Solana co-founder shares 8 years of entrepreneurial experience

Original Video: NEW ECONOMIES

Compiled by: CryptoLeo (@LeoAndCrypto)

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In a bearish market, a qualified SOL guardian is here to try to strengthen your faith. Solana co-founder Anatoly Yakovenko was interviewed by NEW ECONOMIES in November, discussing the origins and development of Solana, the experiences of lows and recovery, as well as topics related to regulation and stablecoins. Additionally, Anatoly outlined a grand vision for the future of Solana. Odaily Planet Daily has compiled it as follows (due to the abundance of trivial content, the key points will be narrated in the first-person form):

The origin of Solana, from a side hustle to a full-time job

Solana originated from a “perfect storm”. At that time, a friend and I started an entrepreneurial project, or more accurately, a side business. We were working on AI-related things, like deep learning servers, and using these GPUs to mine cryptocurrency to pay for the GPUs we purchased. But a question arose in my mind: why would people spend money on our AI-related products? After having two cups of coffee and a bottle of beer, my partner and I talked about mining, PoW, the Satoshi consensus, and algorithms, as well as why electricity is so important in this process.

I have spent most of my career as an engineer at Qualcomm. Most people should know that Qualcomm is deeply involved in wireless protocols, radio technologies, and mobile phones, among other fields. It is very likely that the products in your phone are from Qualcomm, and possibly some of the products that I helped develop.

That day I stayed up until four in the morning, and suddenly I had a flash of inspiration. I thought of encoding the passage of time into a data structure, and I remembered the protocol used in the early days of cellular networks, called Time Division Multiple Access (TDMA). This concept first appeared in the 1960s and 1970s and is very simple: it divides time into segments and then uses different time slots to transmit data, which avoids interference and allows more information to be transmitted. The reason I thought of this is that Bitcoin and the PoW mechanism face similar issues.

If there are two block producers and two miners generate blocks simultaneously, a fork will occur, and the network will be in a chaotic state, making it impossible for information to be transmitted normally. You have to discard one of the blocks. Therefore, if the two block producers can take turns producing, it can avoid conflicts and maximize the bandwidth utilization of the protocol. I roughly calculated and found that its throughput is 1000 to 10000 times higher than that of Ethereum or Bitcoin at the time.

The idea came up, maybe I should start a company, the smart contract platform really interests me because it provides developers with a whole new environment for application development, and these applications are different from any applications you build elsewhere, so you can't directly build smart contracts on regular AWS servers; you need the verifiability, cryptographic guarantees, and so on that blockchain provides, which makes it possible to write code that can handle funds.

At that time, many people believed that things like Wall Street's databases controlled the funds, which were monitored by people, and many products were just optimizing the work of these individuals. Smart contracts, however, are completely different; the software itself is responsible for holding the funds and is the sole authoritative source of the flow of funds. Therefore, to some extent, smart contracts have disrupted the entire data model.

At the beginning of entrepreneurship, boldly chase what you believe in.

At the beginning of my decision to start a business, I needed to persuade many people, and my wife was the first person I needed to convince. She is an engineer and knows me well. I have always had side projects, always putting some ideas into practice during my spare time. We already have a child, and at that time she said, “Well, this might work, but you can't be both a worker and a father while also part-time starting a business. You have to choose one: either go all in or give it up.”

It was this statement that prompted me to make the decision to start a business. I remember she was in Colombia at the time, Facebook was expanding, and she was working for a startup that was a competitor to Facebook in Colombia, when Facebook was still in a very early stage. The experience she gained there was that the market goes through about six months of a boom period, where everyone knows there will be a product in development that will capture 80% of the market share, and it will have certain explosive characteristics. If you miss that window, you will never catch up. So at the end of 2017, I felt that it was the best window to build an L1 blockchain with specific attributes, enabling it to scale to cover the globe and truly handle all global financial systems.

