Solana is a high-performance Layer 1 blockchain built around a single design principle: scale globally without fragmenting liquidity across multiple layers. Launched in 2020, it introduced Proof of History — a cryptographic timestamping mechanism that allows validators to process transactions in parallel with minimal coordination overhead — enabling throughput and transaction costs that are structurally different from Ethereum's base layer. SOL is the network's native token, used to pay transaction fees and to stake as collateral for network security.
Why Solana exists
Ethereum solved the trust problem in decentralised finance but introduced a scaling bottleneck at its base layer. As usage grew, gas fees on Ethereum became expensive enough to price out most retail activity — a transaction that costs $0.01 at low network demand could cost $50 or more during peak congestion. The solutions that emerged — Layer 2 rollups, sidechains — reduced costs but fragmented liquidity and user experience across multiple distinct environments.
Solana's founders argued that the bottleneck was architectural rather than fundamental: that a blockchain designed from the ground up for high throughput, running on modern hardware, could achieve the speed and cost profile of a centralised database while retaining the verifiability and permissionlessness of a blockchain. Rather than building a settlement layer for other layers to sit on top of, Solana aimed to be both the settlement layer and the execution environment — a single, unified ledger processing everything at high speed and very low cost.
The practical result is a network where transaction fees are measured in fractions of a cent, block times run at roughly 400 milliseconds, and applications can reach genuinely mass-market users without fee costs becoming a barrier to entry. This makes Solana particularly suited to use cases that are impractical on Ethereum's base layer: high-frequency trading, real-time payments, consumer applications, and tokenised assets that require frequent small transactions.
How the network works
Solana's performance comes from a combination of architectural choices that distinguish it from general-purpose blockchains.
Proof of History. Traditional blockchains require validators to communicate with each other to agree on the order of transactions — a coordination step that limits throughput. Solana's Proof of History creates a cryptographic record of time: a verifiable sequence that allows validators to process transactions in the correct order without needing to wait for confirmation from other nodes at each step. This dramatically reduces the communication overhead between validators and is the primary enabler of Solana's throughput.
Validators and staking. Solana uses Proof of Stake for security: validators lock up SOL as collateral and are selected to process blocks in proportion to their stake. Token holders who don't run validators directly can delegate their SOL to a validator and receive a share of staking rewards in return. Approximately 70% of Solana's circulating supply is currently staked, a high ratio that reflects both the yield available and the network's maturity as a staking ecosystem.
Fees and MEV. Transaction fees on Solana are intentionally minimal — a structural choice to drive adoption rather than maximise protocol revenue per transaction. A portion of each fee is burned, reducing SOL supply; the remainder goes to validators. Beyond base fees, validators running software developed by Jito capture additional revenue through MEV (maximum extractable value) — the ability to order transactions within a block to capture arbitrage and liquidation opportunities. Jito distributes a share of MEV revenue back to stakers, making JitoSOL a meaningful component of Solana's staking economy.
Single-layer architecture. Unlike Ethereum, which delegates scaling to Layer 2 networks, Solana processes all activity on the same base layer. This keeps liquidity unified and user experience consistent, but means all applications share the same block space and the same validator set. There is no separate environment for high-throughput activity — Solana's base layer is intended to handle everything directly.
Alpenglow. Alpenglow is a major consensus overhaul replacing Solana's core block propagation and finality mechanisms with two new components — Votor and Rotor — designed to reduce finality from roughly 12.8 seconds to approximately 150 milliseconds. The upgrade also removes on-chain voting overhead that currently consumes meaningful block space. It represents the most significant change to Solana's core protocol since launch and is targeted for mainnet in Q3 2026.
Solana's network economics
Solana's economic model is built around volume and adoption rather than per-transaction fee capture — a deliberate trade-off that shapes how every metric should be read.
Transaction fees. Base fees on Solana are a fraction of a cent by design. This maximises accessibility and drives adoption, but means that even at very high transaction volumes, the absolute fee revenue flowing through the network is structurally lower than on Ethereum per unit of economic activity. A small portion of each fee is burned; the remainder goes to validators as compensation for securing the network.
Staking yield. SOL holders who stake — either directly or through liquid staking protocols like Jito or Marinade — earn yield from new token issuance and a share of transaction fees. Staking yield is the primary economic return available to long-term SOL holders who do not actively participate in DeFi. With approximately 70% of supply staked, the effective dilution to unstaked holders from new issuance is significant — staking is not optional for SOL holders who want to keep pace with supply growth.
