Solana's Resurgence from the Ashes

The crypto industry is known for its cyclical nature and volatility, and Solana's journey over the past few years exemplifies this perfectly. Tushar Jain, co-founder of Multicoin Capital and an early investor in Solana, reflects on the project's remarkable resilience in the face of adversity.

"We picked the Phoenix as our logo and the reason for that was very deliberate," Jain explains. "We saw that this industry is incredibly cyclical and incredibly volatile. And most importantly, we knew that rebirth happens in fire and it's painful."

This foresight proved prescient, as Solana faced a major existential crisis in late 2022 following the collapse of FTX. However, unlike many projects that falter during bear markets, Solana's developer ecosystem remained intact and even flourished.

"Solana survived the existential risk, which was the community falling apart," Jain notes. "This is very similar to what happened in ETH in 2018, 2019. The existential risk at that time was the community of devs falls apart. People say, what were we doing here anyway? Why are we here? And you lose that developer ecosystem and that becomes impossible to recover from. But that clearly did not happen."

The Original Solana Thesis

When Multicoin Capital first invested in Solana, their thesis centered around two key factors: composability and low transaction costs. Jain elaborates on why these elements were crucial to their investment decision:

"We think composability really matters. We think that developer experience is critical and developers are not going to want to deal with the complexity of additional layers, L2s and bridges and now we're talking about L3s and it's hard."

He continues, "And what we really liked was Anatoly always had the North Star of we want to have the lowest cost transactions. That I think was critical. Other chains we're looking at, actually, we want to have higher costs because that helps our revenue for the ecosystem and it creates burn and all this other stuff. And all I ever heard from Anatoly was, 'We will have the cheapest transactions because we want the most people to use this thing and that's what I care about more than anything else.'"

This focus on accessibility and ease of use for both developers and end-users has proven to be a key differentiator for Solana in the competitive landscape of Layer 1 blockchains.

Internet Native Money and L1 Value Accrual

Jain presents a compelling vision for the future of Layer 1 blockchains like Solana, framing them as potential candidates for "internet native money." He outlines three phases of value accrual for L1 tokens:

1. Short-term: Token burning and scarcity narratives
2. Medium-term: MEV (Miner Extractable Value) as a framework for valuation
3. Long-term: Global non-sovereign, non-fiat money

"I think we are going to have an L1 token that will be global non sovereign money, non fiat money," Jain predicts. "And when you look at the fiscal debt situation of all the countries and the monetary situation, you don't need to be some sophisticated macroeconomic analyst to understand it's fraught. This is not going to just turn around and it's not going to be fairies and unicorns fixing our problems."

He argues that the asset best positioned to become this internet native money will be the one owned and used by the most people globally. This emphasis on widespread adoption aligns with Solana's focus on low transaction costs and accessibility.

The Problem with TVL as a Metric

One of the most provocative statements made by Jain during the interview was his strong criticism of Total Value Locked (TVL) as a metric for evaluating crypto projects:

"I think TVL is not only a useless metric. It's an actively harmful metric to focus on. It's probably harmful because it gives you a false sense of precision on a metric that can be trivially gamed."

Jain explains that TVL can be easily manipulated through practices like double-counting assets across multiple protocols or creating low-liquidity, high market cap tokens. He argues that this false precision leads investors astray and distracts from more meaningful indicators of a project's health and potential.

Metrics That Actually Matter

So if TVL is flawed, what metrics should investors and analysts focus on instead? Jain emphasizes two key areas:

1. Qualitative assessment of unique intellectual capital and innovation within an ecosystem
2. Number of unique users actively engaging with the network

"What I think matters is people building unique things or another way to say that is like unique intellectual capital on that chain or in that ecosystem. People building things there that they wouldn't or couldn't build elsewhere."

He adds, "And then the only quantitative measure that I'm interested in, though you can't get an accurate count of this, is a number of unique people using that chain."

Jain cautions against relying too heavily on easily gameable metrics like daily active addresses or on-chain trading volume. Instead, he advocates for a more holistic, qualitative approach to evaluating blockchain projects, especially in the early stages of the industry.

The Promise of DePIN (Decentralized Physical Infrastructure Networks)

One area that Jain is particularly excited about is the emerging category of Decentralized Physical Infrastructure Networks, or DePIN. He believes this could be a major catalyst for the next crypto bull market cycle:

"I think people really underestimate deep end. I think it's going to be the thing for kicking off the next cycle. And the reason for it is when you look at historical crypto bull cycles, they seem to be catalyzed by a new method of token distribution."

