Why does Solana need Network Extensions instead of a Layer 2 solution?

Original title: "Why does Solana need Network Extensions instead of Layer 2 solutions?" 》

Original author: Dr. Yugart Song, Stepan Soin, Qinwen Wang, Lollipop Builders

1. Background

The rapid development of blockchain technology has made Ethereum (EVM) and Solana (SVM) two dominant design concepts, each occupying a leading position in their field. Historically, Ethereum has dominated the total locked volume (TVL) of EVM chains with its unique philosophy and approach, while Solana has dominated among non-EVM chains. However, as activity grew and new chains were developed, Ethereum began to cede dominance to the faster EVM chains and move toward Layer 2 (L2) scaling solutions. In contrast, Solana's monolithic architecture avoids this fragmentation through unique technical innovations and significant performance reserves, but at the cost of requiring higher bandwidth and speed.

At the same time, the concept of Rollups offers an important opportunity for dApps: creating customizable runtime environments. However, this led to an interesting phenomenon: L2s fragmented Ethereum's liquidity and user base, and L2/L3 application chains further exacerbated this fragmentation. Solana adheres to the idea of ​​a monolithic ecosystem, but the benefits of providing customizable environments for different use cases cannot be ignored.

2. The catalyst for the birth of Network Extension: Layer 2 - the road

to division

From Plasma in 2017 to Optimistic and zk-rollups, Ethereum's expansion history clearly demonstrates the need to solve the scalability problem. However, it is worth noting that part of Ethereum's L2 TVL is backed by bridged ETH that remains on L1.

However, these expansion plans also expose a significant risk - the fragmentation effect of liquidity and users, which is called the "vampire effect" in the blockchain field. This is evidenced by the significant drop in Ethereum’s fee revenue after the implementation of EIP-4844. Analysts including Cyber ​​Capital’s Justin Bons point out that Ethereum’s fee growth is being captured by L2.

Figure 1: ETH supply dynamics Source: ultrasound.money

This shows that when users leave L1, the fees remaining on L1 are significantly reduced, resulting in a decrease in the burn rate. This should be obvious from the start. Now usage and revenue are captured by L2 with the goal of earning rent! This is exactly what makes them greedy, as only a small portion of the fees goes back to L1, the rest is retained by the commercial entity. At the same time, these entities also contributed to lobbying to maintain the limited block space of ETH L1. A chart posted by Unchained Pod even shows that Optimism (OP) earns $300 for every $1 in fees paid on L1:

Figure 2: Fees earned by L2 per $1 paid in L1 fees Source: GrowThePie

Therefore, it is obvious that L2 exhibits a "blood-sucking effect" on L1's trading activities and economic attractiveness. The move to Ethereum-independent Appchains further exacerbates the situation.

This view was supported by Anatoly Yakovenko, who posted the following on Twitter: "If the Solana ecosystem destroys L1 execution optimization in order to support all user transactions and relies instead on the "arb/op" general L2 stack, it will Solana's mainnet creates parasitic effects. It's easy to understand that when L2 takes more priority transactions from the base layer than adds, they are parasitic. Since the mainnet will continue to maximize its own throughput, it is not difficult to understand. 』 Or any other SVM will be difficult to compete on price. User fees should not be better than mainnet. "

Kyle Samani, managing partner of Multicoin Capital, expressed a similar sentiment, writing: “Anything that could happen on L1 but happens outside of L1 is parasitic by definition. Because of this, I Not interested in EVM/SVM rollups. They're really no different than L1. I highly doubt these copy-and-paste L2s will work on Solana because L1 is already good enough."

Against this backdrop, Solana’s core approach of protecting network identity by maintaining a monolithic architecture and unified ecosystem philosophy appears very attractive.

But how to avoid a situation similar to Ethereum L2? Let’s dig into it.

3.Solana’s rapid rise and core advantages

Compared to traditional blockchain systems designed around the Ethereum Virtual Machine (EVM), the Solana blockchain demonstrates a completely new architecture.

