpetual contract trading. These roughly correspond to: 1) NYSE/Nasdaq, 2) large banks providing consumer and institutional lending services and futures commission merchants (FCMs), and 3) the Chicago Mercantile Exchange (CME). And these are just services targeting the U.S. market. Solana's goal is to provide financial services globally.
Although many Solana supporters, including Solana Labs co-founder and CEO Anatoly and myself, liken Solana to a decentralized Nasdaq, the total addressable market (TAM) of Solana and its ecosystem far exceeds that of Nasdaq. Solana aims to support all financial services globally, which goes beyond the scope of a matching engine.
What is remarkable about Solana is that all these different financial instruments can natively and atomically compose with each other without requiring explicit permission or support from application developers. This concept of building more useful services using existing smart contracts as building blocks is known in the industry as composability. This feature allows developers to rapidly experiment and grow based on a set of existing contracts, integrations, and liquidity, all of which create value for stakeholders in the Solana ecosystem in a virtuous cycle. This means that products based on Solana can innovate faster and provide a better user experience.
Solana itself does not directly provide financial services. However, Solana has built a technology stack that supports hundreds of financial services, which will reach thousands in the future, facilitating trillions of dollars in risk transfer each year. While Solana's gas fees are nearly zero and still declining, Solana can still benefit directly from the growth of these financial services through maximum extractable value (MEV).
As my partner Tushar discussed at the 2022 and 2024 Multicoin Summits, assets like Solana's ledger can be valued based on the MEV they capture. Each new financial service generates incremental MEV, and Solana can capture a portion of that. Currently, a single application has already generated over $100 million in MEV for Solana, in addition to specific revenues from each application. And this is just the beginning.
In the fourth quarter of 2024, the revenue of the Solana network (excluding SOL inflation) exceeded $800 million, annualized to about $3.2 billion. A year ago, this figure was nearly zero. This was achieved even though there was almost no issuance of traditional financial assets on Solana, and most major DeFi protocols were still in their early stages, with most protocols having been around for less than two years.
The total addressable market (TAM) of Solana is growing from three dimensions:
DeFi protocols are continuously maturing, with new features creating more MEV opportunities.
Entrepreneurs are building entirely new financial markets natively on-chain (such as computing, communication, energy markets, and BECMs).
An increasing number of assets are being issued on-chain, ranging from meme coins to U.S. stocks.
These not only expand Solana's total addressable market, but they also reinforce each other. For example, more asset issuance means more assets can be used as collateral, thereby supporting more lending activities.
Solana is achieving compound growth at an accelerating pace.
Internet Capital Markets
The Solana ecosystem is fully advancing towards the vision of internet capital markets. Solana enhances execution efficiency for market makers through conditional liquidity optimization and improves the execution experience for traders through Multiple Concurrent Leaders. Additionally, the Solana ecosystem is horizontally expanding—supporting a broader range of traditional financial and crypto-native assets; while also vertically expanding—capturing a portion of MEV from many financial services built on Solana.
This presents a tremendous opportunity to build a global, permissionless financial system:
Allowing those with information advantages to capture excess returns across various assets;
Trading with minimal bid-ask spreads;
Operating at the lowest costs;
Utilizing global leverage, with real-time transparency and auditability;
Maximizing capital efficiency through atomic composability across positions and protocols.
This is the vision of internet capital markets, and it is also Solana's vision.
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