For me, the biggest motivation to create on Solana is: first, you must go all in, and second, when the market is booming, you don’t want to miss out. I think anyone reading this, if you are still hesitating about whether to dive into AI and other fields, you might want to wait another six months or a year; you will really miss out on a great opportunity. Act now, and if you have already started, that’s even better.

Unlike BTC and ETH, Solana pursues trading efficiency.

Solana is a high-performance blockchain, and the key use case we have always pursued is transactions. If you see Bitcoin as a store of value/digital gold, then building a store of value is not an engineering challenge. In fact, ensuring settlement and global availability does require some engineering technology. Satoshi Nakamoto's PoW algorithm and the Bitcoin white paper have done exceptionally well in this regard. However, you cannot develop a Bitcoin Plus version; you cannot compete with Bitcoin in this market by adding features or increasing throughput. Ethereum's goal is to treat settlement as an application scenario, with the idea that after execution and settlement are completed at the final checkpoint, you can use the Ethereum ledger as a reliable source of truth.

I never thought about competing in the settlement phase, perhaps there is still some room for technical improvement in this area, such as adding an execution layer, but I am more interested in the execution itself. That is to say, building a global blockchain that can handle transactions, payments, and all the operations that users need in their daily lives, all of which can be done within a single system.

The most unique aspect of Solana may lie in its vision: no need for independent blockchains or hierarchical structures, you can integrate all functionalities into a massive state machine and collaborate to complete all operations at the fastest speed. Here's some data: the transaction volume completed by Solana in its first month was equivalent to the total transaction volume of Ethereum at that time during its entire lifecycle.

Entrepreneurship challenges, financing and recruitment

There are many challenges encountered in the early stages of entrepreneurship. For any founder, making progress in the first important approval stage can be the biggest obstacle, and the vast majority of companies fail at this stage. I remember having thousands of meetings at that time. Around the end of 2017, I listed all the venture capital firms in Silicon Valley that might invest in cryptocurrencies. Fortunately, I was in Silicon Valley at that time. I think this may be the reason why Silicon Valley is still a center for entrepreneurship: you can meet thousands of people in a very short time and try to pitch your startup ideas.

For founders, being able to effectively promote the product vision and philosophy is key; otherwise, you will never be able to recruit people, never be able to sell products, and never be able to guide users, whether you are doing B2B or B2C.

Pitching Solana is a brand new experience for me, and it's a process where I can learn and continuously improve. That's why I believe you can build a massive list in Silicon Valley, forcing yourself to repeat thousands of efforts to ensure you eventually reach the most valuable investors. The more familiar you become with the process, the better your pitch will be.

For founders, you are trying to convey information in the simplest way possible. In a brief 10-minute conversation, you must figure out how much the other party already knows about cryptocurrency because you don't want to repeat what they already know. You also need to explain the specific problems the product is addressing and its impact in the shortest time possible, and show them what changes will occur in the world, changes that are based on the principles of cryptocurrency.

The strategy I used at that time (I don't know if this strategy applies to all founders) was to first pitch to the company, then pitch to that partner. Even if the company ultimately decided to back out, I could still persuade the partner to seek a commitment, making them more likely to help me connect with other venture capital firms they knew that invested in this field. In the end, this allowed me to attend thousands of meetings and find companies that focus on the crypto space and are more willing to take risks in the early stages, because the venture capitalists investing are also employees of the company, investing on behalf of the company as well as making personal investments.

In fact, we had already completed a round of financing at that time, and it was almost finished. It was the first quarter of 2018, and there wasn't a standard, secure, and reliable investment template that could be quickly provided to investors in the cryptocurrency space. We spent 6 weeks having lawyers draft the relevant documents. However, during that time, Ethereum began to decline by about 10%, and many funds went bankrupt as a result, which was the first challenge we encountered in the early stages. Even so, there were still quite a few people willing to participate; they were not entirely crypto funds and did not invest 100% in cryptocurrencies; their balance sheets held more dollars but viewed this investment as an opportunity. In the end, we completed this round of financing, but the situation at that time was quite unstable.