Jain cites examples like Helium and HiveMapper as promising DePIN projects, noting that their reliance on physical hardware creates a moat against forking and copycats. This "unforkable state" is one of the key characteristics Multicoin looks for when evaluating potential investments in applications built on top of L1 networks.

Solana as a Consumer Chain

While Solana initially gained attention for its potential to become a high-performance financial blockchain (often described as "Nasdaq on chain"), Jain sees an even greater opportunity in positioning Solana as a consumer-focused chain:

"I think that is the ultimate narrative. Coming back to the time horizons and what I was talking about before about the three ways that a layer one captures value, right? You have this commodity aspect of burning something, you have the fee burn and create some sort of scarcity, right? Then you have this cash flow MEV aspect and then you have the money aspect of this is the thing that the most people in the world own. It is the most widely held asset in the world. I think that requires you to be the consumer chain as most people in the world own this asset."

This vision aligns with Solana's focus on low transaction costs and accessibility, which Jain believes are crucial for mass adoption. He even embraces the somewhat controversial meme "Solana's for the poorest," arguing that being cheap is a key advantage in attracting a global user base.

The Importance of Avoiding Maximalism

Drawing lessons from the evolution of Bitcoin and Ethereum communities, Jain stresses the importance of maintaining an open, flexible culture within the Solana ecosystem:

"Bitcoin serves as a cultural warning to other ecosystems. And I hope the Solana ecosystem hears this loud and clear. When you have the culture turn into maximalism of, you know, we are right and everyone else is wrong. When you think that there's nothing left to learn from others and your product is perfect and cannot be changed. That way lies death and obsolescence."

He praises Anatoly Yakovenko, Solana's co-founder, for maintaining a respectful and open-minded approach even in the face of criticism. This attitude, Jain argues, is crucial for long-term success and continued innovation.

The Role of Polarization in Crypto

Jain presents an interesting perspective on the value of polarization in the crypto industry, particularly for early-stage projects:

"We live in the attention economy. The scarcest resource in the world isn't oil or gold or Bitcoin or, you know, whatever else it is attention. That's what matters more than anything else. And you have to be able to get attention. The opposite of love is not hate. It's apathy."

He advises that the degree of polarization should be calibrated based on a project's stage and goals. For seed-stage startups, maximum polarization can be beneficial to gain attention and build a brand. However, as projects mature and gain success, they should tone down the polarization to attract a wider audience.

Advice for Crypto Founders and Investors

Throughout the interview, Jain offers several pieces of advice for both startup founders and aspiring crypto investors:

For founders:

1. Clearly articulate why your thesis matters now, not in five years.
2. Maintain a sense of urgency and resilience in the face of setbacks.
3. Look to invalidate your assumptions as quickly as possible to avoid wasting time and resources.

For investors:

1. Focus on being contrarian and correct, rather than following the crowd.
2. Cultivate a willingness to be wrong in public and learn from mistakes.
3. Look beyond easily gameable metrics and focus on qualitative assessments of innovation and user adoption.

The Future of Crypto Regulation

While regulatory uncertainty has been a persistent concern in the crypto industry, Jain expresses optimism about the current trajectory:

"I think we're past the worst of it. Actually we had Paul Growal, the Chief Legal Officer of Coinbase at our recent Multicorn Summit, the video's up on our website. I would highly recommend listening to it. It's short, very punchy. He's a great speaker. I think we're through the bottom in terms of overreaction to all of the learnings from 2022 that we were seeing."

Jain believes that as more political leaders gain a genuine understanding of blockchain technology and its potential, the regulatory environment will continue to improve. He remains confident in the United States' ability to maintain its position as a leader in tech innovation, including in the crypto space.

Conclusion: A Vision of Freedom Through Technology

At its core, Jain's passion for crypto and blockchain technology stems from a belief in their potential to increase human freedom and prosperity:

"My North Star is freedom. Like that's, that's what I care about the most. That's what got me interested in this space is I think that humans can build better, faster, more useful things if there is more freedom in the world to go build."

He sees crypto as a powerful tool for breaking down cultural, legal, and economic constraints, enabling permissionless innovation on a global scale. This vision of increased freedom and coordination across borders aligns closely with Solana's mission to create an accessible, high-performance blockchain that can serve as the foundation for the next generation of decentralized applications and financial infrastructure.

As Solana continues to recover and grow following the challenges of 2022, Jain's insights offer a compelling roadmap for how the project - and the broader crypto industry - can evolve to fulfill the promise of creating truly internet native money and unlocking new forms of human coordination and value creation.

