The Rise of Next Generation Blockchains

The blockchain landscape is rapidly evolving, with next-generation chains emerging to address the limitations of earlier platforms. Solana Legend, a managing partner at Frictionalist and co-founder of Monkey Dow, is at the forefront of this revolution. As an early-stage investor focusing on what he calls "next-generation blockchains," Legend is looking for chains that offer high throughput, low latency, and minimal fees - key characteristics that enable shared state and have the potential to onboard hundreds of millions of users.

Legend emphasizes the monumental leap from Ethereum to Solana, describing it as a "true 100x in UX and technology." This jump addressed many of the low-hanging fruit in distributed systems, including data propagation, continuous block production, and asynchronous execution. While newer chains may offer incremental improvements, the race for adoption is far from over.

The Importance of Community in Blockchain Adoption

While technological advancements are crucial, Legend highlights that the key differentiator for blockchain success will increasingly be community, developer, and user activity. He notes:

"The race is not over, not even close. And one of the core areas where these blockchains are going to differentiate themselves is going to be along the lines of community and developer and user activity, as opposed to just pure tech optimizations."

This shift in focus recognizes that technology alone is not enough to guarantee widespread adoption. The ability to build and nurture an engaged community of developers and users will be critical for any blockchain hoping to achieve mainstream success.

The Challenge of Building Communities on New L1s

Building communities on newer Layer 1 blockchains presents unique challenges. Legend points out that Ethereum and Solana benefited greatly from their initial low valuations, which allowed early investors to reap significant rewards. This wealth effect created a powerful network of dedicated supporters who promoted the platforms organically.

However, newer chains often launch with multi-billion dollar fully diluted valuations, making it harder to replicate this community-building strategy. Legend explains:

"With these chains opening at multi-billion dollar FDVs from the jump, it really complicates the process of kind of making those early people kind of wealthy. And it's going to be a core hurdle for these blockchains to solve how they can incentivize the right behavior and reward people in a different way."

This challenge requires new approaches to community building and incentivization. While the formula is not yet solved, Legend suggests that a strong focus on product development, community engagement, and events like hacker houses will be crucial.

The Multifaceted Nature of Blockchain Technology

One of the most intriguing aspects of blockchain technology, according to Legend, is its interdisciplinary nature. He elaborates:

"That's the beauty of blockchain is that it marries so many different fields from distributed systems to economics to social consensus and culture to, you know, in real life activities and organizing a fleet of validators and devices. It's just like a varied field and that's what makes it so interesting, in my opinion."

This complexity is both a challenge and an opportunity. It allows for innovation across multiple domains but also requires a deep understanding of various fields to create truly groundbreaking solutions.

Early Days of Solana: A Pioneer's Perspective

As an early adopter of Solana, Legend provides valuable insights into the platform's nascent stages. He describes a time when the ecosystem was bare-bones, with only one open-source wallet (Solid) and a single decentralized exchange (Serum). The lack of infrastructure presented both challenges and opportunities for early builders.

Legend recalls:

"There was almost no tooling like Armani had built anchor, which is now used like 95% of smart contracts on Solana, which was amazing. But apart from that, there were no NFT marketplaces. Everything was OTC. There was no token standard, no Metaplex."

This early period attracted a specific type of individual - true believers with backgrounds in distributed systems or hardware who were captivated by Anatoly Yakovenko's vision of a global state machine synchronized at the speed of light through fiber optics.

The Vision That Unites Solana Believers

Legend emphasizes that the unifying force behind Solana's early adopters and current supporters is the visionary outlook of its founder, Anatoly Yakovenko. He explains:

"I think the thing that united everyone is the vision of Anatoly, right? Of kind of a global state machine synchronized at the speed of light through fiber. And I think the people that have seen that North Star and that have used the chain a little bit are the ones that are still around today."

This shared vision has been a powerful motivator, keeping developers and projects committed to Solana even through challenging times, such as the FTX collapse. The belief in Solana's fundamental engineering principles and its potential for future growth has created a resilient community.

Solana's User Experience: A Game-Changer

One of Solana's key strengths, according to Legend, is its superior user experience. Coming from a banking background, Legend approached the space with a focus on usability rather than technical specifications. He shares his first impression:

"When I used Solana for the first time, it felt like fiber optic. And I said, look, this is a vastly superior UX. I don't care what anyone says if they want to, you know, fud this chain or whatever. I think this user experience speaks for itself."

