Solana gets in on DeFi, welcomes stablecoins to its blockchain

Solana, a new built-for-speed blockchain developed by a former Qualcomm engineer, is bringing stablecoins to its network for the first time.

The project, which launched its mainnet just weeks ago, has partnered with crypto stablecoin facilitator Terra to bring wrapped stablecoins to the Solana ecosystem. The partnership will allow developers to leverage performance enhancements from Solana—including transaction processing of more than 50,000 transactions per second—to build new decentralized finance (DeFi) applications free from the volatility of unpegged crypto assets.

Solana and Terra will enable stablecoin transfers to the Solana ecosystem in May using a mint-and-burn model based on a pair of smart contracts, one on either platform. Users can ‘mint’ stablecoins for Solana by performing a transaction that ‘burns’ tokens from Terra of equal value.

The burn mechanism sends tokens to a contract address from which they can never be retrieved, ensuring an equal number of tokens and value are transferred between the two platforms. To send tokens back, a smart contract on Solana will perform the ‘burn’ mechanism in reverse while Terra ‘mints’ tokens to represent the transferred value.

While employing the same SHA256 encryption algorithm used to secure Bitcoin, a series of optimizations allow Solana to operate at a speed and capacity well above those offered by protocols employed by existing DeFi applications like Ethereum.

"Solana self-describes as a ‘web-scale blockchain,’” said JR Reed, head of communications at Multicoin Capital, a lead investor in Solana. “This is not jargon in a marketing sense but rather intended to be descriptive,” he told Decrypt. 

“The modifier ‘web-scale’ is used to describe a technological stack, process architecture, or computing approach that supports the needs of large service providers [like Google, Facebook, Netflix, Nasdaq, et cetera], usually in an enterprise setting. Solana was built to support the same applications."

The Solana blockchain can process more than 50,000 transactions per second and has a block time of just 400 milliseconds. One million unique transactions can be processed for about $10, and developers can code in popular languages like C, C++, and Rust with flexible virtual machine integrations. Earlier in March, Solana raised more than $1.7 million through a CoinList auction and saw token prices increase more than 400% after being listed on Binance. 

Terra aims to accelerate the adoption of digital payments while significantly reducing the fees required to move value between different currencies. Based in Korea, Terra partnered with the mobile payment app CHAI in June 2019 and has grown to facilitate more than 1 million daily active users and $3 million in daily transaction volume. Terra stablecoins are pegged to a variety of global currencies, maintaining their matched price through algorithmic control of the token supply.

The partnership will allow DeFi developers more options to create products that take advantage of much greater transaction throughput, and should help mitigate the risk of loss to DeFi participants in the Solana ecosystem caused by transaction congestion caused by the March crypto crash.