Decentralized Finance (DeFi) on Solana

11 min readFeb 26, 2024

Decentralized finance, or DeFi, is a novel approach to financial transactions that eliminates the need for middlemen like banks. It has grown in popularity in recent years. DeFi provides a variety of financial services, such as lending, borrowing, trading, and investing, and is based on blockchain technology. DeFi has emerged as a revolutionary force in the world of finance, offering open, permissionless access to a wide range of financial services.

Among the myriad of blockchain platforms hosting DeFi applications, Solana stands out for its high throughput, low latency, and scalability. From lending and borrowing to decentralized exchanges (DEXs) and yield farming, the Solana DeFi ecosystem is brimming with possibilities with over 300% price gap as compared to other L1 chains.

Solana boasts a diverse array of DeFi applications catering to various needs. Lending platforms like Solend and Manginfi allow users to earn interest on their crypto holdings or borrow against them.

DEXs like Orca and Jupiter facilitate peer-to-peer token swaps, eliminating the need for centralized intermediaries. And for those seeking high returns, AMMs (Automated Market Makers) like Jito and Marinade Finance offer yield farming opportunities.

With over 125 protocols and 2 billion in TVL, and over 300 million in daily transactions. Projects that happen to be the top DeFi projects driving the ecosystem are: Solana DEXs: Jupiter, Orca, Drift; those on Solana Lending protocols: Solend, Marginfi, Kamino; those leading staking: Jito and Marinade; and those leading Solana DePin: Helium and Render Network and finally Solana NFTs: Tensorians and Madlads.

Solana DeFi TVL grew to $1.5 billion, 303% YoY and 505% QoQ. MarginFi, a lending protocol, saw its TVL increase 1,404% QoQ to $337 million, propelling it from being the sixth largest Solana DeFi protocol to the first by TVL. MarginFi only had $3.2 million in TVL on July 3rd when it launched its rewards program. It introduced a number of UX improvements in Q4, such as a PWA and a streamlined UI. It also hinted at YBX, a future stablecoin backed by LST

Solend lending protocol market share increased 5% QoQ, Solend’s TVL increased 323% QoQ to $242 million. Last year August saw the start of its points program’s first season, which concluded in early December with a tease for Season 2. Solend had a native token prior to MarginFi. As such, its scoring system was and remains linked to SLND tokens as well as other incentives, instead of a possible airdrop. A native Android app developed by Solend is also accessible through the Solana dApp store.

The quarter of last year saw Kamino finance enter the lending competition with its 2.0 upgrade, which featured a new borrow/lend protocol. In TVL, Kamino Lend has collected $139 million since its mid-November start. In the days following Kamino’s announcement that it will be launching a points program for an upcoming airdrop, its TVL nearly doubled.

Similarly, Kamino 2.0 introduced single-click leverage tools for long/short token positions against USDC and SOL staking yield (looping xSOL/SOL). With $88 million in TVL at year’s end, its original liquidity vaults product (which Solana did not include in her calculations to prevent duplicate counting)

DeFi volume increased significantly as well, with an average daily spot DEX volume of $359 million, up 1,116% QoQ. Orca provided liquidity for 45% of the last year Q4 volumes, with Raydium using a 29% market share. Orca and Raydium, with $190 million and $133 million, respectively, were ranked third and fifth in Solana TVL.

Phoenix had a daily average market share of 0.8% for DEX TVL, but an average market share of almost 9% for DEX volume. Phoenix is a central limit order book that operates entirely on-chain and has won recognition for its clever use of money.

The trading volume of BONK-SOL token pairs was the fourth biggest in Q4, behind that of SOL-stable and stable-stable pairs. The pair’s overall last year Q4 volume was close to $1.3 billion, representing an 11,000% QoQ rise. As a Christmas present in 2022, Solana developers received an airdrop of the memecoin BONK. BONK was listed on Coinbase in mid-December. The exchange’s first-day trading volume of $238 million ranked 12th in its history.

57% of DEX spot activity was routed through the Jupiter swap aggregator on average. In Q3, Jupiter was one of the most discussed DeFi protocols in all of crypto. Its awareness sensitization at Breakpoint, which included the release of an airdrop, a new liquid-staked SOL-backed stablecoin (which is not yet available), and a new GMX-style perps offering, aroused participants present at the conference. The airdrop’s completed criteria were revised multiple times based on comments from the community, and the first of four airdrop rounds (i.e., 40% of the entire supply) is scheduled for January 2024.

Jupiter perps have averaged $53 million in daily trading activity since debut. Drift is the other major player in Solana perps. In Q3, it was one of Solana’s fastest-growing DeFi protocols. Its average daily perps volume increased ~10x to $23 million in Q4, indicating that it was still growing. Drift revealed details of a $23.5 million Series A fundraising during its Breakpoint presentation.