This emphasis on user experience has been a significant factor in attracting and retaining users, especially during periods of high activity on other networks when gas fees become prohibitive.

The Ethereum Comparison: Lessons from History

Drawing parallels between the current sentiment around Solana and past criticisms of Ethereum, Legend highlights the cyclical nature of blockchain narratives. He notes that during the bear market of 2018-2019, there were vocal critics claiming Ethereum was dead and that developers were leaving the ecosystem.

This historical perspective provides context for current discussions about Solana's future. Legend suggests that Solana might follow a similar arc to Ethereum, potentially experiencing a resurgence in the next bull market cycle.

The Changing Face of Crypto Adoption

As the cryptocurrency space evolves, so does the profile of its users. Legend observes:

"The profile of the person that was using crypto and certainly doing things on chains, signing transactions with their private keys early on was a very like specific type of person, right? It was someone that probably had multiple degrees, computer scientists, cypherpunk into kind of the self sovereignty, internet money movement."

However, he questions whether this demographic is sufficient for mass adoption. Legend argues that the future of crypto adoption lies with a more pragmatic crowd, one that may be less concerned with ideological concepts like decentralization and more interested in practical benefits and user experience.

Optimizing for Mass Adoption

Legend emphasizes the importance of blockchain designers optimizing for the right factors to achieve mass adoption. He states:

"Everything will kind of work, but what differentiates a blockchain from being kind of an expensive science project or something that actually gets used by developers and users is what you optimize for."

In this context, Solana's focus on speed, cost-efficiency, and user experience positions it well for future growth. By prioritizing these aspects, Solana is addressing the practical needs of mainstream users rather than catering solely to crypto enthusiasts.

The Challenge of Explaining Crypto to Normies

One of the ongoing challenges in the crypto space is communicating its value to the general public. Legend points out that concepts like decentralization and self-custody of assets often don't resonate with average users who have never experienced issues with traditional financial systems.

This disconnect highlights the need for crypto projects to focus on tangible benefits and use cases that solve real-world problems for everyday users. The bear market, according to Legend, is an opportunity for the industry to refine its value proposition and develop applications that offer clear advantages over existing solutions.

Emerging Themes for the Next Crypto Cycle

Looking ahead to the next bull market, Legend identifies several promising sectors within the Solana ecosystem:

1. Deepin: Projects leveraging Solana's unique capabilities for decentralized infrastructure.
2. Compressed NFTs: Innovations that enable more efficient and cost-effective NFT creation and trading.
3. Tokenized Real-World Assets (RWAs): Bringing traditional assets onto the blockchain for increased liquidity and accessibility.

Legend suggests that a combination of these primitives could lead to the development of mainstream-ready applications, particularly in the mobile space.

The Evolution of NFTs: From Products to Features

Legend offers an insightful perspective on the role of NFTs in the broader crypto ecosystem:

"A perfect example being NFTs, they thought NFTs were products. And NFTs, in the vast majority of cases, unless you're talking about a Beblin' Good, that's extremely expensive and high status, high prestige, there are really more features than they are products."

This shift in understanding - from viewing NFTs as standalone products to seeing them as features within larger applications - could be key to unlocking their true potential. NFTs can serve as powerful tools for community building, ownership representation, and engagement, but they need to be integrated into broader use cases to achieve mainstream adoption.

The Promise of Decentralized Infrastructure (DePIN)

Decentralized Physical Infrastructure Networks (DePIN) represent a significant opportunity in the crypto space. Legend highlights the potential of projects that focus on optimizing digital resources rather than physical infrastructure:

"The sub area within Deepin that is most interesting to us at frictionless is around digital resources. So as opposed to kind of mobilizing a fleet of physical devices or even humans in real life, I think that's interesting. And you can definitely build a business around that. It doesn't scale as hard as, for example, if you're helping optimize compute or storage or block space or some other digital resource or commodity that can scale much more rapidly."

This approach addresses some of the scaling challenges faced by projects like Helium, which were constrained by physical supply chain issues. By focusing on digital resources, DePIN projects can potentially scale more quickly and efficiently.

