Exclusive: How Anatoly Yakovenko’s crypto startup Solana Labs is building what investors think will be a core layer of Web3

Inside a big white tent, the room is filled with 20-something-year-old men with shaggy hair, developers dressed in shorts, and women in sandals. In the corner of the tent, a couple of people are vaping ironically near a sign reading “no smoking, no vaping,” while a DJ blares music that drowns out most of the conversations. 

But it’s not some hot new club—it’s Solana’s Hacker House. 

The team behind the buzzy blockchain, an apparent Ethereum challenger, took over a block in Miami in early April for one its Hacker House events—a six-day gathering of developers, programmers, founders, and NFT creators to network and learn about and create projects on the Solana blockchain. It’s just one of several extravagant events the Solana Foundation, an offshoot of startup Solana Labs, has hosted in various cities over recent months. And it’s something of a physical manifestation of the company’s raison d’etre: to incentivize developers to experiment with and collaborate on projects on the Solana blockchain—and, just maybe, build the next hot app that draws droves of users to the protocol.

It’s all part of the Solana founders’ ambitions for it to be the “useful” blockchain, the “execution layer” that underpins projects seeking scalable and cheap technology to coax more people into integrating blockchain in their daily lives. To do that, Solana Labs cofounder and CEO Anatoly Yakovenko told Fortune in Miami that, in addition to big-time teams building projects on Solana, “it’s really important to support the casual builders and developers because some percentage of them will have that spark, that eureka moment.”

From non-fungible tokens, or NFTs, to decentralized finance, or DeFi, the Solana blockchain has become one of the buzziest pockets of the crypto world over the last year, and has captured the attention of crypto heavy hitters like Sam Bankman-Fried. “Solana has a shot at becoming one of the core layers on which most financial and informational transfers happen between applications in a natively Web3 world,” Bankman-Fried tells Fortune over email.

Billing itself as inexpensive and speedy to use, the network, still in beta, has enticed developers big and small to build a variety of apps and projects on Solana. Its native token, SOL, despite a recent slump, has skyrocketed since the start of 2021, gaining over 6,500% in value (which means a $100 bet in January 2021 would now be worth more than $6,500—on paper, that is). And based on the turnout to Solana’s Hacker House events and hackathons, “they have drawn tremendous energy in developers into the Solana ecosystem,” notes David Nage, a portfolio manager of crypto investment firm Arca’s venture fund.

“For the longest time, all anybody ever heard about in digital assets was Bitcoin and Ethereum. And over the last 18 months, Solana got on that list,” in terms of recognition and market hype, Arca’s CIO Jeff Dorman tells Fortune.

But with the network’s growth have come growing pains as well. The Solana blockchain has struggled under higher usage in recent months, with numerous outages. And Ethereum, the entrenched top dog of broad-based blockchains and DeFi is about to undergo a shift that could make it more scalable.

Some experts like Arca’s Dorman argue that, in the long run, blockchains will need to “carve out a niche” (like NFTs or gaming) and specialize to compete. But the Solana Lab’s founders aren’t willing to pigeonhole themselves into just one market, nor do they think they need to. That “sells the vision of the ‘execution layer for everything’ very short,” argues Solana Labs cofounder Raj Gokal. 

Yakovenko’s vision for the Solana blockchain, instead, is not to kill off all other challengers—a perhaps surprising ambition for the CEO of a company. Rather, the 41-year-old says he wants to create something of a blockchain operating system, enabling “as many people in the world with cryptography to do whatever they want to do.” 

The sun rises on Solana

Founded in 2017, Solana was dreamed up by Yakovenko, a systems engineer who had recently finished a stint at semiconductor giant Qualcomm. 

Yakovenko was a kid when he came to the U.S. from Ukraine in the early 1990s. As a teenager, he was enamored with programming, having learned C, his first coding language. The dot-com boom was in full swing and “there was this magical possibility of writing a piece of code that just solves some incredible problem for the world” and becoming the next Steve Jobs or Bill Gates, Yakovenko tells Fortune, seated at a long table at Solana’s Hacker House in Miami. 

