What is Solana, and why does this digital asset matter?

All digital assets aren’t created equal. Solana (SOL), like bitcoin (BTC) and Ethereum (ETH), represents a step forward in the evolution of this innovative technology. Similarly, the Invesco Galaxy Solana ETF (QSOL) is the latest differentiated offering in our suite of digital asset exchange-traded products (ETPs). The Solana blockchain, supported by its native cryptocurrency, SOL, is built for speed and scalability. Developers and consumers are only beginning to realize the business and societal applications. What is Solana, and where could it be heading? Why do we believe its future looks bright?

*The Fund is not registered, does not intend to register, or will be required to register, as investment companies under the Investment Company Act; therefore, investors will not be provided any protections under such Act.

What is Solana?

Solana is a blockchain-based infrastructure platform designed to deliver fast, low-cost, and scalable transactions. It records activity on a decentralized ledger that’s maintained across a global network of independent participants. A consistent and transparent source of truth, this shared ledger serves as the central authority. It’s secured and supported by participants who stake SOL to help validate activity and maintain the system’s integrity. You can think of Solana as a global computer controlled by everyone involved for the benefit of everyone involved.

Solana builds on the concepts that bitcoin and Ethereum introduced while aiming to improve speed, efficiency, and usability. Its expanding developer community is creating applications ranging from digital payments and decentralized finance (DeFi) to consumer-facing tools and new categories for digital experiences.

Solana, built for performance, reliability, and broader use, represents the next generation of blockchain.

How does Solana work?

Solana, like other decentralized blockchains, relies on consensus to validate transactions. When a user initiates a transaction involving a physical asset, cryptocurrency, medical record, or some other piece of information, it’s sent to the network’s independent validators. These validators review the activity and confirm its legitimacy. Confirmed transactions are grouped into a block, which is then added to the chain. This is the origin of the term “blockchain.”

Solana differs from earlier networks in how it establishes the order of activity. It combines Proof of Stake (PoS) and a unique time-keeping method called Proof of History (POH). Proof of History is a cryptographic timestamping system that establishes a sequence of events. Each event is linked to the one before it, producing a historical record that any participant can verify. Validators no longer need to determine the order of events, so the Solana network can process many transactions at the same time.

Events placed in a verifiable sequence are handed to validators who stake SOL to help secure the network. Validators propose and confirm new blocks and receive rewards for good performance. Those who act poorly or fail to meet requirements may be penalized. This incentive structure supports the network’s reliable and efficient operation.

How is Solana unique?

Solana represents the next step in an evolution that began with the bitcoin blockchain and continued with Ethereum.

• Bitcoin, launched in 2009, operates like a one-way tunnel. While reliable and highly secure, it can become congested when volume is high, slowing down traffic. BTC, often described as “digital gold,” was initially designed as a means of payment but is increasingly viewed as a store of value, return diversifier, and potential inflation hedge. As the first blockchain, it wasn’t made to support more complex smart contracts or decentralized applications.
• Ethereum, introduced in 2015, functions more like a single-lane highway. It supports a wide variety of digital traffic, including smart contracts, real-world asset tokens, and the decentralized applications that use them. Its flexibility has enabled a diverse marketplace of financial services, consumer tools, games, and social media.
• Solana, which debuted in 2020, can be compared to a multi-lane superhighway. Its ability to process transactions simultaneously provides great bandwidth, low fees, and minimal congestion making it much more efficient than its predecessors. Developers and users are increasingly drawn to Solana for applications requiring fast, high-volume transactions. Solana, like bitcoin and Ethereum before it, is positioning itself to support broader blockchain adoption across a growing range of real-world use cases.

What are some of Solana’s use cases?

Solana supports a growing range of applications as the network continues to expand. Since its launch, it has developed into an active ecosystem spanning finance, digital assets, consumer tools, and real-world applications. A few examples include:

Decentralized finance

DeFi refers to apps and protocols that let people lend, borrow, trade, or access finance services without traditional intermediaries such as banks or brokers. On Solana, low fees and near-instant settlement help support a more accessible and efficient financial experience for users around the world.