SOL as gas. Every transaction on Solana requires SOL to pay fees, regardless of which token or application the user is interacting with. As the ecosystem grows — in DeFi activity, payments, real-world assets, consumer applications — demand for SOL to pay fees scales with it. This creates structural demand that is proportional to network usage, independent of any single application's performance.
Inflation and burn. Solana began with a high initial inflation rate that decreases on a fixed schedule toward a long-run target. A portion of each fee is burned, partially offsetting issuance. At current activity levels, issuance still exceeds the burn — Solana is net inflationary — but the relationship shifts as network usage and fee volume grow.
Reading Solana's metrics
USD-denominated vs SOL-denominated TVL. Solana's TVL in USD terms reflects both the capital deployed in DeFi protocols and the price of SOL itself — because most of Solana's locked value is denominated in SOL or SOL-adjacent assets. When SOL's price falls, USD TVL falls even if users have not withdrawn any capital. SOL-denominated TVL strips out this price effect and shows whether actual native capital commitment is growing or shrinking. Both figures are worth tracking: dollar TVL reflects the real economic value deployed; SOL-denominated TVL reflects the genuine engagement of the network's user base.
Stablecoin supply. Stablecoin supply on Solana — USDC, USDT, and others — is a measure of economic activity that is not subject to SOL price volatility. Growing stablecoin supply signals that external capital is being brought onto the chain for DeFi activity, payments, and trading. It is one of the cleanest indicators of real economic traction independent of speculation on SOL's price.
Chain fees. Because Solana's individual fees are tiny, absolute fee revenue is a function of transaction volume at scale. A sustained increase in daily fees signals genuine growth in network usage — more transactions, more complex interactions, or both. The composition of fee generation matters: fees driven by diverse DeFi activity and payments are more structurally stable than fees driven by speculative peaks in any single category such as memecoin trading.
RWA and institutional supply. Real-world assets — tokenised equities, treasuries, and other traditional instruments deployed on Solana — are a growing indicator of institutional adoption. Unlike speculative DeFi activity, RWA supply tends to be stickier and represents capital that is unlikely to exit the chain rapidly in a risk-off environment.
Risk factors
Fee revenue concentration and cyclicality. Solana's fee generation is meaningfully influenced by high-activity speculation cycles — in particular, memecoin trading via launchpad platforms has historically driven significant shares of daily transaction volume and fee revenue. When speculative activity normalises, fee revenue can contract sharply. A network that depends on periodic speculative peaks for its fee economics is structurally more vulnerable than one with diversified, recurring usage across multiple application types.
Validator centralisation. The hardware requirements for running a competitive Solana validator — particularly the bandwidth and compute needed to process high throughput — are meaningfully higher than for most other Proof of Stake networks. This creates a barrier to entry that favours larger, well-capitalised operators and has contributed to a declining validator count over time. Fewer validators with greater individual weight means the network is more exposed to regional failures, coordinated downtime, or capture by a small number of influential operators.
FTX estate token unlocks. The FTX bankruptcy estate holds a significant quantity of SOL acquired prior to FTX's collapse. Scheduled releases of these holdings create predictable selling pressure at known intervals. The size and timing of remaining unlocks are publicly available and are tracked closely by the market — they represent a structural supply overhang that is specific to Solana's history and has no equivalent in most other major L1s.
Solana Labs and Foundation influence. Despite Solana's decentralised architecture, Solana Labs and the Solana Foundation retain significant influence over core protocol development and validator economics. This concentration of influence at the development layer is a risk factor for long-term decentralisation — one that the Alpenglow upgrade and ongoing validator set expansion aim to reduce, but which remains material today.
Regulatory classification. The SEC has at various points treated SOL as a potential unregistered security, a classification that restricts institutional participation and ETF eligibility in certain markets. While regulatory clarity has improved following the launch of spot ETFs in late 2025, the question is not fully resolved across all jurisdictions and continues to affect institutional adoption in some markets.
How to monitor Solana without daily research
For Solana, the signals worth tracking together are: SOL-denominated TVL trend (native capital commitment), stablecoin supply (non-speculative economic activity), and chain fee revenue (usage intensity). No single metric tells the full story — the combination distinguishes genuine ecosystem growth from price-driven fluctuation. TokenSignal tracks SOL's core metrics automatically — add it to your watchlist for a daily digest and alerts when meaningful changes occur. Free for up to 5 assets.
Related: What is TVL in DeFi? · Ethereum: Network Overview, Metrics & Fundamentals