Solana SVM Integration with IBC

Solana SVM Integration with IBC

NOTE: Wrote this report in tandem with the Blockworks research team through the Georgia Tech blockchain club

Key Takeaways:

  • Solana saw significant adoption as users looking to circumnavigate Ethereum’s high transaction fees migrated to the chain, but has hit a rough patch in the midst of the FTX/Alameda implosions.
  • The EVM has become the de facto virtual machine in crypto, but Solana hopes to emulate the same success by bringing their SVM into the Cosmos ecosystem through Nitro.

The high demand for Ethereum blockspace and high transaction fees that ensued during the last bull run led to the rise of alternative L1s throughout 2021. Solana and its novel proof of history consensus mechanism was a prime beneficiary of this trend, with many users flooding into its ecosystem to avoid astronomical transaction fees.  Ethereum was the first blockchain to support smart contracts, written in Solidity, which led to developer network effects around the EVM. Solana’s programming language is Rust, so all the success it has achieved to date is independent of the EVM’s network effects. The builders behind Solana believe Rust is a superior programming language to Solidity, and is now looking to create a standard around its Sealevel Virtual Machine (SVM). Nitro, an L2 scaling solution built on Sei, is putting this thesis to the test as it aims to bring the SVM into the Cosmos ecosystem.

Nitro allows Solana’s developer community to deploy smart contracts seamlessly into Cosmos, enabling SVM dApps to integrate IBC connected assets. IBC stands for Inter Blockchain Communication; an on-chain light client that allows asset interoperability between connected Cosmos chains. The IBC ecosystem currently consists of 50 connected chains and over $4B of staked assets.

The Ethereum Virtual Machine (EVM) is currently the dominant Virtual Machine standard; however, the Solana and Nitro partnership has long term implications by introducing a secondary standard built upon a high performance programming language. The introduction of Nitro is promising for the Solana ecosystem by giving developers access to IBC connected chains. Setting the precedent of a secondary VM is also in-line with the ‘multichain future’ thesis. Their ecosystem has been hit hard by the recent FTX/Alameda blow ups, which makes the mission of creating another virtual machine standard of utmost importance if Solana wishes to capitalize on their early success.

SVM Deep-dive (H1):

The Solana Virtual Machine is the heart of the blockchain as it is the foundation that allows developers to write smart contracts and build dApps. The Virtual Machine is essentially a digital CPU: similar to how a CPU compiles the Java or C++ code that programmers write to bytecode, the language the computer can understand, the SVM compiles and translates Rust to bytecode to execute the smart contracts. Instead of one large-scale database or CPU that holds all of Solana’s wallets and transactions, many nodes worldwide simultaneously run the SVM. This “distributed state machine”, with around 2,000 validating nodes, keeps track of the current state of the blockchain. When a smart contract is deployed, each node receives a copy of the code, compiles it to bytecode, and shares the code with whoever calls the protocol. The SVM is the most efficient method as it functions like a physical CPU with memory and storage, but runs solely on code. However, Solana critics often point out that the hardware requirements to run a validator are too high to achieve meaningful decentralization.

Solana boasts one of the fastest transaction speeds due to the SVM’s architecture. Sealevel can process large batches as it allows parallel transactions to occur simultaneously, which drastically reduces the amount of unconfirmed transactions in the mempool. Additionally, Sealevel allows for horizontal scaling with the SVM as multiple smart contracts can run in parallel without affecting one another.


How It Works (H1):

At its core, Nitro is a Layer 2 blockchain built on top of the upcoming blockchain Sei. Blocks are produced in a similar design to other optimistic rollups, such as Arbitrum or Optimism, with a sequencer that allows for instant transactions to take place. The batched transactions are assumed to be valid when they are sent to Sei for settlement, but validators can submit fraud appeals to Sei if there is suspicion of dishonest transactions.


So What is Sei? (H2):

Sei is a new Cosmos blockchain, founded by Robinhood and Goldman Sachs veterans, optimized for DeFi dApps. Sei is still in testnet but has 40,000 users, a $50MM ecosystem fund, and over a dozen teams already building on it. Part of that ecosystem fund went towards Nitro’s development.

Sei aims to optimize DeFi with its twin consensus mechanism, frontrunning protection, and claims to have the fastest time to finality of any chain. Sei settles transactions within 600 milliseconds and boasts a throughput of 20K TPS. A core aspect of SEIs design is its native order matching engine which potentially enables new financial instruments while also increasing the efficiency of existing dApps like DEXs.

Sei is designed for DEXs and plans to offer superior service through its on-chain central limit order books (CLOBs). CLOBs are used in tradfI and CEX’s because they are more efficient than AMMs. The issue is that L1’s like ETH aren’t fast enough to support a CLOB so DEX’s that attempt to use them, like dYdX, use an off chain order book. DEXs built on SEI will be able to offer the advantages provided by a CLOB without sacrificing decentralization.

