OpenSea, the largest marketplace for non-fungible tokens (NFTs) in the world, announced Wednesday that it's integrating with Solana, marking a big win for the upstart cryptocurrency.
This means that the millions of NFTs being churned out daily on the increasingly popular Solana blockchain now have access to a much bigger marketplace.
Trading volume of Solana shot up nearly 25 percent after the announcement, even as the crypto market overall took a hit on Wednesday following reports of Federal Reserve tightening.
Founded in 2017, the Solana blockchain is a relatively fresh-faced entrant to the crypto universe, but it's one that from the jump has generated considerable interest among companies and investors who want to see crypto applications compete in larger markets.
Dubbed the "Ethereum Killer," Solana is known for its super-fast, low-cost transactions, which has proven attractive to decentralized finance (defi) companies looking to scale up quickly.
Now venture capitalists are following suit with a flurry of multi-million dollar deals aimed at cashing in on a space that some say is the future of crypto.
"All of the intellectual capital in crypto is circling the Solana ecosystem," said John Robert Reed, partner at Multicoin Capital, which has invested heavily in Solana-based companies.
NEW HUB FOR NFTS
Solana's popularity in the NFT space is one reason for the growing interest. In addition to the OpenSea partnership, Solana's Metaplex protocol has become a popular option for minting and setting up NFT exchanges, churning out about 50,000 new NFTs per day.
Blockchain-based gaming is another area where Solana is elbowing in on rival coins. Magic Eden and Fractal, both built on Solana, are the biggest marketplaces for gaming NFTs. These marketplaces are crucial to the in-game economies that make blockchain games different from your average free-to-play game. Players can buy and sell, and in some cases earn real money.
The model has garnered criticism in recent months after the biggest blockchain game, Axie Infinity, experienced a major economic crash, but new players are jumping into the space all the time, and many are choosing Solana over other blockchains.
Reed said the sheer volume of transactions happening on these NFT marketplaces requires blockchain infrastructure that can handle high frequencies at low-cost. He said Solana is able to do this because it favors speed and low-cost transactions over decentralization. While this is heresy in some crypto circles, Reed said it's necessary for widespread adoption.
Hivemapper dashcam. Credit: Hivemapper
Hivemapper, a blockchain-based mapping tool that aims to compete with Google Maps, said its business model makes essential the ability to scale. The company is enlisting users all over the world to help build its map, and every "tile" of the planet that a person captures with Hivemapper's "crypto-enabled dash-cam" is put on a blockchain as an NFT.
"There are literally trillions of map tiles all over the world," said Ariel Seidman, a co-founder and CEO of Hivemapper. "If we built this over top of Ethereum, and the fees don't come down, that's going to make our lives really complicated."
From an investment perspective, the growth potential is a real selling point and could help crypto deliver on its longstanding promise of being more than a niche interest.
"If these things are successful, they could cannibalize massive, massive markets," Reed said. "Telecom, mapping, exchanges, wallets, these are multi-billion dollar markets. Investors see in Solana's infrastructure the ability to onboard hundreds of millions, if not billions, of users onto Web3 for the first time. That just hasn't been possible technically."
Solana's unique proof-of-stake model, however, does come with tradeoffs. Because it uses fewer validators — which are the people who stake their crypto in exchange for the opportunity to validate transactions on the blockchain — it is more vulnerable to attacks.
(If you're getting confused, check out this breakdown of how proof-of-stake works.)
Just this week, $600 million worth of crypto was stolen from Axie Infinity after a hacker compromised half of the validators who run the game's in-game currency. This is what's called a 51 percent attack, and theoretically, it could happen to any cryptocurrency. But fewer validators on a network means there are fewer individual people a hacker needs to compromise before it can take over the blockchain and manipulate transactions.
This isn't just Solana's problem. Axie Infinity is built on a sidechain of Ethereum, which had just nine validators — a fact that is coming as a bit of a shock to some in the crypto community, given how much money flowed through the popular blockchain game. Ethereum, for context, has around 300,000 validators, while Solana has just 1,700.
In addition to security concerns, there is a more overarching criticism of Solana and the type of crypto activities that are causing its star to rise.
"The specter haunting all of this is: do you really need blockchain to do any of these things?" asked Lars A. Doucet, co-founder of independent game studio Level Up Labs. "And I generally think you don't, but if you want to get $10 million from an investor, you say blockchain, blockchain, blockchain."
Multicoin Capital's Reed noted that something like Hivemapper needs the blockchain to grow in a cost-effective way. "[Blockchains] excel at coordinating hundreds of thousands of people over multiple geographies to perform work, to validate that work, and to compensate them programmatically without having a management layer in there," he said.
Wikipedia is a notable exception of a global network with a do-gooder mission that does not require a blockchain, but for crypto-believers, financialization is the point. For investors, Doucet added, the possibility of a huge return is also the point.
"VCs are primed to look for investments that might be stupid because they need to invest in stuff that doesn't sound sensible or boring," he said. "It needs to be something that could go to the moon, even if it's way more likely for it to explode and go nowhere because their whole business model is premised on picking 100 things and one of them going nuts."