What does the future of Solana look like?

Solana is becoming a significant player in the modular landscape. In this publication, I share key insights from Delphi Digital's research, "Solana the Modular." Down the rabbit hole!

This publication is a distilled version of Delphi Digital’s extensive research on Solana’s modularity. For a complete understanding, please refer to the original report, as some details have been omitted to make this version more beginner-friendly.

You can find the full "Solana the Modular" report here: Link.

The emergence of Solana’s modular thesis

To understand the impact of Solana’s modularity, we need to look back and see what made this thesis possible. The cornerstone of this journey was separating the Solana Virtual Machine (SVM) from the Validator Client.

In June 2024, the Anza team released the SVM API, allowing for easier and independent adjustments without affecting validator functions. This paved the way for SVM rollups, Avalanche subnets, and much more.

The rapid advancement of Web3 development, particularly with the emergence of consumer apps, autonomous AI agents, and real-world applications, may demand significantly higher transaction processing capacity. Therefore, vertical scaling (Firedancer) and achieving 1M+ TPS might not be the ultimate goal, and rollups might be a good solution.

For many dApps, building appchains is a logical next step once they reach a certain level of demand and independence from composability. dYdX, Maker, and a few others have already done this or are planning to. If a Solana app chain were an option, they would likely prefer it due to its performant core and execution layer, which handles high congestion effectively.

SVM Rollups

Currently, we are observing two broad categories of SVM-enabled rollups:

• Rollups on Bitcoin and Ethereum

• Rollups on Solana

Benefits of SVM rollups include:

• A proven, high-performance SVM execution engine (SVM rollups can even outperform Solana)

• A focus on matching the liquidity of ETH and BTC while attracting a new developer base that can write programs in mainstream languages like Rust, C++, and others.

Bitcoin Rollups

The Bitcoin rollup market is still in its early stages, encompassing both SVM rollups and the broader landscape. Recent advancements in verifying zk-SNARKs on the Bitcoin signet, with and without OPCAT, show promising progress. The combination of Bitcoin and Solana holds significant potential.

Bitcoin scaling doesn't need to be EVM-native, allowing SVM and EVM to compete based on their unique strengths. For instance, SVM rollups can facilitate orderbook-based DEXs that are ideal for sophisticated market makers and end users.

Currently, two SVM rollups, Yona and Molecule, are targeting Bitcoin for settlement.

Ethereum Rollups

Eclipse is currently the only general-purpose SVM rollup on Ethereum. Its addition frees L2 execution from the limitations of the EVM. Since the purpose of L2 is to scale execution, it makes sense to use the best available technology.

At present, Eclipse matches Solana's speed and is expected to become even faster with the upcoming Firedancer update.

Solana Rollups

Unlike Ethereum, which often uses rollups for general-purpose scaling, Solana is taking a different approach.

Applications on Solana are creating custom rollups tailored to their specific infrastructure needs or targeting particular verticals. For instance, in DEXs, lower block times significantly enhance liquidity, profitability for liquidity providers (LPs), and overall user experience.

Some examples:

• MagicBlock uses custom bare-metal validators co-located near users with composable ephemeral rollups to achieve 4-10ms latencies for games and composability with the main chain.

• Zeta requires 5ms latencies to compete with CEXs like Binance. It also needs better transaction guarantees and latencies for market makers, benefiting users.

• PepperDEX & SpiceNet are optimizing transaction processing by removing the SVM and general-purpose programmability while still allowing permissionless building on top of their protocol.

• Getgrass needs to process millions of requests per second for their data platform, which can't be handled by any Layer 1. They are building a Solana-based L2 to address this.

• SonicsSVM is developing a shared sequencer network and horizontally scalable grids to enable smooth and fast gameplay.

Solana Permissioned Environments (SPEs)

The next important part is Solana Permissioned Environments (SPEs).

SPEs offer businesses with specific needs a private Solana Virtual Machine, creating a customizable, unbranded environment that leverages Solana’s unmatched technology.

Delphi Digital describes SPEs as a Trojan Horse for institutional adoption, focusing on enterprises that need to control three primary aspects:

• Their validator set;

• Chain functionality;

• Gas token usage.

This is especially crucial for financial institutions like banks that must comply with strict regulations, such as OFAC requirements. By using SPEs, these institutions can mitigate potential compliance risks associated with validators on the Solana Main Chain.

Notable projects in this category include Rimark, which is developing SPE for asset tokenization in fintech applications, and Iron, which is establishing a global network of regulated, crypto-friendly banking and payment rails. These initiatives enable institutions to create feature-rich products that bridge on-chain and fiat money.

Solana as a Shared Sequencer

Solana offers more than just SVM for its use outside of itself. Its low-latency consensus, backed by stake and the decentralization of its validator set, is also valuable on its own.

The Rome protocol aims to leverage this low-latency consensus and validator set security for various purposes, including:

• Shared Sequencing for Rollups: Enabling atomic execution across multiple rollups.

• Rome EVM

• Rome Interop

• Rome DA

Rome’s approach fosters interoperability between Ethereum rollups and the Solana main chain. With the rise of SVM rollups on Solana, Rome also integrates this ecosystem.

Positioned at the core of atomic execution for EVM, SVM rollups, and Solana, Rome enables applications to harness the speed and efficiency of these ecosystems on a streamlined sequencing layer.

Final thoughts

Speculation in Ethereum has significantly contributed to its network effects, attracting developers and fostering new extensions like rollups and alternative Layer 1s for the EVM. This phenomenon has been observed with EVM Layer 2s and is likely to be replicated with SVM rollups and SPEs.

Solana's main chain is experiencing a surge of innovations, including zk compression, blinks, token extensions, Firedancer, and the decoupling of SVM. These advancements are driving speculative growth, drawing in developers, and fueling the next phase of expansion.

A key aspect of this cycle is the growth of SVM rollups, which enable the creation of new chains and rollups that can attract both existing and new developers. This, in turn, can strengthen the main chain's core, resulting in a larger developer base and more robust tooling.

Conversely, SPEs represent a strategic expansion into the enterprise market, where institutions demand strict compliance and control. Offering tailored solutions that meet these needs helps establish trust and credibility with these organizations.

Solana’s modular approach, combining a high-performance L1 with customizable L2 solutions and SPEs, uniquely positions it in the market.

This flexible framework caters to both high-performance dApps and institutional use cases.