Solana uses Proof of Stake (PoS) as a mechanism to prevent Sybil attacks, and also introduces one of its core innovations - the Proof of History (PoH) algorithm. PoH is a Verifiable Delay Function (VDF) used to order and timestamp transactions transmitted on the network. In addition, Solana is also distinguished by its use of high-performance hardware, a memory pool-less transaction forwarding protocol (Gulf Stream), Sealevel that supports parallel processing, and a design that is different from the traditional blockchain account model (similar to the file system of the Linux operating system) Be different.

Solana follows a monolithic design philosophy and achieves significantly higher scalability, improved speed and throughput through its unique consensus mechanism, technological innovation and continuous architectural optimization.

Solana also benefits from a strong developer community: more than 2,500 developers are actively involved. This has driven significant growth for Solana. Solana's TVL will grow from $210 million in 2023 to the current $7.73 billion in 2024, an increase of almost 35 times. Compared with November 2022, the trading volume of Solana DEX has increased by 200-300 times annually, and since the summer of 2023, DAU has increased by 5 times. By November 14, 2024, Solana's transaction volume has exceeded Ethereum's by more than 4 times. The number of active wallets also continues to grow, reaching a peak of 9.4 million active users on October 22, 2024.

Figure 3: Solana DEX trading volume and active wallet dynamics Source: Dune, Artemis

As a result, Solana is a robust ecosystem with a large and active user and developer community that has experienced exponential growth in both user base and activity. This development trajectory highlights Solana's importance as a leading non-EVM chain, especially in its dynamic expansion.

Figure 4: Non-EVM blockchain TVL comparison. Source: DefiLlama

Decentralized applications (dApps) on Solana significantly improve its functionality by increasing acceptance and user-friendliness. It’s clear that Solana is becoming a super system with great features. But some apps, like Zeta Market, plan to launch their own instances (L2) for the same purpose.

One fact in particular stands out - SVM performs extremely well in an isolated environment. This has been fully demonstrated by Pyth Net, Cube Exchange, etc. using SVM to provide support for the application chain. The Solana ecosystem is also called Solana Authorized Environments (SPEs).

Although there are use cases for independent "application-specific" SVM chains, these chains are not significantly different from ordinary Solana clients, and we believe that as Layer 2 native Solana extensions (vanilla Solana forks) have limited value. This approach may still lead to the recurrence of Ethereum fragmentation.

Clearly, Solana needs a standalone approach to avoid destroying the nature of its monolithic architecture. That's why Lollipop has developed Lollipop Network Extensions, which will significantly change the landscape of the Solana ecosystem.

4.What does Solana need? ——Provide support for the off-chain operating

environment of a single architecture through a modular approach

4.1 Core concepts of Network Extensions

The above factors prompted the Solana community to start discussing the need to move some computing tasks elsewhere. Scaling is not a new phenomenon for Solana. As early as 2022, Token Extensions appeared, providing new functions such as Confidential transfers (confidential transfers), Transfer hooks (transfer hooks), Metadata pointer (metadata pointer) and other new functions.

Therefore, it is logical to propose the concept of "Network Extensions (NE)" when improving Solana functionality and extending dApps. In addition to enhancing Solana's functionality through extensions, Network Extensions (NE) introduce a modular element to the ecosystem - different environments in NE can be customized to specific needs and shared across multiple dApps and protocols.

Based on insights and discussions within the Solana ecosystem, we identified several fundamental principles that should define Network Extensions (NE) architecture and functionality. These principles are designed to ensure seamless integration with the Solana network while maintaining the core benefits of its architecture:

· No "fragmentation" of liquidity

· Do not cause "fragmentation" of the user base

· For users, the interactive experience is the same as when using Solana directly

· Unified technology stack

· Network Extension (NE) sends transactions directly to Solana validator nodes

For NE, Solana is a real settlement layer where fund flows occur. Network extension is a real execution layer that is not fragmented with the main chain and interacts directly with accounts and programs on this layer.

