Lightspeed Newsletter: Solana Permissioned Environments may help court institutions

25.06.2024

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Solana’s under the radar feature for institutions

When PayPal deployed its stablecoin on Solana a month ago, the network’s “token extensions” — which let merchants customize tokens to become more compliance- and business-friendly — were a big reason why, I reported.

But there’s a similar institution-focused primitive from the Solana Foundation that gets talked about less: Solana Permissioned Environments, or SPEs. SPEs allow developers to use Solana’s software for permissioned blockchains powered by the Solana Virtual Machine (SVM) — meaning Solana’s software powers blockchains that can meet the more rigorous compliance standards faced by institutions like banks, for instance.

I spoke with Max von Wallenberg, who is trying to create an on-chain bank named Iron — and is doing so with an SPE.

Banks are a “highly privacy sensitive regulated player,” von Wallenberg said in a text. He said that Iron can use an SPE to benefit from Solana’s core architecture while also enabling tokenized commercial bank deposits, confidential trading, and private real-world asset (RWA) tokenization.

Other iterations of this kind of thing exist. Polygon’s Chain Development Kit (CDK) and Avalanche’s Subnets can also be used to create more controlled instances of blockchains, Nick Ducoff, head of institutional growth at the Solana Foundation, told me. The “big four” accounting firm Ernst & Young is using Polygon and zero-knowledge proofs to let clients put business contracts on-chain while preserving their privacy, for instance.

The Solana-based networks created via SPEs have trouble interoperating with Solana mainnet, and that will be a next growth step for the feature, Ducoff said. Von Wallenberg said Solana’s version of permissioned blockchain tech has some unique benefits though.

“We today don’t see any other chain / environment that can give us enterprise-grade performance + concealed token standards (out of the box) + high throughput + fast settlement time + an accessible team like the Solana Foundation,” von Wallenberg said.

The Solana Foundation introduced SPEs in September 2023 and remains involved in the technology’s development. Ducoff told me the foundation was involved in creating a Telegram group for SPEs, and fifteen businesses have joined so far. He also said “large multinational financial institutions” are exploring building with SPEs, though he declined to name which ones.

Other examples of teams currently building with SPEs are payments platform Sphere, oracle service Pyth, and energy trading platform Powerledger.

For the crypto cowboys hoping for fully permissionless and transparent financial infrastructure, permissioned blockchain environments might not be the most sexy concept. But the traditional finance world won’t “touch permissionless networks with a 10ft pole” without some permissioning due to money laundering and counterterrorism standards, Richard Wu, chief technology officer at Solana NFT marketplace Tensor, said in a DM.

“If you think of crypto/blockchain as a tech first and foremost, then SPEs are the easiest way to transition the old system to this new, faster, more transparent system. And I’d rather have a world where 80% runs on blockchain rails with permissioning than a 2% fringe,” Wu said.

— Jack Kubinec

Zero In

$2.7 billion

That’s roughly how much market capitalization Solana had shed over the past 24 hours at press time, falling from $60.7 billion down to $58 billion, per CoinGecko.

Solana fell roughly 12% on the week, and for some memecoins the drawdown was even more aggressive: dogwifhat is down 28.6%, and MOTHER is down 47.4% over the same time frame.

Some memecoins came out alright though: BONK, Boden, and Popcat all fell less than Solana on the week.

Solana DeFi may have also dodged some of the market dump: Total value locked in the sector is only down around 2.5% over the past week, according to DeFiLlama data.

— Jack Kubinec

The Pulse

Over the weekend, solana experienced a price drop of around 9.5%. Other cryptocurrencies saw their prices fall over the same period — bitcoin dropped 5.4% and ether’s price shed 7.4% — but solana’s drop was notably sharper. This decline has sparked a flurry of speculation and theories on social media.

Long-time crypto personality Crypto Bitlord tweeted unconfirmed rumors of an investigation into Solana, causing concern for some. He said, “We are hearing rumors that $SOL is under investigation and a huge case is about to become public. This has been brewing for weeks now and couldn’t come at a worse time. If what we heard is true, start praying for Solana.”

Comments ranged from disbelief and ridicule to outright hostility with @HugoMartingale saying “Is the clout still worth it if everyone thinks ur a clown?” Others seemed to take them at their word, such as @jasoncola1, who posted, “This is deeply concerning,” and @ItsDave_ADA, who noted, “Centralization, control, greed, facilitating gambling, with celebrity endorsement and a history of being linked with exploiters. Wouldn’t surprise me at all. Always said the clock is ticking.”

Amid the panic, there were also bullish takes and signs of contrarian optimism. Users such as @dubzyxbt remarked, “Buckle up buttercup,” while sharing a chart juxtaposing Solana’s current market conditions to those in 2021, suggesting a similar takeoff might be imminent. User @NFTfeen compared the pull back to, “The coil before the spring” while @raiden_crypto declared “Idc what the price of $SOL is, I’m just trying to multiply my Solana I know it’ll go up at some point.”

The uncertainty has led to a mix of bearish predictions, bullish hopes, and humorous takes, showcasing how even the smallest hint of market chaos can lead to frantic, factually dubious tea leaf reading.

Solana’s price has rebounded to $129 at the time of writing.

— Jeffrey Albus