Ethereum co-founder hits out at economics of fast-growing Solana blockchain

Ethereum’s co-founder Joseph Lubin has questioned the sustainability of rival projects, including the fast-growing Solana blockchain, as venture capital pours into a raft of new cryptocurrency networks.

The Ethereum blockchain has become one of the world’s most widely used digital ledgers, but it is facing challenges from rivals such as Solana, which has set lower transaction fees to draw in users.

Lubin told the Financial Times that Solana, which pitches itself as a faster and cheaper alternative to Ethereum, was paying outsized rewards to users who validate transactions on the network compared to the revenues generated by those transactions.

Solana needs to “figure out a more sustainable business model for the network”, Lubin said.

“That’s natural,” he said. “All the projects in our ecosystem essentially fake it until they make it, or they die.”

The fast-growing blockchain project has faced doubts before. Some critics have argued that Solana sacrifices security for greater efficiency, and the network has experienced multiple significant outages.

In response to Lubin’s criticism, Solana said that “simply looking at protocol revenue doesn’t tell the full story of the long-term performance” of a blockchain’s economic model.

Lubin’s comments came as tech investors make big wagers on new projects trying to create more efficient alternatives to Ethereum — including Avalanche, Near Protocol and Solana — in a race to capitalise on growing mainstream interest in cryptocurrency applications.

ConsenSys, a cryptocurrency software company led by Lubin and closely tied to Ethereum, said on Tuesday it had more than doubled its valuation to $7bn in a new $450mn round of financing. The company has soared in value as an influx of new users turned to its products to navigate Ethereum.

Ethereum is the most widely used digital ledger for rapidly expanding areas such as decentralised finance and non-fungible tokens. Lubin has become one of the project’s loudest advocates on Wall Street after playing a hand in the network’s development.

MetaMask, an app developed by ConsenSys with more than 30mn monthly active users, has recorded almost $330mn in transaction fees since late 2020 through a feature that lets users swap between cryptocurrency tokens on Ethereum, according to public data.

Venture capitalists invested the new money in ConsenSys Software, an entity Lubin created with the help of JPMorgan during a restructuring that was finalised in 2021.

It comes after almost three dozen former employees of its Swiss-incorporated predecessor company, ConsenSys AG, recently challenged the legality of the restructuring and requested a special audit. The employees have alleged the deal undervalued the intellectual property behind MetaMask and other key products transferred to the new entity.

Lubin said ConsenSys had been “extremely open” about negotiating with the former employees and “understanding their concerns”, and the company’s products were effectively “pre-monetisation” at the time of the transaction.

“It’s a very different world in our ecosystem as we’re crossing the chasm into mainstream adoption than it was during the darkest moments of Covid,” Lubin said.

ParaFi Capital, a cryptocurrency venture firm backed by KKR, led the new round of funding in ConsenSys. Microsoft, Singapore’s Temasek and SoftBank’s second Vision Fund also invested.

ConsenSys declined to comment on whether Lubin or other shareholders sold any shares in the financing.