Figure 5: Simplified diagram of Lollipop Network Extension (NE) process

These characteristics distinguish Network Extension (NE) from different expansion solutions such as rollups, side chains, subnets, different variants of L2, and application chains. Compared to similar solutions, Lollipop aims to develop a technical framework for Network Extension (NE) that enables developers, consumers and end users to seamlessly interact with Solana's liquidity and user base at the Solana level. Direct interaction.

4.2 Comparative analysis

Currently, Lollipop is the first solution to provide direct connection to the Solana mainnet without causing fragmentation of liquidity or users.

Lollipop's native environment can serve as the foundation for new products or support the migration of existing dApps without disconnecting from the Solana ecosystem and liquidity. For existing dApps, this will improve their speed, stability, and expand their functionality.

Figure 6: Comparison of Solana’s existing solutions

Key differences from L2, subnets, and sidechains:

· L2: L2 collects transactions and sends their proofs to L1. Execution and settlement actually happen within the rollup, while L1 (like Ethereum or Solana) is used for proof verification. Network Extension (NE) sends transactions directly to Solana’s verification nodes and programs.

· Side chain: There is no direct connection between the side chain and the main chain. While sidechains can anchor data to the main chain, the gap between ecosystems is significantly larger compared to L1 and L2. In fact, sidechains are completely independent networks.

· Subnets: In the current implementation, subnets may establish independent ecosystems within subchains, with liquidity and users concentrated in different spaces.

The projects that best align with the concept of network scaling in the Solana ecosystem are Getcode and Sonic SVM (based on HyperGrid). However, Getcode only serves as a fund transfer layer, similar to Bitcoin’s Lightning Network, and does not support deployment in complex environments. Although Sonic has 10 milliseconds of latency and the ability to delegate programs deployed on Solana to its instances, it is more focused on gaming and is not as flexible and customizable as Lollipop envisioned.

Network Extension (NE) works directly with Solana liquidity and does not lead to the formation of different chains, spaces and communities.

Network Extensions (NE) can provide infrastructure solutions for Solana and its decentralized applications (dApps), and support the operation of these dApps themselves. This concept is somewhat similar to the idea of ​​appchains and L2. Many dApps are transitioning to their own dedicated instances to improve performance, scalability, and user experience.

At L2, there are many such solutions: OP-Stack, Arbitrum Orbit, Polygon CDK, StarkEX, zkSync Era, Termina, etc. These toolkits have enabled the successful launch of many L2 projects, significantly promoting the scalability and availability of blockchain networks.

However, as we saw earlier, the current approach to hierarchical models and fragmented environments is not suitable for Solana's monolithic architecture.

4.3 Market demand

The above cases and narratives reflect a broader trend: decentralized applications (dApps) are creating independent instances. This allows them to optimize operations and functionality and provide better services to users. These applications can be DeFi dApps, games, verification and identification protocols, privacy protocols, institutional and enterprise solutions, etc. These environments are primarily built on different rollup implementations.

As mentioned before, rollup has a lifesteal effect on the base chain. Lollipop aims to solve this problem while introducing modularity to Solana without breaking its monolithic architecture.

The following is the revolutionary significance of Network Extension (NE) to Solana:

· Custom execution logic: Whether developers need unique governance rules, specific reward structures, or a decentralized computing environment, NE can meet all detailed needs. Developers can deploy modified SVM instances in NE and adjust parameters such as latency, block time, and block size, which may enable real-time performance of running instances and create other usage scenarios that are not yet obvious.

· Direct settlement: Although NE operates independently, all transactions are still settled directly on Solana. This keeps liquidity and user flow unified within the blockchain without causing fragmentation or blood-sucking effects.

· Economic flexibility: NE leverages the efficiency of Solana to introduce innovative economic models. For example, dApp users may enjoy a gas-free economic model through a subscription-based model.

· Flexibility without fragmentation: Unlike L2, NE does not create isolated spaces. Everything remains unified - think of it like Token Extensions.