At that time, I was sitting in the 500 Startups (now renamed 500 Global) office with another co-founder, Raj (because one of the investors came from 500 Startups). He said at the time, “I think I have to work hard, I have to fight.” At that moment, I believed that once a product has investment commitments, it is very likely to snowball and grow larger, eventually turning into actual checks, but my advice is to keep fundraising until you really have money in your bank account.

I think the second challenge is recruitment. However, I am fortunate that many former colleagues I worked with at Qualcomm are eager to do something new, and these individuals have over ten years of experience in underlying operating systems or protocols. For example, one of those involved in the development of the Solana protocol had previously participated in the formulation of LTE standards. These people have a very deep understanding of networks, operating systems, GPUs, CPUs, and underlying chips, and they can understand what I tell them: “Since you are going to change jobs anyway, you can consider building Solana as a holiday.”

I hired some experts in their respective fields whom I know very well, and everyone quickly got into the swing of things, starting to build what I believe was the most advanced network at the time. It turned out that from the very beginning, Solana was several streets ahead of all its competitors.

From the alignment of the founders to Solana achieving PMF

When it comes to work partners, the best way to describe my relationship with Raj is like being in a romantic relationship, requiring full commitment. I was introduced to Raj by a mutual friend, and at that time, I didn't have much impression of him; he was just an ordinary person. The mutual friend specifically said, “You are a great engineer, but other than that, you have no other experience. You need someone who can complement you. Raj had previously founded a company and did very well, but he has absolutely no experience in engineering; you two are a great match.” We get along very well, and my wife basically calls it a “work marriage.”

Our decision-making process can indeed be exhausting, but in that high-pressure, fast-paced environment, we repeatedly debate certain points until we eliminate all clearly bad options, leaving only what I refer to as the Pareto optimal set (Pareto efficient means that there is no room for further improvement in the discussion). We can choose A, B, or C, and all trade-offs seem pretty much the same. We have almost discussed all possible directions, and at this stage, it almost comes down to luck.

This is very tiring and requires strong endurance. It also requires mutual trust and belief in each other's judgment. I think the CEO and the initial employees or co-founders need this kind of character. They can argue fiercely based on mutual trust, but still feel that everyone respects each other. This is quite difficult; I just enjoy arguing, and I don't mind losing. Many of the CEO's shortcomings or characteristics will eventually affect the company culture. In the early stages of the company's establishment, any factor can trigger a debate.

Work hard to create the product and complete the development as soon as possible, but you cannot predict all possible failures. Should you assume that you will succeed and then invest funds to develop some auxiliary features to solidify success and better launch the product? Or should you focus on developing the product well, proving that you can do it, and then do other enhancements? In the early stages, especially when developing complex products, you must make many such decisions.

For example, entrepreneurial books like “Zero to One” by Peter Thiel contain a lot of great advice, and the best advice you can get is to build a Minimum Viable Product (MVP), which is to create the smallest product that can validate your idea, but defining this is actually quite difficult. Therefore, you must find your own niche market. We spent some time doing this, and it was almost forced, probably in the second year of our development cycle.

At that time, there were only about 12 months of funding reserves left (a total of 24 months of funding reserves), and the product still could not operate normally. We could only cut all other functions except for the existing ones, release the product as soon as possible, and minimize the changes needed. This approach allowed us to seize the market opportunity and launch a product that was completely different from all other products on the market.

To some extent, during the first year of developing Solana, I wanted to take on as much product risk as possible and aimed to create a top-notch product. This was indeed part of our vision. By the end of that year, we developed a series of features and took on around eight technical risks. If you only take the risk of trying one technology, the probability of success is 50%. But if you try eight technologies, the probability of all eight succeeding is only 1/256. So, the chances of failure are significant, and various problems arise. Then you have to find ways to fix them, making repeated adjustments before bringing it to market.

However, it is precisely because of these decisions and the risks we took early on that we have a range of differentiated features, all of which are somewhat effective. They are not perfect, but we have indeed expanded capacity and reduced latency, and the development experience based on Salana is distinctly different from any other platform.