The AI Compute Crunch: An Opportunity for Crypto

Legend draws attention to the current shortage of GPU clusters due to the explosion in AI and large language model development. This mismatch between supply and demand creates an opportunity for crypto projects to offer decentralized compute solutions:

"No industry in the world can react to that demand increase on the supply side instantaneously. So it's those, you know, transitionary periods where there's a big mismatch where the biggest companies and fortunes are made and lost."

This observation suggests that we may see a surge in crypto projects aimed at addressing the compute demand for AI and machine learning applications.

The Future of Gaming in Crypto

While gaming has been a much-discussed use case for blockchain technology, Legend expresses some reservations about the current state of crypto gaming. He points out that no crypto game has yet achieved the level of fun and replayability seen in traditional hit titles like Counter Strike or League of Legends.

However, he sees potential in the category of "builder games" - games that provide open frameworks for players to create and modify content. Legend explains:

"The kind of the senses at the game risk of execution for the devs is much lower if you can create an open framework where maybe this game is not 100% what the players want, but the players can turn it into what exactly what they want over time."

This approach could potentially lower the risk for developers and investors while still leveraging the unique benefits of blockchain technology.

The Potential of Metagames in Blockchain

Building on the concept of builder games, Legend and the hosts discuss the potential of metagames in the blockchain space. These are games built on top of existing games or real-world events, similar to fantasy sports leagues. The simplicity and adaptability of metagames make them a natural fit for blockchain integration.

Legend notes:

"Coincidentally, so rare has had some really good adoption numbers because they focus on that. I'm very bullish on metagame's and traditional video games like Fortnite where there's already creators now that are making money from people playing their versions of Fortnite."

This trend towards user-generated content and economies within games aligns well with blockchain's capabilities for digital ownership and value transfer.

The Infrastructure Build-Out Phase

Legend emphasizes that the crypto industry is still in an infrastructure build-out phase. He argues that the lack of "killer apps" in crypto is largely due to the limitations of existing blockchain technologies:

"People have been building on Ethereum where you have 12 second block time, five to 10 minute confirmation for transaction and gas fees from five to $300. And I ask them if we had $30 million and a team of cracked engineers, could you build a killer app on that tech stack? And they always tell me probably not."

This perspective underscores the importance of continued development in blockchain infrastructure to enable the creation of truly transformative applications.

The Resurgence of Centralized Exchanges

Despite the recent focus on decentralized finance (DeFi), Legend sees a significant opportunity in the centralized exchange space:

"I think this is unironically the best time to start a centralized exchange since 2020. I know we're having a bit of an on chain summer, but the addressable market of a regulated centralized exchange that actually connects to people's bank accounts and is a fiat on ramp and off ramp is like orders, multiple orders of magnitude larger than any on chain trading activity."

This insight suggests that while DeFi continues to innovate, there's still a crucial role for centralized infrastructure in bridging the gap between traditional finance and the crypto ecosystem.

The Future of Social Media and Crypto Integration

Discussing the potential integration of crypto with social media platforms, Legend expresses skepticism about fully Web3-native social experiences. Instead, he sees more potential in existing platforms incorporating crypto features:

"I think what's more exciting is getting a core web2 kind of social media that people know and trust and already has a large amount of adoption. And then having the crypto piece be kind of like a Trojan horse enabling new experiences."

This approach could potentially bring crypto functionality to a much larger user base without requiring them to adopt entirely new platforms.

The Role of Economic Incentives in Social Media

Legend discusses the potential for crypto to introduce new economic models to social media platforms. He suggests that features like micropayments for content or economic deterrents to spam could be more effectively implemented using blockchain technology:

"I guess one kind of idea on that front was, and I think X has already tried doing this a little bit with verified checks. But the idea that economic value can be a deterrent to expand for instance. That feels like a very low kind of bard across that crypto can do way better than fiat."

This integration of economic incentives could potentially create more engaging and valuable social media experiences while addressing some of the current issues plaguing these platforms.

The Current State of Crypto: Between Cycles

Reflecting on the current focus on meme coins and seemingly frivolous projects, Legend provides context:

"I think we're just in between cycles to be completely honest. People don't have those killer products and applications to hold on to. And in the absence of a clear theme or signal crypto defaults to its kind of most natural form, which is just gambling."