· Provide seamless UI/UX to end users: Unlike subnet or L2/L3 solutions, NE provides a superior user experience. Users interact directly with Solana without switching networks, using cross-chain technology, or worrying about address issues.

· Reduced program deployment costs: Currently, if a developer needs to deploy an independent program on Solana with less dependence on other programs, he needs to pay a deployment fee of 1-3 SOL or more, depending on the size of the program. Through delegation and proxy, NE provides the possibility to deploy multi-component complex programs in different environments, which is much cheaper than direct deployment on Solana.

NE may also cover use cases related to AVS (Automated Verification System) based on the re-staking protocol. These use cases include decentralized oracles, co-processors, verifiable computation, decentralized ordering, rapid finalization, and more. These all benefit from the adaptability of the NE environment.

Another important scenario for NE is the ability to create an economic system without Gas fees in an environment similar to that implemented in EVM Account Abstraction. This is useful for protocols that generate large volumes of transactions - such as high-frequency trading (HFT), games, rebalancing protocols, dynamic pools with centralized liquidity, etc.

Therefore, Lollipop proposes the following key directions for the use of NE:

1. Games: Imagine a game with no gas fees - players enjoy a seamless experience and developers adopt a subscription-based model to generate stable revenue. This brings a new way of developing Web3 components to game development - allowing you to interact with wallets or markets without leaving the game environment.

2. DeFi: Build a high-frequency trading platform and use session-based fees instead of gas fees charged by transactions to make transactions faster and cheaper. New logic is formed through order books and clearing designs executed off-chain. Higher execution speeds allow the protocol to use higher leverage.

3.AI model: While directly settling each transaction on Solana, GPUs are used to deploy a compute-intensive AI environment. This can be applied to various scenarios: security assessment, routing, arbitrage, model implementation for various intentions, etc.

4. Enterprise Solutions: Tailor-made environments for enterprise and institutional clients, with strict management, policies, compliance, encryption and governance rules.

5. PayFi: Provides a programmable environment for complex financial challenges, such as supply chain finance, cross-border payments, digital asset-backed corporate cards, credit markets, etc.

6. Decentralized computing: Enable advanced decentralized GPU or TEE (Trusted Execution Environment) computing - suitable for encryption, co-processors, AI models or data-intensive tasks.

7. Trusted environment: Deploy a trusted environment for use cases such as oracles, decentralized storage (DAS/DAC), verification systems, and decentralized physical infrastructure networks (DePin).

Therefore, the main task of the Lollipop team is to ensure that dApps and protocols can create customized environments in the Solana ecosystem and connect directly with Solana . That is, conceptually, the execution appears to be an off-chain operation that occurs in the Network Extension, but all action settlement and final confirmation occurs on Solana.

At the same time, the user's wallet itself should be located within the Solana block space. After a long and in-depth research and development process, the Lollipop team finally arrived at the current Lollipop design.

5. Lollipop technical explanation

Lollipop allows projects to modify the Solana client in an off-chain execution environment and seamlessly transmit execution results back to the Solana mainnet, avoiding the need to create a separate chain. Solana itself has no global state tree, which is critical to ensuring safe settlement of off-chain execution results. Lollipop solves this problem by introducing Sparse Merkle Trees (SMT) to encrypt and verify execution results in its Network Extension.

Key technical features:

· Off-chain execution environment: Lollipop allows dApps to process their complex logic outside the chain, while ensuring that the results of each operation can be encrypted and verified through sparse Merkle trees to ensure security and integrity.

· Sparse Merkle Tree (SMT): SMT is a special Merkle tree used to verify the existence of a certain data without storing all the data. It allows Lollipop to verify the results of off-chain execution in an efficient and secure manner, ensuring that these results can eventually be reliably settled to the Solana mainnet.

· Seamless connection with Solana main network: Lollipop realizes direct connection with Solana main network through its Network Extension, avoiding the fragmentation problem of traditional L2 or shard chain, and ensuring the unity of Liquidity and user base.