Yakovenko was in college when the dot-com bubble popped, and “some advisors literally [told] me, ‘maybe computer science is not a good career choice,’” he says. But Yakovenko stuck with it, and, after a failed startup, landed a job at Qualcomm, where he stayed for nearly 13 years working on distributed systems, among other things, before leaving in 2016, per his LinkedIn. 

In 2017, Yakovenko had an idea. He had been working with a friend on a side project to build deep-learning hardware. And to offset the costs of setting up all the graphics processing units being used, the duo began mining crypto. By then, Yakovenko was already well aware of the crypto markets. But one night, as the story goes, Yakovenko, riding the highs of two coffees and a beer, wound up staying awake until 4 in the morning and, in the process, had a lightbulb idea. The passage of time itself, he realized, could be used as a data structure to help order transactions and events on the blockchain—a seemingly wonky conclusion that would turn out to be a part of what has become known as “proof of history,” and a key reason why the Solana blockchain can now operate at lightning-fast speeds compared to Bitcoin and Ethereum. (Solana, in conjunction with Proof of History, uses the consensus mechanism known as Proof of Stake to validate transactions on the blockchain.) Yakovenko also brought on several other cofounders, including fellow Qualcomm alumni Greg Fitzgerald and Stephen Akridge. 

The endeavor was initially named Loom, but an Ethereum-based project called Loom Network prompted a rebranding. At that time, Yakovenko and several of his cofounders surfed at Solana Beach in California, and Yakovenko says since lots of companies have named themselves after places in the state, he figured they could do that, too. “We were arguing on Slack and eventually I just proposed ‘Solana,’ and that kind of stuck,” he says. 

Solana Labs, which currently has 71 full-time employees, claims the blockchain can handle upwards of 50,000 transactions per second (though its limit, Solana projects, could be hundreds of thousands). If you look on Solana’s site, however, it’s averaging only about 1,000 to 2,000 at a given time, because there isn’t that level of demand on the system, Yakovenko explains. Its costs, meanwhile, are a fraction of what other blockchains like Ethereum require—an average transaction on Ethereum currently costs in the neighborhood of $12 per transaction, according to crypto research firm Messari, while on Solana, it’s around $0.00025, per its website. 

While the Solana protocol was developed and launched by Solana Labs, it exists as the independent blockchain. To help support its growth and fund research on the protocol, Solana Labs transferred a portion of its SOL tokens and all of the intellectual property to the nonprofit Solana Foundation, based in Switzerland (Solana Labs declined to comment on how many tokens the company now holds). 

A systems engineer ‘through and through’

Yakovenko casually leans up against a table, chatting with a small cluster of people gathered around him inside the main Hacker House hub in the rented out FunDimension building in Wynwood. To the right is a large room filled with dozens of developers coding away, and through another archway, there’s an arcade with classic games like “Space Invaders”. Nearby, a segregated area filled with more computers is delineated on a whiteboard as the “nerd cage.” 

Dressed in a gray sweatshirt, shorts, sneakers, and a black baseball cap, Yakovenko looks more like many of the other developers than the CEO of the star company of the event.

According to those who know him, Yakovenko is a systems engineer “through and through,” as Ali Yahya, general partner at venture capital firm Andreessen Horowitz and an investor in Solana, puts it. The way Yakovenko talks is very analytical and technical, with a somewhat paradoxical mix of calm and, at moments, nervous energy. 

But since caffeine can make him “too jittery,” his go-to fix is tea, or a decaf Americano. Yakovenko says he now codes in the mornings, and credits surfing or bike rides with helping him think through problems. “If I can get on a bike for two hours, I come back way more refreshed and with a lot of decisions made or internalized,” he says. Yakovenko, like some of the other Solana founders, is also an Ironman and an underwater hockey player. In his prime, he claims he could swim three lengths of the pool with fins on without taking a breath. 

That dedication is not just applied to his physical activities. Gokal, who is, as he puts it, “technically COO,” says he first met Yakovenko at his friend and fellow Solana cofounder Eric Williams’ house before the group went on a camping trip together. He recalls Yakovenko, who was working at Qualcomm at the time, was “slumped back in a leather, brown couch and just like, staring off into the distance, probably thinking about some intense problem.” 