The Sei orderbook will also prevent frontrunning by aggregating every order together at the end of the block and executing the batches all at the same price. This is in contrast to Ethereum or Solana where each order is executed one by one. Additionally, monolithic L1s silo themselves in their own ecosystems due to limited interoperability and insecure bridging processes. When Sei launches it will have access to all IBC assets as well as secure bridging between the EVM, and eventually SVM ecosystems through Evmos and Nitro. Since Nitro is built on top of Sei as an L2, it inherits this interoperability while maintaining the same security guarantees as an optimistic rollup on Ethereum.

Besides Nitro, Sei already has multiple projects building on top of it and contributing to its ecosystem. UXD is building a stablecoin that proclaims to be fully collateralized and decentralized. It accomplishes  this by maintaining a delta neutral position of long and short perpetuals. Vortex is offering a decentralized derivatives exchange allowing for the trading of 35+ perpetuals. Other notable projects include Pharaoh and Synthr which are building synthetic asset platforms.

Current State of Solana and Cosmos Ecosystems (H1):

Solana Ecosystem(H2):



Solana has the second highest number of daily active addresses next to BSC, suggesting an active ecosystem. It averaged around 500k accounts; down nearly 50% since March but flat over the year. Overall this is in line with most other chains which are relatively flat except for Polygon which has seen some user growth throughout 2022. Although, it is worth noting that with such low transaction fees on Solana, these numbers may be inflated by bot and spam activity.


Developer activity overall is down nearly 90% on Solana in the past year. This is quite poor relative to the general crypto market which is down roughly 75%. Commits are relatively easy to inflate due to the open source nature of crypto, so these metrics should be taken with a grain of salt. Developer activity is down across all general purpose smart contract layers, with Avalanche and BSC taking the biggest hits. Developer activity is an indicator of future success: if there are no new dApps being developed today, there will be few applications for users to interact with tomorrow. This trend does not bode well for Solana, with the ecosystem’s TVL down over 95% from its high in dollar terms.



Solana as a chain has been increasing performance over time. In October of 2021, Solana consistently averaged 2500 TPS. Since then, Solana improved to an impressive 3985 TPS as of October 18, 2022. Historically, one of the biggest problems for Solana has been downtime. Over the last 12 months, the Solana network has experienced issues for a total of 107 hours. Although this is still 99.5% uptime, leveraged players can be hurt very badly during times of degraded performance. As a note, if Solana were to drastically increase its user base, the current infrastructure would be bottlenecked by hardware. For mass adoption to occur this problem would need to be solved first.

Nfts and DeFi(H3):


One of the most compelling areas of growth on Solana has been NFTs, but Ethereum NFT trading volume still dwarfs that of Solana. However, Solana is firmly in second place with ImmutableX trailing in third by a wide margin. In terms of DeFi activity, Solana was already struggling to gain traction even before the collapse of FTX and Alameda. Two of the three largest dApps on Solana by TVL are liquid staking derivative protocols, which is concerning when taking into account that Solana was built with DeFi as its main value proposition. When looking at native token denominated TVL, Solana’s TVL has dropped 33% over the last twelve months versus 25% and 23% for BSC and Avalanche respectively.

Cosmos Ecosystem (H2):

The Cosmos ecosystem has fundamentally distinguished itself with three main tools: their Cosmos SDK, Tendermint Byzantine Fault Tolerant (BFT), and IBC. The Cosmos SDK provides developers with pre-built modules so they can create customizable private and public  blockchains without having to build the blockchain from scratch. Tendermint BFT provides developers with a scalable consensus mechanism. And lastly, IBC allows blockchains in the Cosmos ecosystem to transfer tokens and data to each other. Cosmos IBC protocol works in two layers: the Transport Layer which serves as the infrastructure to connect the various blockchains, and the Application Layer which determines how the data should be batched and analyzed. Because of these three tools, Cosmos has allowed for scalable, developer friendly, and easily interoperable blockchains. This, in turn, has allowed 50 chains to be developed on Cosmos with plans to expand to 200 chains by the end of next year.

Current Chains (H3):

Currently, the Cosmos ecosystem has a TVL of over $1.4 billion with most of this TVL being concentrated on Cronos, Kava and Osmosis. Prior to its collapse, Terra had the highest TVL of all Cosmos chains with an ATH of $21B locked (91% market share). Terra’s algorithmic stablecoin, UST, had spread far throughout the Cosmos ecosystem.


The Cosmos ecosystem has been able to maintain a relatively stable TVL in dollar terms since the collapse of Terra, despite the downward trending market. This is a testament to the durability of the Cosmos ecosystem.