At that time, Ethereum was using the PoW mechanism, and the generation time for a block was about 12 seconds, but you had to wait for at least two blocks to confirm the finality of a transaction. Therefore, users needed to wait 30 seconds to confirm a transaction, which definitely resulted in a poor user experience, and the processing capacity of 7 or 11 transactions per second was too low for any scale of application.

At that time, we achieved final confirmation of thousands of transactions in just 400 milliseconds, and if we account for all the round-trip time on the server side, it would only take one to two seconds. So users or developers who saw Solana's performance were amazed, because Solana was so different, even though the product itself was still quite imperfect at that time. But it could run, although it would probably crash after about an hour.

Then comes the scheduling of the time for it to be stably launched, which is also the most pressuring task. You need to cut some things, such as supporting EVM, or supporting a certain programming language, or needing an advanced browser, or launching your own wallet stack, etc. Strip these away, and then push the most basic version to the market as soon as possible. But I think defining a minimum viable product that can achieve product-market fit (PMF), which is ultra-high capacity, low latency, and removing all other features, is very difficult because you don't really know how much to sacrifice, nor do you know what developers truly care about. We are lucky because we basically relied on our previous experience in developing operating systems and developer platforms, which greatly helped us make most of the right choices and the final outcomes.

But I think the most difficult part is still the product's durability; cryptocurrencies can bring a lot of deceptive viral effects. Your token price may skyrocket, but in reality, there are no users, and you are disconnected from them. At that time, we didn't have much of a user base, but the SOL token price was rising, and we needed to take advantage of this opportunity to accumulate as many actual user cases as possible. If we miss this opportunity, it will be hard to recover.

We were quite lucky at the first hackathon; many people submitted their works, but the applications they created were all kinds of messy things. By the second hackathon, I finally felt like “Wow, we seem to have found our direction,” because the works from the first hackathon had undergone three months of continuous improvement, and the final products were very complete, fully functional, and truly aligned with our overall vision for finance, trading, and DeFi.

During the second hackathon, while evaluating the entries, I noticed that there were huge differences in terms of quality, usability, business models, and actual entrepreneurial capabilities (such as the ability to raise funds and survive). Seeing these companies secure funding during the hackathon made me feel that we now have product-market fit, which is part of our core business, and there are pathways to profitability.

So I think this is the biggest change since Solana was launched. I mean, considering all factors, it's really fortunate to reach this stage within a year of the product launch. Most companies take several years to explore and find the best product-market fit, and I think it actually takes about ten years to truly build a company.

From high spirits to a sudden blow, Solana seeks survival in crisis.

Then came one of the worst lows we experienced in the industry – the FTX incident. As we all know, FTX was one of our largest investors and partners. At that time, we were in the midst of hosting the third Breakpoint conference, which was of a massive scale and attracted about 1,600 developers. Our tickets sold out, and as a result, FTX collapsed on the return flight.

At that time, the situation was like this: on the plane, I felt everything was going smoothly when FTX collapsed and the crypto market plummeted, leaving the market in despair. This was simply a large-scale collapse that could potentially destroy the entire ecosystem. Solana was founded at the beginning of the 2018 bear market when Ethereum was dropping 10% every week. So we are very cautious; we never over-hire, and the company has sufficient funds and resources to develop and improve products.

I was very scared at the time because many Solana ecosystem projects that had raised funds on FTX actually kept their funds on FTX, because if their funding chain broke, that would be the end; there would be no way to replenish the funds, and all the funds would be completely exhausted.

Fortunately, we conducted a large survey, and the results showed that 85% of companies are doing well, while 15% of companies are completely doomed. Among these companies, there is one promising company, which is Armani's Backpack. They were developing a wallet at that time, and they had just completed a funding round of about 10 million dollars, all of which was placed on FTX and could not be withdrawn. They only had a few million dollars left and were planning to double the size of the team to create a product and complete the remaining seed round funding. At that time, there were only about six people, and I thought most companies would go bankrupt, but they managed to survive.