Advantages of this technology:

· No need to create an independent chain: Projects no longer need to create additional chains or ecological environments. Instead, they can modify the Solana client through Lollipop and implement off-chain execution. This not only reduces development and operation and maintenance costs, but also ensures close integration with the Solana main network.

· Decentralized and secure: By using sparse Merkle trees for cryptographic verification, Lollipop can ensure that the results of off-chain execution will not be tampered with or inconsistent.

· Adapt to Solana dApp: Lollipop enables decentralized applications on Solana to better expand their functions while avoiding performance and security issues that may be caused by off-chain environments, making it an ideal choice for Solana dApp.

Lollipop's approach provides Solana with an innovative solution that improves scalability and operational efficiency without introducing fragmentation, becoming an integral part of the future Solana ecosystem.

Figure 7: Lollipop diagram

Lollipop architecture consists of several main components:

1.Network Extensions Layer (NE layer)

2.Programs on Solana Layer (Solana layer program)

3.Polkadot Cloud Layer (Polkadot Cloud layer)

Lollipop is built directly on Solana, leveraging its parallel execution capabilities and unique transaction data structure. The parallel processing capability of SVM (Solana Virtual Machine) depends on the Solana client itself. By modifying the Solana client, Lollipop maximizes the performance improvements brought by Solana's native advantages.

This architecture allows decentralized applications (dApps) to seamlessly migrate from Solana’s L1 to Lollipop’s NES without any modifications to their program code, while supporting the same tools and developer technology stack as Solana. , consume less resources.

It should be emphasized that the parallel execution of SVM is based on Solana's unique transaction data structure. In each transaction, the initiator declares in advance the account information to be read and written. This enables SVM to process a batch of transactions in an efficient parallel sequence based on these account information, and ensures that transactions executed in parallel do not read and write to the same account at the same time. In other words, simply porting SVM to other execution frameworks cannot bring the advantages of parallel processing.

Lollipop is designed to be a trusted supercomputer for Network Extensions, offering permissioned and permissionless environments, multi-core execution, global consistency, customizability, and cost-effectiveness. The Lollipop network provides a complete infrastructure for NE deployment, including shared sequencers, validators and stateless validated contracts.

By leveraging Polkadot Cloud, Lollipop can also implement this as data availability (DA). Each contract runs on a dedicated core, supporting parallel and synchronous execution across validators, sequencers and DAs to ensure efficient processing capabilities.

Figure 8: Lollipop architecture diagram

6. Conclusion

Lollipop's Network Extensions (NE) are an important development that improves the functionality of dApps and protocols in the Solana ecosystem. By providing a new development approach for dApps and protocols in the Solana ecosystem, Lollipop ensures seamless integration into the Solana mainnet while maintaining a monolithic architecture and avoiding chain fragmentation. Unlike traditional Layer 2 solutions that often create siled environments and lead to liquidity fragmentation, Lollipop ensures that liquidity and user base remain unified across both layers through a direct connection to Solana.

Lollipop's Network Extensions (NE) provide developers with a common framework that enables them to create customized runtime environments to meet the specific needs of different use cases. In particular, Network Extension (NE) can provide more efficient operations for Permanent Decentralized Exchanges (Perp DEX) by deploying a speed-optimized SVM instance. They can also reduce user interface and user experience friction for decentralized applications (dApps) in the Solana ecosystem by introducing intents and account abstractions. This capability could be a catalyst for the growth of Web3 games on Solana.

The configuration independence of NE instances and Solana further paves the way for enterprise-level products, institutional solutions, PayFi applications, and even niche application scenarios like insurance products.

Ultimately, Lollipop's design provides a forward-thinking solution for dApp scalability on Solana, laying the foundation for a new era of high-performance blockchain environments. As the Solana ecosystem continues to grow, Lollipop's unique architecture makes it a key driver of future innovation, giving developers the tools they need to build secure, efficient and sustainable applications.