Missed out on 3250x returns, one of the most expensive investment memos in crypto history.
Original author: @hosseeb
Translation: Deep Tide TechFlow
Deep Tide Note: On the occasion of Solana's fifth anniversary, Dragonfly Capital partner @hosseeb published a tweet today reflecting on how he missed the opportunity to participate in Solana's seed round investment at a price of $0.04 in 2018, missing out on returns of over a thousand times. He also attached the original investment memo for nostalgia. Additionally, we have excerpted the discussion between Solana co-founder Toly and Hosseeb under this tweet.
Here are the original details:
I turned down the opportunity to participate in the @solana seed round investment at $0.04 in early 2018.
At today's prices, that equates to missing out on a 3250x return.
Solana was one of the first projects I evaluated as a junior VC. Back then, I was adorably naive and confident, writing memos for every project I passed on.
Rereading this memo now is like "peak junior VC cringe." At that time, we were all obsessed with finding the "Ethereum killer," studying consensus protocols, and what technology would replace EVM/eWASM.
So, here is the completely unedited original memo — the worst investment MISS of my career.
Happy birthday, Solana! 🎂
Memo Content
- My notes after reading the white paper:
Their major innovation is Proof of History (PoH). Essentially, this is a verifiable delay function that uses continuous hashing, similar to sequential proof of work. In other words, select a timekeeper who continuously iterates a hash on a certain value and publishes all intermediate hash values. Since this process must be executed serially on a single core and cannot be parallelized, nodes should be able to predict the amount of time that has elapsed between consecutive hashes (probably based on their understanding of hardware performance?).
PoH nodes will also mix any current state (e.g., transactions to be submitted) into these hashes. This allows for the creation of a reliably timestamped event history.
If a PoH node has issues or cannot guarantee being online, they proposed a scheme for multiple PoH nodes to periodically mix states with each other.
A set of validator nodes will replay and verify the operations of the PoH nodes (the verification process can be made more efficient through a MapReduce architecture). These validators reach consensus using PoS through a protocol similar to Casper. If a PoH node is found to have Byzantine issues or misbehaves, the validator nodes can elect a new PoH node to replace it.
It seems they will develop payment and smart contract capabilities.
They claim to achieve 700,000 TPS and have reached 35,000 TPS on a single-node test network.
- My thoughts:
Their numbers are complete nonsense. 700,000 TPS is laughable; even Google's search volume is less than 100,000 per second. This data is prominently displayed on their website, which makes me very cautious.
I retract my previous praise for the white paper's writing. The high-level content is good, but the technical details are severely lacking and vague. As a description of a consensus protocol, the rigor is disappointing.
The team is mainly composed of low-level engineers from Qualcomm. The CEO and CTO primarily work on operating systems, embedded systems, GPU optimization, and compilers. Their background in distributed systems and cryptography is clearly insufficient, which is evident in the paper. The handling of Byzantine fault tolerance issues is poor. It reminds me of the Raiblocks/Nano white paper (they were also low-level engineers).
And the content in the white paper raises doubts for me:
[Original Solana white paper, Section 5.12]
"PoH allows network validators to observe past events and their timestamps with a certain degree of certainty. When the PoH generator produces a stream of messages, all validators need to submit their signatures on the state within 500ms. This value can be further reduced based on network conditions. Since each validation is input into the stream, everyone in the network can verify whether all validators submitted their votes within the specified timeout without directly observing the voting process."
This is not a consensus protocol. Assuming a 500ms limit on messaging for consensus is quite problematic and does not meaningfully achieve Byzantine fault tolerance. Moreover, how do they measure 500ms? Considering they will estimate the passage of time based on the number of iterative hashes executed, how do other nodes in the system reach consensus on the passage of 500ms? Additionally, how will they address deviations in clock speed over time due to hardware improvements, failures, or noise? The time problem in distributed systems is very complex, and I don't think they realize how difficult it is.
Besides, who cares about time? Is this a big issue in the blockchain space? Are people not satisfied with block time granularity of 15 seconds/1 second (like DFINITY)? I don't think this is a problem; the complexity and confusion they introduce in the protocol don't seem to add much value.
They have a section dedicated to discussing attack and incentive misalignment issues. Their responses to attacks are completely unconvincing and similarly lack rigor or detail.
They have an entire chapter discussing proof of replication, just like Filecoin. What’s going on? Tell me about your consensus protocol and how transactions and accounts are implemented, what features your blockchain will have. I don't care about data storage proofs.
There’s a long section that starts describing smart contracts but only states that they will use LLVM as a backend to support multiple platforms. But nothing else is mentioned.
A lot of content about GPUs and parallelization. This reveals a strange focus — if they need to implement a BFT consensus protocol and a usable smart contract platform, they shouldn't be obsessed with the parallel processing of their packet format. I remember they did the same in the presentations I saw — spending most of the time discussing how to optimize processing with these nodes, and hardly any time actually describing their consensus protocol.
Conclusion:** I would absolutely not invest in this project**
Interestingly, five years later, when Haseeb @hosseeb tweeted to congratulate Solana for successfully carving out a place in crypto and joked about how his younger self missed a big opportunity, Solana co-founder Toly @aeyakovenko replied under this tweet: “All your concerns back then were indeed reasonable. Essentially, it was a bet — betting on whether we could solve these issues while maintaining the underlying advantages that other teams did not have.”
Haseeb then replied to Toly: “I think that’s the lesson here. Your obsession with underlying optimization and unique attack angles is something other teams did not have. Maximizing strengths while minimizing weaknesses is what matters most. I was completely unaware of this at the time.”
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