Despite Backpack losing a significant amount of funds, they have doubled down on their efforts and focused on their product. I believe they turned the situation around by launching the Mad Labs NFT series and building the exchange. I think Armani's anger towards FTX and the desire to create a better exchange contributed to this shift. It's like the kind of energy that a founder driven by anger possesses; I feel they captured the attention of the NFT market and even the entire industry when they launched Mad Labs, which lasted for a full two weeks. It felt like a complete turning point, and you'll see many companies doubling down and bouncing back.

Just like the return of a bull market. One of the biggest lessons I learned from it is that building a company during a bull market is actually very difficult, especially in the cryptocurrency space, because the signal distortion is quite severe. You don't know who your core users are, and you don't know which features are truly important for your product and growth.

But during a market downturn, if you have 10 to 20 loyal users who frequently use your product, especially in the financial sector, and if you have a deep understanding of the value your product can bring to them and continuously optimize it to make it better each week, then during a bull market, you will see tremendous growth. First, these users will become your biggest ambassadors, and second, your product will be highly optimized for specific use cases.

The product has already achieved product-market fit, and the financial industry is very cyclical. During bull markets, time risks can lead to substantial trading volumes and revenues, so you need to ensure that your product is highly optimized and ready for scaling, regardless of what your business model is.

So it's really interesting to see those companies I interviewed after the FTX collapse; they were basically all saying, “We will continue to optimize our products. We still have enough funds. Let's see what happens next year.” All of these companies have succeeded and are doing exceptionally well.

The most severe thing was that the price of SOL dropped by 97% from its peak at that time, and most people believed that SOL was dead.

I think it's great to have a co-founder who loves crises. Some people are just naturally better at operating during a crisis because your decision-making is constrained and you have to act quickly. The most we do is communicate with founders who continue to develop their companies, trying to help them grow, achieve product-market fit, and clear obstacles as much as possible. However, we were unable to provide financial support at that time because funds were completely depleted.

The FTX incident surprised me about Sam. As you saw in the interview, he is that kind of super nerd, an MIT quantitative analyst, a geek. They actually went completely bankrupt. But I think it's hard to believe how much loss that chaos could have caused.

In the context of more comprehensive regulation, will there be more chaos in the future of cryptocurrency?

I believe that the frequency of hacker attacks in engineering has significantly decreased, largely due to a reduction in innovations in smart contracts, as many uses of blockchain have already been explored. Smart contracts are beginning to commoditize; once deployed, you only need a certain number of CPMM automated market makers, without having to take on the huge engineering risks of building another one.

Similar to Bonding Curve, lending protocols, etc., you will see that the attack surface for hackers has been reduced. Whenever there is a surge of innovation in the smart contract space, it is accompanied by many risks. In addition, I believe that with better tools, formal verification, improved testing, and a deeper understanding of related attack vectors, people are also doing better in deploying these aspects. Risks have significantly decreased, and with the launch of new financial systems, their risks are lower, for a simple reason: they rely more on on-chain technology.

Regulatory issues are significant problems that many exchanges or institutions face. If regulations are too strict, it can take too long and be too costly. For example, obtaining a license may take two years, but one cannot wait two years to gain market share. Projects may choose to move their operations to overseas jurisdictions with less regulation and utilize banking infrastructure that is not as well-developed as that in the U.S. to establish their businesses, resulting in various problems. I believe that many failures in the last economic cycle basically stemmed from this.

Now the US has a stablecoin bill, and the SEC has also turned over a new leaf, making it much easier to start a business here. However, the US is indeed lagging behind; Japan, France, and the UK have all introduced laws related to cryptocurrencies, making the development of cryptocurrencies easier. Japan might be the best place, as people from developed countries are getting into cryptocurrencies. This is precisely why projects like FTX Japan can be so successful; they are actually far ahead, but compared to the US, the Japanese market is indeed smaller.

