Most recent update: [March 08, 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Solana, made available on the VirgoCX Platform, including an opinion that Solana is not itself a security and/or derivative.
What Is SOL and What Gives It Value?
Solana (SOL) was founded in 2017 with the purpose of scaling censorship resistance to allow an order of magnitude increase in transaction throughput at a fraction of the cost of existing blockchains such as Bitcoin and Ethereum. Solana is a decentralized protocol with a novel Proof-of-History (PoH) time mechanism that is implemented before the Proof-of-Stake (PoS) protocol structure and facilitates it. As a result, an ultrafast blockchain capable of processing over 50,000 transactions per second has been created, with the capacity to scale as the protocol's usage grows without the use of Layer-2 systems or sharding.
How Does It Work?
The Solana blockchain functions based on some key principles in how the system is designed:
- All the transactions on the network are sent to the leader (Proof of History Generator)
- The leader will sequence the and order the transactions effectively based on locally generated timestamps so they can process or verified by network nodes
- The leader than executes transactions on the current state that stores in the RAM
- The leader will publish the transactions and add signatures of the final state to verifiers or other replication nodes
- The published confirmation on the network then serves as votes in the consensus algorithm
The thing to note about how Solana works is that the local generation of timestamps within the hash function, is what allows Solana to function differently than other blockchains that experience network congestion like Ethereum or Bitcoin, where each network node has to validate the blocks in consensus with other nodes increase block time confirmation across the network. The proof of history algorithm deployed by Solana is a key differentiator in the process.
You can learn more from a technical perspective by reading the whitepaper here.
What Is the History of Solana and Who Are the Founders?
Anatoly Yakovenko graduated from the University of Illinois with a Computer Science degree back in 2003. Since then, he went on to found a VOIP startup, worked for 12 years at Qualcomm in various engineer related roles, and then spent some time as a software engineer with Mesosphere and Dropbox before founding Solana in late 2017. Yakovenko has been building high performing operating systems for over a decade.
The PoH concept revolved around a technique for tracking time in a trustless way between computers, which came from watching blockchains like Bitcoin and Ethereum struggle with low maximum transactions per second (tps) without a clock.
Naturally, the time required for to reach consensus on transaction orders within blocks was a limitation to earlier layer 1 protocols like Bitcoin and Ethereum. Yakovenko knew that solving this issue of time was one of the primary keys to unlocking scalability if the world wanted blockchain based global payment systems or global supercomputers.
So, he went to work and eventually solved the problem of getting computers to agree on time in an automated and trustless manner, which opens the door for layer 1 blockchain protocols like Solana to conduct thousands of transactions per second. Utilizing verifiable delay functions, the Proof of History algorithm allows timestamps to be generated locally instead of timestamp broadcasting across the node network. This results in improved network efficiency by allowing Solana to support up to 50,000 transactions per second with 400ms block times.
It’s important to note that Yakovenko teamed up with a former Qualcomm colleague, in Greg Fitzgerald, to attempt to build a blockchain network in Rust where he could deploy the internal clock system of his Proof of History whitepaper. The first version of the Solana whitepaper was later released in February 2018. The duo went on to recruit a few more key people including former Apple engineers and former Qualcomm colleagues , eventually founding a company called Solana Labs by mid-2018. The Solana project as we know it today was originally called Loom. The project name was later changed to Solana to avoid any confusion with another new project that emerged called, Loom Network, a layer 2 scaling solution for Ethereum.
What Makes SOL Unique?
There are a few major differentiators that help make Solana unique. These are:
- The innovative concept of Proof of History, which allows for reduced block time confirmation and scalability, ultimately setting up Solana for greater user adoption is a unique trait to this project
- Solana is a layer 1 blockchain protocol that doesn’t require a layer 2 protocol to achieve scalability, as it is built into the core blockchain. This allows for transaction fees to be less than a penny, even with thousands of transactions per seconds happening at once
- Solana claims to be the fastest blockchain in the world and the fastest growing blockchain ecosystem with over 400 projects being built on its network
There are also 8 key innovative technical features that you learn more about here on the teams blog.
What Is the SOL Token Supply?
NOTE: The Solana token supply is currently dynamic and subject to change according to official Solana documentation here. One will find various conflicting information regarding token supply online depending on the source, so to keep this section accurate, we will only provide data from Coinmarketcap.
There is currently no max supply cap, with a total supply of 504,096,028 SOL and a circulating supply of 293,511,052 SOL according to CMC.
The SOL token issuance or inflation schedule has a few important ranges to make note of. Specifically:
- Initial inflation rate: 7-9%
- Dis-inflation rate: 14-16%
- Long term inflation rate: 1-2%
Thus, the max token supply is set to fluctuate over time as required for the overall network to maintain optimal functionality.
What Are the Risks or Drawbacks of SOL?
There are a few key risk to consider when investing in a layer 1 protocol like Solana and ultimately the SOL token:
- Layer 1 blockchain protocols are very competitive and there are many that have significant developer communities already, which may make it hard for Solana to gain long term adoption. With over 400 projects being built on Solana, this may not be an issue in the short term, but some projects, developers, or even users may abandon Solana in the long run as it’s a fairly new project with its token release in 2020.
- From a token perspective, a lot of future developments of the network and application developments have caused the price of the SOL token to rise exponentially since late July 2021. This could leave a lot of room for a correction or significant downside risk in the short term but is also long-term risk if Solana based dApps abandon their project or don’t live up to expectations.
These are just a few possible risks to consider before investing or trading the SOL token.
Prior to listing Solana on the VirgoCX Platform, VirgoCX performed due diligence on Solana and determined that Solana is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Solana and/or its primary development team;
- The supply, demand, maturity and liquidity of Solana; and
- Legal and regulatory risks associated with Solana.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.