Gaming and digital experiences

Games often require rapid, frequent interactions. Solana’s speed and low costs are attractive to developers building interactive experiences, digital ownership systems, or reward‑based models. Players can keep control of their in‑game assets and participate in game economies that function smoothly without noticeable delays.

Payments and remittances

Solana can facilitate fast and low‑cost transfers of value, including stablecoins pegged to traditional fiat currencies to maintain a steady price. This may make Solana practical for sending payments or remittances internationally, where conventional methods may be slower or more expensive.

Why is Solana valuable?

Solana may continue to help expand blockchain’s practical applications. The highway analogy highlights its speed, yet the network’s appeal also comes from its lower transaction costs, broad scalability, and growing developer activity. These features together help position Solana as a network capable of supporting broader real-world adoptions.

Fast transaction processing

Solana is designed to confirm transactions in milliseconds, allowing thousands to be processed at the same time. This real-time responsiveness means using apps, sending payments, and interacting with on-chain financial tools all happens instantly. This level of performance can be especially valuable for applications that require constant activity or high throughput.

Low transaction costs

The network’s efficiency helps keep costs minimal. Because Solana can process such large volumes of activity quickly and with minimal overhead, fees remain extremely low, typically a fraction of a cent. This cost structure encourages developer experimentation and makes everyday usage more practical for consumers and businesses.

Broad scalability

Solana’s architecture supports very high throughput, with current capacity in the tens of thousands of transactions per second. Ongoing testing aims at expanding this further. The level of scalability is well suited for high‑volume applications such as trading platforms, consumer apps, and real‑time financial services, where performance needs can grow quickly as usage increases.

Growing developer activity

Solana’s combination of speed, low cost, and developer-friendly tools has helped attract a large and active builder community. Developers can create applications that are responsive, predictable in cost, and accessible to users. This momentum has helped Solana become one of the leading global blockchain ecosystems and continues to support an expanding range of use cases.

Common Solana terms

Block:

A structured set of data that includes a list of validated transactions and other important data, such as timestamps and references to the previous block.

Blockchain:

A decentralized digital ledger that records transactions in a secure and transparent way. It consists of a chain of blocks, maintained by a network of computers, called nodes, which use cryptographic methods to preserve integrity. Solana is a blockchain.

Decentralized Finance (DeFi):

A set of applications and protocols that provide financial services without a central intermediary. DeFi replicates functions such as borrowing, lending, and trading using smart contracts.

Fungible token:

A type of digital asset in which each unit is identical and interchangeable with any other unit of the same token, similar to traditional currencies. SOL is a fungible, native token on Solana.

Node:

A computer that participates in a blockchain network by maintaining a copy of the blockchain and validating transactions. Nodes help ensure the network’s security and integrity.

Non-fungible token (NFT):

A unique digital asset that represents ownership or proves authenticity of a specific item, such as digital art, collectibles, or access credentials. Unlike fungible tokens, each NFT is distinct and not interchangeable on a one-to-one basis.

Proof-of History:

A cryptographic time-keeping mechanism on Solana that produces a verifiable sequence of events. It creates a record that proves the order and passage of time between events.

Proof-of-Stake:

 A consensus mechanism in which validators are selected to produce and vote on new blocks based on the amount they’ve staked.

Smart contract:

A self-executing program with the agreement terms written directly into code and automatically enforced and executed when the conditions are met. These contracts run on the Solana blockchain, providing transparency and security and eliminating the need for intermediaries in some cases.

SOL:

The native token of the Solana network, used to pay transaction fees and for staking purposes.

Stablecoin:

A type of crypto asset designed to maintain a stable value, typically pegged to another asset like the US dollar. Different designs use reserves, collateral, or algorithms to help keep the peg.

Staking:

Locking SOL to support network security and consensus. Validators earn rewards in the form of additional SOL for producing and voting on valid blocks.