Looking ahead, Solana's vision is to engulf financial services.

There are no engineering or technical reasons preventing the development of Solana. Solana's grand vision is that it can handle payments, transactions, contracts, IPOs, and all other business activities, all of which can be accomplished through a single chain in the same execution engine. Accelerating the circulation speed of the dollar, being able to participate in the IPO market, and completing any transaction globally is a project that requires a lot of dedication and hard work. Optimizing and perfecting it takes a significant amount of time, but from an engineering perspective, there is no reason to prevent its existence.

So this is what we really want to build. If this system exists and has PMF, and everyone is using it, then you can actually reduce the financial costs to the same minimum level as the physical costs, which can also be said to be the ultimate state of software eating the world (that is, the financial world). The Solana ecosystem has many advantages because it is a market that has been developing for a longer time, growing faster, and is still continuing to grow. However, I think the competition to realize this vision will be very fierce. I am not sure if there will be a blockchain on the scale of Google that can handle 99% of important transactions. There are two main reasons: first, countries with unique regulatory systems and firewalls may have their own blockchains; second, everyone wants to get a piece of the pie.

Even Google has launched its own chain. What will fintech companies and related enterprises look like in the future, such as guiding retail investors to which platform, etc.? It is still uncertain how these integrations will take place, but I believe Solana is that platform, so we will wait and see.

In the context of developing in this direction, what I truly want to see in the future is that companies in the U.S. and Silicon Valley that want to go public can do so through a simple method that I call “Linux IPO from scratch,” completing the IPO at a faster pace and lower cost. Founders like me, if we want to do this, can use on-chain immutable smart contracts that can be written into the S1 filings submitted to the SEC, stating that you are using this contract for a direct listing on this public commercial blockchain, which has auction attributes. I can directly list my equity on-chain, which will serve as a true source of the equity structure table and allow the public access to this information at any stage of the company's establishment without paying any fees to any investment bank, incurring no indirect costs. All incentives and any fees you typically pay to the bank can be used to incentivize AMM to provide liquidity.

This will be my ideal way of operation, as once this happens, it will greatly change the way companies obtain capital and the way the public accesses early-stage companies.

I believe one of the most important components of the American Dream is the free market. You know, I came to the United States from the Soviet Union in 1982, when the internet was rising, and companies like Microsoft and Amazon were continually growing. They were like building the future, and now these companies have become giants with market capitalizations in the trillions. I think that in the 90s, people could buy Amazon stock, which was undoubtedly a huge gift from America, or a significant value proposition of America. And now the number of publicly traded companies in the U.S. may be at its lowest since the 1970s, or we could say it's the lowest period for IPOs. So, if we can provide founders with the tools to complete an IPO at the lowest cost, fastest speed, and least legal fees, I believe this will greatly change the entire industry landscape.

This is a very cool part of a sci-fi future where everyone globally can access financial services at the lowest possible cost, and the speed is comparable to the speed of light. I think this is one of the coolest projects I can be a part of.

Epilogue: The Future of Cryptocurrency, the Era of Stablecoins

I see that cryptocurrencies are being effectively adopted by Wall Street and some global institutions, with stablecoins being a major factor driving this institutional adoption trend. The “Genius Act” passed by Congress creates a framework for issuing stablecoins and starting to achieve product-market fit, which is far better than any funding interface provided by traditional banks. Even building all fintech products on traditional banking is still not as good as using stablecoins. So this will be a major driving factor, and it is expected that stablecoins worth $10 trillion will be issued in the next 5 to 10 years. Currently, the issuance of stablecoins is around $250 billion (note: it has actually exceeded $300 billion), which is equivalent to several times the growth, and this liquidity will flow into all financial-related industries you can think of.

If you are a founder and passionate about fintech, or if you want to create a fintech company, I might suggest that you build your business around stablecoins. You can choose to integrate with existing stablecoins and manage various different stablecoins, or build your own stablecoin for specific purposes.