Facts + Figures

• Multicoin Capital chose the Phoenix as their logo to represent the cyclical nature of the crypto industry and the concept of rebirth through fire.
• Solana survived an existential crisis in late 2022 following the FTX collapse, with its developer ecosystem remaining intact.
• Tushar Jain identifies three phases of value accrual for L1 tokens: short-term (token burning and scarcity), medium-term (MEV-based valuation), and long-term (global non-sovereign money).
• Jain argues that the asset that becomes internet native money will be the one owned and used by the most people globally.
• Total Value Locked (TVL) is criticized as not only useless but actively harmful as a metric for evaluating crypto projects.
• Jain emphasizes the importance of qualitative assessments of unique intellectual capital and innovation within an ecosystem, as well as the number of unique users actively engaging with a network.
• DePIN (Decentralized Physical Infrastructure Networks) is highlighted as a potentially underestimated catalyst for the next crypto bull market cycle.
• Solana's focus on low transaction costs and accessibility is seen as crucial for its potential to become a consumer-focused blockchain.
• Jain warns against the dangers of maximalism and tribalism in blockchain communities, using Bitcoin as a cautionary tale.
• The concept of polarization is discussed as a tool for gaining attention, with the advice to calibrate its use based on a project's stage and goals.
• Jain expresses optimism about the trajectory of crypto regulation, believing the industry has moved past the worst overreactions to the events of 2022.
• Freedom is identified as the core motivating factor behind Jain's interest in crypto and blockchain technology.

Questions Answered

What is Tushar Jain's view on Solana's recovery from the FTX collapse?

Tushar Jain believes that Solana has successfully survived its existential crisis following the FTX collapse in late 2022. He notes that unlike many projects that falter during bear markets, Solana's developer ecosystem remained intact and even flourished. Jain compares this resilience to Ethereum's recovery in 2018-2019, emphasizing that maintaining the community of developers is crucial for a blockchain's long-term success.

Why does Tushar Jain criticize Total Value Locked (TVL) as a metric?

Jain argues that TVL is not only a useless metric but actively harmful to focus on. He explains that TVL can be easily manipulated through practices like double-counting assets across multiple protocols or creating low-liquidity, high market cap tokens. This false precision, according to Jain, leads investors astray and distracts from more meaningful indicators of a project's health and potential. Instead, he advocates for focusing on qualitative assessments of innovation and unique user engagement.

What does Tushar Jain believe will be the catalyst for the next crypto bull market?

Tushar Jain predicts that DePIN (Decentralized Physical Infrastructure Networks) will be a major catalyst for the next crypto bull market cycle. He explains that historically, crypto bull cycles have been triggered by new methods of token distribution. Jain believes that DePIN projects, which often involve physical hardware and real-world infrastructure, create a moat against forking and copycats, making them particularly attractive for investment and adoption.

How does Tushar Jain envision the future role of Layer 1 blockchains like Solana?

Jain presents a vision of Layer 1 blockchains becoming "internet native money." He outlines three phases of value accrual: short-term (token burning and scarcity narratives), medium-term (MEV as a framework for valuation), and long-term (global non-sovereign, non-fiat money). Jain argues that the L1 token that becomes the most widely owned and used asset globally will be best positioned to fulfill this role of internet native money.

What advice does Tushar Jain offer to crypto startup founders?

Tushar Jain offers several key pieces of advice for crypto startup founders. First, he emphasizes the importance of clearly articulating why their thesis matters now, not in five years. Second, he stresses the need to maintain a sense of urgency and resilience in the face of setbacks. Third, Jain advises founders to look for ways to invalidate their assumptions as quickly as possible to avoid wasting time and resources on flawed ideas. He also highlights the value of being willing to be wrong in public and learn from mistakes.

How does Tushar Jain view the current state of crypto regulation?

Jain expresses optimism about the current trajectory of crypto regulation. He believes that the industry has moved past the worst overreactions to the events of 2022. Jain cites insights from Paul Grewal, Chief Legal Officer of Coinbase, suggesting that regulatory understanding is improving. He remains confident in the United States' ability to maintain its position as a leader in tech innovation, including in the crypto space, as more political leaders gain a genuine understanding of blockchain technology and its potential.

What does Tushar Jain see as the core value proposition of crypto and blockchain technology?

At its core, Jain's passion for crypto and blockchain technology stems from a belief in their potential to increase human freedom and prosperity. He sees these technologies as powerful tools for breaking down cultural, legal, and economic constraints, enabling permissionless innovation on a global scale. Jain believes that this increased freedom and coordination across borders will allow humans to build better, faster, and more useful things, ultimately leading to a higher quality of life for everyone.