The rise in USDC supply in December of 2023 was a major factor in Solana’s stablecoin market cap, which increased by over $300 million on a quarterly basis. Circle’s Cross-Chain Transfer Protocol (CCTP) should lead to further growth in USDC liquidity and interoperability on Solana. USDC does not need to be wrapped in order to be transported across networks anymore. It launched on Solana’s Devnet at the beginning of November last year, and the mainnet launch is scheduled for the first part of 2024. In mid-December, Circle also introduced EURC, a stablecoin backed by the euro, on Solana.

The addition of Solana to Paxos’ USDP stablecoin, which is governed by the NYDFS, took place earlier this year. This will push Solana to become the second network, after Ethereum, to support USDP.

NFTs

The Solana framework development business Coral is the creator of the Mad Lads NFT collection. It is a collection of 10,000 original pieces of art that include rare and distinctive humanoid characters. Over 4,200 NFT collectors on the network are in possession of over 9,966 Mad Lads minted. The team is also behind the Backpack wallet and Exchange

Tensor’s native project is called Tensorians. They provide holders with incentives from partner projects and points for the anticipated Tensor airdrop. A robust NFT marketplace for fans on Solana

Top Solana NFT collections including those recently launched on the blockchain Network shows the heightened interest of Solana as the go to DeFi hub.

DeFi Staking

Marinade Finance asserts that it maximizes returns for investors by staking SOL for mSOL. This is done by commoditization and increased flexibility of staked assets. Assets are leveraged to increase staker yields. The Project routes staked assets through the highest-yielding validator on the Solana network, screening over 100 validators in the process.

Jito provides liquid-staking services. Liquid-staked Solana on the Jito protocol is referred to as Jito Sol (jitoSOL), and it can be committed to restaking protocols when they become available, just like Marinade’s mSol. it minimizes negative externalities while increasing the yield that stakers receive through MEV payments.

The maximum additional fee that a user or validator can deduct from a DeFi protocol transaction is known as MEV (Maximum Extractable Value). MEV is a profitability metric. Jito asserts that it can increase the value extracted from DeFi protocols on the Solana blockchain and transfer these gains to platform stakers.

DePIN (Decentralized Physical Infrastructure)

In April 2023, Helium moved to the Solana blockchain. The goal of the decentralized physical infrastructure (DePIN) initiative is to commoditize and transform Internet services for users. In addition to letting users manage their own hotspot businesses, Helium intends to use the Solana blockchain to handle internet service administration and remittances.

Render Network wants to make it possible for artists to produce high-quality visuals. Miners with extra, idle GPUs can rent them out to artists or other content makers.

When a developer needs more GPU to render graphics, they can rent out extra GPU power using Render Network. Want to know more about DePIN project on solana? Click here.

Other DeFi Applications on Solana blockchain

The result of a successful Parcl V2 and priceless user input from the Parcl community is ParclV3. A cutting-edge cross-margined account for Perpetual Futures in Real estate with DEX protections for enhanced liquidity providers in a unified LP Pool. It also launched its Parcl point program to reward users and gain traction.

Cube Exchange raised $9Million in funding and Lightpaper release for innovative trading experience with its platform unique reward system.

Ondo expansion to solana was another expansion of the Solana DeFi ecosystem and introducing our main products, USDY and OUSG.

Flash Trade an asset backed DeFi ecosystem also launched on Solana

LiquidProp private beta launch for real estate tokenization and fractionalized DeFi ecosystem.

The concept of Fluidity presents Collateralized Fluid Assets, such as fUSDC as the next level DeFi. You can receive rewards for each transaction you complete using a Fluid Asset. That refers to all transactions on Solana, including forwarding a message to a different address, utilizing a DEX, and buying an NFT on the blockchain.

Another DeFi application is the Cypher trade for unique assets and futures launched it’s mainnet on Solana with $CYPH token issued. Meteora Stimulus Package launched earlier this year with seasoned experts in the DeFi space.

Switchboard oracle used for Trusted Execution Environment (TEE) an off-chain verifiable smart contracts for real world assets (RWAs)

Solana ZUSD and Solana GYEN are currently available on GMO-Z.com. The platform allows users to easily buy, swap, or redeem GYEN and ZUSD, making it easier for users to access these currencies on Solana.

Pyth Network offers data storage, price feeds and integrations of data off-chain is for DeFi solutions

Unibot on Solana. The fastest telegram bot gets integrated to Solana with Airdrop in $UNISOL for Solana and UNIBOT users coming soon.