He sees this as a natural part of the crypto ecosystem's evolution, drawing parallels to early Bitcoin gambling sites that kept the network active during previous bear markets. While not necessarily indicative of long-term value, these activities maintain engagement and liquidity within the ecosystem.

The Path Forward for Solana

Despite some high-profile project migrations, Legend remains optimistic about Solana's future. He argues that Solana offers a more expansive "sandbox" for developers compared to Ethereum, particularly in areas like compressed NFTs and microtransactions.

Legend states:

"You can do compressed NFTs, you can do loans for a dollar and repay them and get two cents of interest and you can claim that. It's a completely different environment where assets can be used much more productively."

This technological advantage, combined with Solana's focus on user experience, positions the platform well for future growth and adoption.

The Importance of Long-Term Vision

Throughout the interview, Legend emphasizes the importance of maintaining a long-term perspective in the crypto space. He criticizes short-term thinking and the tendency to chase liquidity or higher floor prices at the expense of long-term potential.

Regarding project migrations, Legend notes:

"Giving up the number one spot on Solana to chase a higher floor price will go to go down as either a very savvy move or one of the worst mistakes of all time."

This sentiment underscores the importance of strategic decision-making and commitment to a platform's ecosystem in the face of short-term market fluctuations.

The Inefficiency of the Crypto Market

Legend highlights the significant information asymmetry in the crypto space, describing it as "one of the most inefficient liquid markets in the world." He points out that even experienced investors often lack deep understanding of blockchain technology:

"You talk to even top VCs who don't have a view on blockchain or tech or anything. They don't know anything about virtual machines or consensus algorithms or data propagation or storage. They're just kind of throwing darts in the space, which means there's a huge amount of misallocation."

This inefficiency creates both challenges and opportunities. While it can lead to misallocation of resources, it also means that well-informed investors and builders can potentially capture significant value by identifying truly promising projects and technologies.

The Potential for a Crypto "ChatGPT Moment"

Drawing parallels to the AI industry, Legend suggests that crypto has yet to have its "ChatGPT moment" - a breakthrough application that demonstrates the technology's potential to a broad audience:

"Crypto hasn't had its chat GPT moment, right? And the day crypto has a chat GPT moment, then it's going to be like an overnight success of years in the making, similar to machine learning."

This perspective frames the current state of the crypto industry as still being in its early stages, with significant potential for transformative applications yet to be realized.

The Evolution of Ethereum's Narrative

Legend offers a critical view of Ethereum's evolving narrative, suggesting that the project has had to continually downsize its vision due to technical limitations:

"The vision, it keeps getting smaller and smaller, right? They're renouncing on the vision. Like it gets smaller from the world computer, the banking, then banked. And then from banking them banked to kind of like a hardish commodity with yield and kind of like ultrasound money."

He argues that this trend reflects the technical constraints of Ethereum's architecture and could potentially limit its long-term growth and adoption.

The Promise of Multi-Core Performance

Looking to the future, Legend is particularly excited about advancements in multi-core performance for blockchains:

"Multi-core performance is accelerating at a rate that people don't realize. Banwhit is ultimately what bottlenecks blockchains, but the faster Banwhit and compute get, I think these next generation blockchains are going to scale at a rate that people are not prepared for."

This technological progress could enable blockchains to achieve levels of scalability and performance that were previously thought impossible, potentially opening up new use cases and applications.

The Intersection of AI and Crypto

Finally, Legend predicts a surge of interest in projects that combine AI and crypto technologies:

"AI adjacent crypto deep in projects are going to be absolutely on fire next cycle for the next year without a shadow of doubt. I think that's an area that's going to go crazy. And we have not seen how crazy this pump is going to be."

This forecast suggests that the integration of AI capabilities with blockchain technology could be a major driver of innovation and investment in the coming years.

In conclusion, while the crypto industry continues to face challenges and skepticism, visionaries like Solana Legend see immense potential for growth and innovation. By focusing on user experience, scalability, and real-world applications, next-generation blockchains like Solana are laying the groundwork for a future where blockchain technology becomes an integral part of our digital infrastructure.