Gokal, who hails—unlike many of his ex-Qualcomm cofounders—from a healthcare startup, joined as cofounder at the end of 2017, according to his LinkedIn. He says Yakovenko is often so absorbed in his work that “it’s like he’s in another dimension.” Gokal recalls a time in their office when he had dog treats at his desk for his dog Myro, who frequented the workspace. “Toly,” as many call him, “came over to talk to us, and … without even looking, he just stuck his hand in the bag and just started chomping down on whatever was in the bag,” Gokal recounts. “He didn’t notice. He sees all of us burst out laughing, and he’s like, ‘What?’ And we said, ‘You’re eating dog food,’ and he just kept eating,” he laughs. 

As for Yakovenko, he speaks with a veil of self-deprecation, describing himself sarcastically as “very popular” in high school, where he spent time taking programming classes and “mess[ing] around” on the open-source operating system Linux trying to “break the internet”; and jokes that he’s the “life of the party” (after a few drinks, his systems engineer-like way of speaking “surfaces further as his defenses go down,” a16z partner Yahya jests). 

Yakovenko comes off more as a visionary coder than typical chief executive: When asked where he thinks the crypto space will be in 10 years, he replies matter-of-factly that, most-bullish case scenario, “I think there’s a billion people with self custody and they formed a DAO,” or decentralized autonomous organization, “and shut down every coal plant.” 

According to Gokal, it’s that focus and vision that’s enabled Yakovenko to attract backers, including venture capital firms.

“He’s a man chasing a dream. And he really just wants to create something cool and awesome and maybe, change the world a little bit,” Jump Crypto president Kanav Kariya says of Yakovenko. “The whole team swims with that vision.” 

The venture betting on Solana 

A year after Yakovenko’s lightbulb moment, in the spring of 2018, he’d meet the people that would ultimately help fund his vision. Venture capitalist Yahya had recently joined famed firm a16z as a partner focusing on the burgeoning cryptocurrency space. He was speaking as a guest lecturer at Berkeley professor Dawn Song’s “Blockchain, Cryptoeconomics, and the Future of Technology, Business and Law” course on April 2nd when Yakovenko approached him to pitch Solana. 

“It was one of those moments at the end of a class where students walk up to ask questions,” Yahya explained to Fortune. “Anatoly came up and he was like, ‘I’m building this ultra high performance blockchain called Solana.’” 

Yahya says he had questions about how the blockchain practically worked, and the two kept in touch over the next couple years, grabbing drinks occasionally, talking crypto, and hearing updates about Solana. When the firm finally felt the blockchain was sound enough to invest in, they went big: a16z co-led a round with Polychain Capital that poured $314 million into the project through a private token sale in June of 2021, giving Solana Labs ample new funds to grow the protocol. 

Others that bought in included Alameda, CMS Holdings, and even Germany-based music producer Boys Noize.

It wasn’t the first time that Solana Labs sought out funds to pursue its ambitions. In late 2018, for one, the company’s cofounders sold nearly 80 million tokens to firms including Multicoin Capital and 500 Global (formerly 500 Startups), according to The Information. Christine Tsai, CEO of venture capital firm 500 Global, describes Yakovenko as “incredibly sharp and realistic about crypto’s capabilities—both the opportunities and limitations,” she told Fortune via email. 500 Global invested $250,000 in tokens in Solana’s seed round (though the firm declined to disclose how many tokens it holds).

SBF, NFTs, and DeFi: The expanding ecosystem of Solana

For Bankman-Fried, the crypto billionaire behind FTX and Alameda Research, Solana has a real chance to become one of the last winners in the crypto revolution. 

The 30-year-old first learned about Solana in early 2020 and was struck, telling Fortune over email that “they were by far the most serious [layer 1] we talked to about continuing to scale their blockchain and expand its opportunities.” Eventually, FTX and Alameda Research revealed plans to create a new decentralized exchange, or DEX, called Serum that would run on Solana; The DEX is now among the largest DeFi protocols on the network, according to DeFi data aggregator DeFiLlama. 