Millions of native $BTC coming to Solana by zBTC. A permissionless wrapper of bitcoin on Solana by Apollo Zeus

IBC coming to Solana for more DeFi innovation (Restaking of LST tokens) and wider asset accessibility of DeFi products through Picasso Network.

Technical Features of Solana Enabling DeFi Applications

High Throughput: Solana’s high throughput, achieved through its Proof-of-History (PoH) consensus mechanism and parallel processing architecture, allows DeFi applications to handle a large number of transactions per second, ensuring fast and efficient execution of trades, loans, and other financial transactions.

Low Latency: Solana’s low latency ensures near-instant transaction finality, reducing the time users have to wait for their transactions to be confirmed. This enables real-time trading and lending activities, enhancing the user experience and improving market efficiency.

Solana’s Proof-of-Stake (PoS) consensus mechanism enables near-instantaneous transactions, a massive improvement over the block times of older blockchains. This allows DeFi protocols to offer a seamless and responsive user experience.

Scalability: Solana’s scalability enables DeFi applications to accommodate growing user demand and transaction volumes without experiencing congestion or increased transaction fees.

Compared to Ethereum, where DeFi transaction fees can be prohibitively expensive, Solana offers significantly lower fees. This makes participating in DeFi activities more accessible and cost-effective for users.This scalability is crucial for supporting the expansion of DeFi protocols and accommodating the influx of users and liquidity.

Interoperability of Oracles: Oracles are a crucial source of accuracy for data about off-chain assets. The two main oracles on Solana are Pyth (permissioned) and Switchboard (permissionless). Off-chain data and price feeds, such as sensor data, can be streamed onto Solana for use in on-chain program computations.

Several applications that were not conceivable on other blockchains before have been made possible by Solana’s architecture. Solana offers a wide range of services, from state compression techniques that make NFT drops more cost-effective to global payments made possible via Solana Pay.

The innovations going on the Solana blockchain and its ability to support special and diverse applications has brought attention to Solana’s technological capabilities as well as its potential to transform a number of industries with different use cases.

With DeFi going mainstream, Solana stands as ‘the-go-to-all-in-one’ solution through its variety of projects, such as Defi lending Token extensions, Compressed NFTs ( cNFTs), Programmable NFTs (pNFTs), DePIN and more, yet to onboard the Blockchain. Therefore these solutions are genuinely “Only Possible On Solana (OPOS)”.

Let us explore more on Solana OPOS DeFi use case: DeFi Lending as an example.

OPOS DeFi Lending on Solana

When opposed to traditional banking, the decentralized structure of DeFi platforms usually means speedier processes. For example, loan approvals frequently take minutes or even seconds because of the automation made possible by smart contracts.

Furthermore, with the features on Token extension available on Solana blockchain, which do not require manual verification, rather a simple metadata program native to the extension, the whole process is seamless. From the Solend dashboard below, Defi lending services is being offered to 960 active individual addresses in over 3000 different transactions, and, in 24 hrs alone. Within the same timeframe over $6 million in withdrawal request processed for same number of active addresses within same timeframe.

Screenshot: OPOS — DeFi Lending Use Case

Source: Solscan screenshot

Similar to this, DeFi funding timeframes can be quick, particularly when there is plenty of liquidity. Setting 1 hour as a yardstick for DeFi loan funding and approval (which typically happens in a matter of minutes to hours) highlights the efficiency of DeFi loan processing, which is 48–144 times faster than that of traditional competitors.

On the Solana blockchain, DeFi lending is 100x faster and cheaper than those of other chains as demystified below:

Despite the challenges, the future prospects of DeFi on Solana are promising. The platform’s technical capabilities, combined with its vibrant developer community and growing ecosystem, position it as a leading hub for decentralized finance innovation.

Cross-Chain Integration: Cross-chain integration will enable Solana-based DeFi applications to interact with other blockchain networks, expanding their reach and liquidity pools. Projects like Wormhole are bridging Solana with Ethereum and other blockchain platforms, unlocking new opportunities for interoperability and collaboration.

Institutional Adoption: Institutional adoption of DeFi on Solana (just like the Solanapay/shopify integration) could bring significant liquidity and legitimacy to the ecosystem. Partnerships with traditional financial institutions, regulatory compliance measures, and the development of institutional-grade infrastructure(like the Google cloud analytics platform) are key to attracting institutional investors and users.

In conclusion, DeFi on Solana is poised for continued growth and innovation, driven by its advanced technical features, diverse range of applications, and vibrant ecosystem. As the DeFi ecosystem evolves, Solana stands ready to unleash new possibilities that will transform the future of finance and this is OPOS.

Acknowledgements: Special thanks to Superteamearn, Peter Horton and Yash Agarwal; and shout out to Obinna, Zubi at Superteam Nigeria.

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