Facts + Figures

• Solana represented a "true 100x in UX and technology" leap from Ethereum, addressing low-hanging fruit in distributed systems.
• The Anchor framework is used in approximately 95% of smart contracts on Solana.
• Solana's early ecosystem had only one open-source wallet (Solid) and one decentralized exchange (Serum).
• New blockchains often launch with multi-billion dollar fully diluted valuations, complicating early adopter incentives.
• Ethereum's TVL in 2018 was around $250 million, less than Solana's current TVL.
• NVIDIA GPU clusters are sold out until the end of next year due to AI demand.
• The addressable market for regulated centralized exchanges is orders of magnitude larger than on-chain trading activity.
• Helium is testing a $5/month phone plan with unlimited talk, text, and data in Miami.
• Solana continues to gain users every day when Ethereum gas fees increase.
• Games like League of Legends have more daily active users than all blockchains combined.
• No crypto game has yet achieved the level of fun and replayability seen in traditional hit titles.
• The profile of early crypto adopters typically included individuals with multiple degrees, often in computer science.
• Firedancer, a new Solana client, is capable of processing several hundred thousand transactions per core.
• Instagram processes millions of transactions per second for features like "likes."
• The crypto industry is still awaiting its "ChatGPT moment" - a breakthrough application demonstrating the technology's potential to a broad audience.

Questions Answered

What are next-generation blockchains?

Next-generation blockchains are platforms that offer high throughput, low latency, and minimal fees. They are designed to enable shared state and have the potential to onboard hundreds of millions of users. These blockchains aim to address the limitations of earlier platforms like Ethereum by providing a more scalable and user-friendly infrastructure for decentralized applications.

How does Solana differ from Ethereum?

Solana represents a significant leap in technology and user experience compared to Ethereum. It offers faster transaction speeds, lower fees, and a more scalable infrastructure. Solana's architecture allows for continuous block production and asynchronous execution, addressing many of the bottlenecks present in Ethereum. Additionally, Solana's focus on user experience makes it more accessible to mainstream users who may not be as technically inclined.

What challenges do new L1 blockchains face in building communities?

New Layer 1 blockchains face challenges in building communities due to their high initial valuations. Unlike earlier projects like Ethereum and Solana, which benefited from low initial valuations that allowed early adopters to gain significant wealth, newer chains often launch with multi-billion dollar valuations. This makes it harder to create the same level of community engagement and loyalty. New chains must find alternative ways to incentivize early adopters and build active communities.

How is the profile of crypto users changing?

The profile of crypto users is evolving from early adopters who were often highly technical and ideologically driven to a more mainstream, pragmatic user base. Early crypto enthusiasts typically had backgrounds in computer science or were deeply interested in concepts like self-sovereignty and internet money. However, for mass adoption to occur, crypto needs to appeal to users who are more interested in practical benefits and user experience than in the underlying technology or ideology.

What role does gaming play in blockchain adoption?

Gaming is seen as a potential driver for blockchain adoption, but the space is still maturing. While no crypto game has yet achieved the level of engagement seen in traditional hit titles, there is potential in "builder games" that allow players to create and modify content. The integration of blockchain technology could enable new economic models within games, such as true ownership of in-game assets and player-driven economies. However, the primary challenge remains creating games that are fundamentally fun and engaging, regardless of the blockchain elements.

How might social media integrate with cryptocurrency?

Social media integration with cryptocurrency is likely to happen through existing platforms rather than entirely new Web3-native solutions. This could involve adding crypto features to popular social media platforms, such as micropayments for content or economic deterrents to spam. The goal would be to enhance user experiences and create new economic models within social media without requiring users to adopt entirely new platforms. This approach could potentially bring crypto functionality to a much larger user base.

What is the significance of multi-core performance for blockchains?

Multi-core performance is becoming increasingly important for blockchain scalability. As the speed of bandwidth and compute power increases, next-generation blockchains are expected to scale at unprecedented rates. This advancement could enable blockchains to handle much higher transaction volumes and more complex operations, potentially opening up new use cases and applications that were previously not feasible due to performance limitations.

How might AI and crypto intersect in the future?

The intersection of AI and crypto is expected to be a major area of growth and innovation. Projects that combine AI capabilities with blockchain technology, particularly in the realm of decentralized infrastructure (DePIN), are predicted to gain significant traction. This could include optimizing compute resources for AI applications, creating decentralized marketplaces for AI models, or developing new AI-powered financial instruments on the blockchain. The integration of these technologies has the potential to create entirely new categories of applications and services.