Even so, Solana is still relatively tiny in the DeFi space. Activity on the Solana blockchain only accounts for about 3% of the total value locked, or TVL, across all chains, according to DeFiLlama. Ethereum, on the other hand, commands roughly 56% of the pie. But, having drawn comparisons to the likes of Nasdaq and Visa in terms of speed, the Solana protocol, according to observers and Solana’s own founders, has been a big hit within the trading community.

Just look at the Pyth Network, a Solana-based project that collects and disseminates trading data: So far, it’s amassed a catalog of Wall Street heavyweights as contributors, including speedy trading shop Hudson River Trading, market maker Virtu Financial, and stock exchange runner MEMX. “People see Solana as a natural place to experiment and have a stake in the future of DeFi,” says David Easthope, senior analyst at financial services research company Coalition Greenwich.

Kariya of Jump, a founding code contributor to Pyth that also participated in the 2021 token sale, sees Solana as having plenty of potential beyond just DeFi, too—depending on whichever way the community wants to take it. “It’s impossible to predict what the waves are going to leverage the capabilities that it has,” says Kariya, who adds that Solana will likely retain its place as a DeFi hub but that it is also quickly building out in other areas like NFTs and gaming. “It’s got a lot of stuff going for it.”

Or, as cofounder Gokal puts it, “Solana could have been the DeFi chain. … There was a clear path to just winning that category,” he suggests. But once the blockchain was able to build out the performance requirements necessary for such projects, “why not go and also use that performance and that security to tackle the things that are the easiest…for users,” Gokal asks. 

In Yakovenko’s estimation, it’s less about the protocol and more about the product: if you have “compelling applications, that’s where the users are gonna go.” 

Indeed, other kinds of projects are taking off. NFT marketplaces built on Solana like Solanart, Fractal, and Magic Eden have been gaining increased attention—including from venture capitalists. In late 2021, Reddit cofounder Alexis Ohanian’s venture capital firm Seven Seven Six and Solana Ventures committed $100 million toward growing social media projects on Solana. Meanwhile, it seems developers are taking a liking to Solana’s new payments framework, Solana Pay, as well as the blockchain’s NFT capabilities—unsurprising considering the number of NFT creators and users in attendance at the Miami Hacker House. Per NFT data aggregator CryptoSlam, Solana is the second most-popular blockchain by NFT sales volume.

Some like Connor O’Hara, a software engineer at blockchain oracle project Switchboard, which uses the Solana blockchain to provide data feeds of off-chain things (like the price of the U.S. dollar), favor Solana’s “programming model a lot more than the [Ethereum virtual machine],” or the software used to create smart contracts on Ethereum, O’Hara told Fortune while working in the Hacker House building in Miami. “Once you get the hang of it, it’s harder to make critical mistakes,” he believes. 

A host of growing pains

Yet, for as much as the growth on the Solana blockchain showed a validation of its promise, it has also proved a complication. 

Beginning in the fall of last year, outages began cropping up on the network with growing frequency. A 17-hour-long outage in September marked the most extreme, but it was only the start. In January alone, there were six different outages, according to Bloomberg. 

“Solana is building probably the world’s most complicated distributed system at this point in time. It’s a really hard thing to do, and they’ve done a great job of shipping this very quickly [and] squashing bugs as they come up,” Jump’s Kariya tells Fortune. “It’s natural to expect to see hiccups along the way. It is a growing pain that the ecosystem has to grow past. But we still remain very optimistic on the design of the system and all the community that’s been built so far.”

The outages have come at inopportune moments for some developers, like Irvin Cardenas, the cofounder of OpenDive, which is building a gaming and NFT wallet project called Kiyomi on Solana. Cardenas told Fortune on the sidelines of the Hacker House event, where he spoke on a panel, that there were issues with Solana’s blockchain during a live demo he was giving existing partners and prospective investors in September last year, making it impossible to transfer or upload NFTs—a key component of the project.

Still, Cardenas is continuing to use Solana, and calls it the “most product friendly or maybe the most pragmatic blockchain.” Regarding outages, “If you build something new, things are bound to break,” he says. 

Yakovenko is well aware of the fallout that the outages brought about, calling fixing the issues “the highest priority” today. “It definitely feels like we’ve let down a bunch of people.”

