What is Solana?
Solana is an open-source, decentralized and highly scalable blockchain protocol that provides a platform for developers to create decentralized applications (dApps). As of October 2021, there are currently over 400 projects being built on Solana. The protocol uses a new timestamp system called Proof-of-History (PoH), which creates a historical record that proves that an event has occurred in a specific point in time, but that also leverages Proof-of-Stake (PoS) consensus mechanisms to help secure the network. Solana can process over 50,000 transactions per second, which is in significant contrast to Bitcoin’s seven transactions per second.
Anatoly Yakovenko began working on the project and published a whitepaper describing Proof-of-History in November 2017. Solana’s continued development is supported by Solana Labs, which is developing the blockchain, and the Solana Foundation, which is a non-profit organization dedicated to the decentralization, growth, and security of the Solana network. Solana’s mainnet beta was officially launched in March 2020 by the Solana Foundation, and in April 2020, Solana Labs transferred the protocol’s intellectual property and 167 million SOL tokens to the Solana Foundation.
What is SOL?
SOL is Solana’s native token serving two primary functions within the network: the token is used to pay for transaction fees and to execute smart contracts. Users can also stake SOLs as part of the proof-of-stake consensus mechanism to validate transactions. SOL is inflationary and there is no maximum supply.
There is currently no timeline for adding on-chain governance so the token is not currently used for voting on development proposals and protocol governance. Solana Labs and the Solana Foundation remain core contributors to the protocol, leading network upgrades and the development of new features. Since March 2018, Solana has raised over 25 million USD through five rounds of token sales, four of them being private sales.
How does SOL compare to Bitcoin?
SOL differs from Bitcoin in a few key ways.
First, SOL powers the underlying proof-of-stake process for Solana, a blockchain entirely separate from the Bitcoin blockchain. Since Solana uses proof-of-stake (in addition to proof-of-history) instead of the proof-of-work method of Bitcoin, SOL tokens are staked as part of the validation mechanism, in contrast to BTC which are mined as a result of the proof-of-work algorithm.
The second major difference between SOL and Bitcoin is their age. Solana’s mainnet beta was launched in 2020, compared to Bitcoin’s 12 or so years. Despite this difference in age, however, Solana has rapidly reached a competitive market capitalization and level of token distribution.
However, it should be noted that although SOL is different from Bitcoin, it is far from independent from it. Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that SOL will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) It is not clear, but unlikely, that a significant drop in SOL’s value would have a material impact on Bitcoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Solana, including an opinion that SOL is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of SOL prior to making it available on Wealthsimple Crypto and has concluded that SOL is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated SOL based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of SOL, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Solana;
- The supply, demand, maturity, utility and liquidity of SOL;
- Material technical risks associated with SOL, including any code defects, security breaches and other threats concerning SOL and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with SOL, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of SOL.
Like all other crypto assets, there are some general risks to investing in SOL. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure.
On September 14, 2021, Solana experienced a 17 hour network outage. The Solana team reviewed the incident in this blog post. Solana also presents an elevated short history risk, and in contrast to networks like Bitcoin and Ethereum, where multiple parties participate in development, Solana Labs and the Solana Foundation direct ongoing development of the software underlying the Solana network.
Further, Solana Labs, the Solana Foundation, and the Solana community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of SOL have no recourse to Solana or Wealthsimple if SOL declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading SOL. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.