Solana Thesis
Original tweet thread (posted Aug 18 ‘23)
In 2011, Facebook was seen as being comedically overvalued and run by a bunch of kids. The public perception was that the company's issues could not be remedied.
The way Facebook's IPO went was the cherry on top: on the day of their IPO, the NASDAQ bugged out, pausing trading on FB shares. On the two consecutive days after their stock price closed at -14%, and -9% respectively. Over the next 4 months, 60B in market cap evaporated.
Despite all this, Zuck and the team put their heads down, and the rest is history.
Solana in '23 reminds me of Facebook in '11. The asymmetric upside comes from indifference and negative sentiment. "To make the most money, you need to be right, but more importantly others need to be wrong".
I’ll go over:
Investment Thesis
Speed of iteration
Solana's community
Unique use case via approach to scaling
Key Risks
Conclusion
Speed of iteration
Boyd's law of iteration says that the speed of iteration beats the quality of iteration when it comes to start-ups and software engineering.
The speed in which Solana iterates makes it appear as if it is speed running the L1 lifecycle. Additionally, its quality of iteration is pretty damn high. What makes this more impressive is that Solana and its ecosystem has been able to stay focused despite all the negative sentiment. But more importantly, this aspect is overlooked by the market.
Bill Gates has said "Most people overestimate what can be achieved in months and underestimate what can be achieved in years" -- underestimating Solana is doubly so given the fog built up from SBF and FTX.
Unique use case via approach to scaling
Solana was built with the goal of creating a high throughput low cost -- the original vision was "Nasdaq settling at the speed of light". Its software and systems architecture allows it to scale with Moore's law.
Michael Porter defined good strategy as: “deliberately choosing a different set of activities to deliver a unique mix of value." Unlike the other EVM based chains, it took a unique approach. The result? Solana provides a distinct set of use cases that come from its unique properties (transaction fees orders of magnitude lower than any EVM L2, hardware based TPS scaling, etc) vs. the numerous ETH copy-cats out there.
NFT compression is just one of the resulting innovations that has come out of Solana's unique value proposition and many more will follow. Solana is able to fulfill a different set of use cases which EVM based chains will have a difficult time with.
Solana's Community
Solana has a diehard community (similar to Bitcoin / Ethereum at this stage in their lifecycle). Despite the network outages and tainted reputation, Solana still has a similar number of active addresses as Ethereum L1. This is a moat that Solana has over any other non-EVM, new age blockchain -- these are the users that will be the ones beta-testing apps, marketing (bull-posting) on Twitter and putting in a price bottom.
The opportunity here is that the community's view on Solana is far from consensus. If everyone saw that Solana was destined to succeed, its return profile would be much more compressed. In addition to the previous two points, the fact that Solana has a moat via a community is incredibly bullish.
Key Risks
Currently, when people hear "smart contract" they think of Ethereum -- if Ethereum can fulfill every use case that Solana has, it will win by default. To be more concrete, the risk is: EVM based scaling solutions (sub-cent transaction costs, order of 1000s TPS) take off in addition to a fluid UX before Solana can carve out its unique use case
This can come from the Solana team not shipping fast enough, it can come from the EVM related teams shipping incredibly quickly, or it can come from regulations prohibiting Solana from operating.
Conclusion
Solana has an incredibly talented team and dedicated community. They've been able to build a community, retain talent, and execute on a novel, state-of-the-art approach to scaling blockchains despite all the obstacles and challenges. With their speed and quality of iteration, a unique value proposition, and a die-hard community, they've considerably de-risked their path to being the next dominant smart contract platform.
Solana is down over 90% in USD and close to 80% relative to ETH. Its valuation is similar to that of Cardano's and less than 5% of Ethereum's. The market's view is significantly blurred by events in the past, and is blind to the recent developments.
It is only a matter of time before the market catches on.
Perfect thesis. Congratulations!