Cronos is a Cosmos EVM chain that runs parallel to the chain. It was designed to facilitate mass adoption of crypto, with a central purpose of enabling retailers to accept crypto payments. Kava is a Layer 1 blockchain that allows users to deposit IBC assets and mint their native stablecoin $USDX (similar to $DAI). Osmosis is another app-specific blockchain that allows developers to design and create customized AMMs using Osmosis’s modules.

Performance (H3):

Cosmos developer activity has remained more stable compared to other alt L1’s, although there is a consistent downtrend . The decline of developer activity on Cosmos’ sub-ecosystem can likely be attributed to the broader bear market and the aforementioned demise of the Terra ecosystem. However, Cosmos is quite optimistic about onboarding more chains, which will certainly help to bring about more developer activity. Notably, dYdX opted to move away from an app-specific chain on StarkEx and become their own app-specific Cosmos chain in an effort to prioritize sovereignty and decentralization.


SVM vs early EVM (H1):

The Ethereum Virtual Machine has maintained a monopoly regarding VMs, supporting a thriving ecosystem of users and applications on top of various chains. The Ethereum Virtual Machine on Cosmos and other L1s offers multiple benefits: increased interoperability, deploy EVM-based projects seamlessly onto other chains, and exposure to new sets of users and their assets. Higher-level languages such as Solidity smart contracts are compiled into bytecode and executed by the Ethereum Virtual Machine to allow transaction and block propagation to nodes. Solana’s partnership with Sei and their L2, Nitro, has offered an alternative through Solana’s SVM. Although this is not a panacea for Solana, it does have a serious growth path and precedent for the SVM to migrate to other chains.

Evmos was the first EVM-compatible chain on Cosmos that launched in March of 2022, although its TVL sits at just $6.7M. There are only 11 dApps on Evmos with 90% of the chain's TVL concentrated on one dex. This raises the question of whether or not Nitro’s approach will prove successful in hindsight. However, Evmos faced an uphill battle from the beginning when it botched their token launch and went live with multiple bugs in March 2022. Canto, another EVM compatible Cosmos chain, launched in August 2022 and is now the 4th largest chain by TVL in the ecosystem.

Figure 1 - TVL of Ethereum vs. alternative EVM-comptable chains

Figure 2 - Developer growth from launch vs. Ethereum

Figure 3 - Developer growth of Ethereum vs. EVM-Compatible Layer 1’s


Multichain Future (H1):

The Ethereum maximalist narrative is that all blockchain applications will be built on top of Ethereum as an L2. SVM strengthens the alternative narrative of a multichain future, or the idea that there will be multiple interoperable blockchains. Each isolated chain will add value to the overall ecosystem through their specialized infrastructure. Developers who build dApps will choose a chain to fit their specialized needs. Sei, as discussed before, is a prime example of this having optimized for DeFi.

However, in a multichain world where chains are optimized for specific purposes, it may not play out in Solana’s favor. As discussed before, Nitro may be a positive for the wider SVM ecosystem, but it remains to be seen how it could affect the Solana blockchain directly. Solana may not have the same inherent pull as Ethereum does in its EVM ecosystem. For example, while Uniswap could port its dApp to all other EVM chains quite easily, it doesn’t for every chain. Without a diehard developer base, Solana may have to specialize and compete with other SVM chains for TVL and dApp development. Developers wishing to build DeFi applications on the SVM on Nitro may fear the prolonged downtime on Solana and decide to stay away from porting their dApp over.

With that in mind, Solana is not the only one affected by the multichain future. There are many broader concerns and problems that need to be solved in order for it to succeed. At the current state, Web3 has a clunky UX with siloed ecosystems. The process of bridging funds must be performed manually. However, for a multi-chain future to succeed in onboarding the next billion users, all these functions must be abstracted away and built in the background. The other biggest obstacle to the thesis is efficient bridging and interoperability that doesn’t rely on large pools, which are prime targets for hackers.

Final Thoughts and Implications (H1):

If successfully implemented, Nitro will provide a huge step forward to the multichain thesis, as it benefits both Solana and Cosmos by giving participants in both ecosystems easier access to resources in the other. Nitro would be good for Solana developers because dApps built on Solana could be ported over to get access to IBC assets like Kava or Osmosis. The expanded access to assets expands the incentive for developers to come/stay on the SVM which, overall, is good for the ecosystem. More SVM chains also means more developers will be exposed to SVM.

IBC assets stand to benefit from Nitro because they can be used on Solana dApps more easily. More use cases could potentially mean more demand. For instance, with Solana DeFi falling more than comparable ecosystems, DeFi developers still looking to use the SVM could build on Nitro bringing more value accrual to those IBC assets. Nitro isn’t set to release till next year, so the success of potential synergies depends heavily on the quality of Nitro itself as well as the state of both Cosmos and Solana ecosystems. If Nitro falls short on execution there are other protocols, like Eclipse that are currently working on SVM implementation. Interoperability will be important for long term success of Solana and key capital allocators in the ecosystem are investing in solutions.

Sources (H1):