While the “root causes” of the individual outages vary, “whenever you scale by a factor of 10, you get new engineering challenges” around spam and traffic on the network, the Solana Labs chief says. “When it’s gonna go from a million to 10 million, there’ll be another challenge. That’s part of life.” 

The Solana community has not been insulated from broader concerns in the crypto markets, either. Centralization, for one, has become a point of concern around the Solana network in the eyes of some market observers like Messari research analyst Chase Devens, who tells Fortune that given the blockchain’s focus on speed and throughput, Solana has created higher barriers around becoming a validator. However, if all goes to plan, those costs should come down over time, Devens says. 

“They’re really building for growth,” Messari intel manager Aidan Mott adds. “They want to onboard the next million users. So they’re willing to get to that goal by taking a couple of shortcuts that other projects historically haven’t.”

Solana Labs told Fortune via email that “Solana is decentralized, but decentralization is a journey,” adding that there are over 1,600 validators for the Solana blockchain plus 1,400 RPC nodes, which are growing “at a rate of ~100 per month, on six continents, all of whom are independent of Solana Labs and Solana Foundation.”

But on top of that, the Solana community was rattled in early February when a “bridge” called Wormhole was hacked, and roughly $320 million worth of crypto was stolen, marking one of the worst hacks of the still-young DeFi world. Bridges connect different blockchains together by allowing people to transfer tokens from one network to another typically through a process called wrapping. And, for months now, there have been worries about bridges brewing across the market, including from Ethereum founder Vitalik Buterin. The Wormhole hack came through a vulnerability in the code of the Wormhole contract on Solana. “Everyone’s still kind of digesting that,” Coalition Greenwich’s Easthope says. 

Yakovenko says when he got the call informing him about the hack, he felt like “when you’re driving a car and you feel like you’re about to get into an accident, that feeling in your stomach.” He gives all the credit to Jump, which bought Wormhole developer Certus One in August, for finding and resolving the bug that led to the hack, and then covering the losses that were caused by it.

Solana is still experiencing its own hiccups, as well. Yakovenko tweeted on April 8 that for the “Last two days [the] network has had abysmal [performance] even when not under excessive load.” (Solana Labs confirmed a bug was causing a portion of the network to “over-count” the “compute cost of some transactions,” adding that a fix has been rolled out and “performance is noticeably improved.”)  

By some measures, users have become more wary of the protocol of late: In recent months, the total value locked on Solana, which measures the value of crypto deposited in DeFi projects on the chain, has declined from around $15 billion in December to roughly $6.6 billion this week, according to DeFiLlama. Meanwhile, the SOL token has tumbled over 60% from its November 2021 high, now hovering around $100, per CoinMarketCap. “Solana had a big lead in terms of hype, in terms of traction, and it has definitely lost that momentum,” Arca’s Dorman says. But, the CIO admits, “that could also then go back the other way.”

And as the Solana Labs team likes pointing out, unique programs used on the blockchain are steadily rising, according to a chart from Solana data provider ChainCrunch. 

Regarding the outages, neither Yakovenko nor Gokal are too concerned long-term. “In general, people have short memories; in crypto, especially short memories,” Gokal argues. He says Solana is in a “phase” right now where there have been “more weeks than anyone would like” where similar transactions failed for “more users than we would like,” noting influxes of users from NFT marketplace OpenSea, which just started integrating Solana-based NFTs to its platform last week, often are making “these problems pretty visible.”  

Blockchain technology—and not just Solana—has a long way to go to reach mainstream adoption, especially considering only 16% of Americans are estimated to be involved in the markets, according to a 2021 survey from Pew Research Center. 

But back in Miami, there are plenty of programmers, founders, and crypto enthusiasts at work in the Hacker House; and maybe one of the engineers typing away on their laptop might have their own lightbulb moment for the next big app—the kind that gets everyone and their grandmother finally using blockchain-powered products. 

Or, at least that’s the hope.

Correction, April 12, 2022: A previous version of this article inaccurately stated that a $100 investment in SOL at the beginning of 2021 would now be worth $65,358, rather than around $6,500. The spelling of “Kiyomi” was also corrected.