Scaling in a Multichain World: Why We Invested in Neon Labs

On Nov 9, 2021

The future is multi-chain – we have long held the view that a competitive ecosystem / marketplace of chains ultimately offers users and builders a greater variety of options and an experience more tailored to their needs and goals. But a future in which these chains are fenced-off from each other, siloing users, is a far outcry from a vision of interconnected applications built on a substrate of privacy and decentralization. We believe there are three main areas / technologies that are central to bringing cryptocurrencies and the benefits of blockchain to the masses:

Scalability – the ability of a blockchain network to validate / process transactions (usually measured in transactions per second (TPS))
Interoperability — the ability for users and developers on disparate blockchain networks to communicate (i.e., build applications and transact)
Developer Tooling – applications specifically oriented to helping builders

To that end, Jump Capital is excited to lead Neon Labs’ $40m private token sale and support their cross-chain Ethereum Virtual Machine (EVM) solution for Solana. The Neon EVM touches the 3 main areas highlighted above by: (1) enabling low gas fees and high transaction throughout; (2) facilitating cross-chain communication; and (3) allowing Ethereum developers to build on Solana.

Beyond Scaling

As outlined in the Neon EVM whitepaper, “Ethereum remains the dominant blockchain protocol linked to smart contract trading and settlement. Its infrastructure for dApp developers and end-users is the most advanced.”

Having said that, Scaling has emerged as one of the key areas of development in the last two years as gas fees on Ethereum have skyrocketed, leaving behind smaller players and inevitably, leading to centralization. Key layer-2 projects like Arbitrum, Optimism, and Starkware have tackled the scaling challenge on Ethereum with various ways – leveraging optimistic rollups, zero-knowledge proofs and rollups, and sidechains.

Others, on the other hand, have focused on developing better layer-1 solutions. In particular, Solana has thrived in its ability to offer low fees. For the past few years, Jump Capital and its affiliates have made a number of contributions to the Solana ecosystem including JumpCrypto’s involvement with Wormhole, especially as a Guardian in the Wormhole network, as a data provider to the Pyth Network, and by actively investing in projects building on Solana. Jump Capital firmly believes that this break-neck growth in development will continue.

In the absence of Neon, scaling technologies built on Ethereum would remain limited.

Neon and Solana offer a game changing alternative to these existing projects by bringing Solana optimizations directly to crucial stakeholders (users + developers) and without additional layer-2 infrastructure (i.e. dispute resolution, sequencers, etc). This effect goes beyond scaling and allows developers to tap multiple communities and a much larger market without worrying about maintaining multiple codebases and related infrastructure complexity.

How It Works

There are quite a few technical minutiae under the hood that make up the Neon EVM stack, but at a high-level the Neon EVM architecture consists of three main components:

The EVM itself – full EVM emulation on Solana
Web3 Proxy – a tool to package a Neon transaction into a Solana transaction
EVM governance – full governance system to manage Neon EVM resources

One of the key technical features that allow developers to leverage the exceptional performance and high throughput on Solana is Solana’s support for compilation to Berkeley Packet Filter (BPF) bytecode.

Tangent on BPF
- BPF was originally developed in 1992 as a special purpose operating system to filter data packets but it has become a crucial component of the Linux Kernel; Solana supports compilation of BPF bytecode.
- In particular, BPF integration allows:
  - Other VMs to be loaded into Solana
  - Parallel Execution of Transactions
  - Easy updates to VMs loaded into Solana: The Neon EVM can be updated easily, even after a Solana hard fork

The short of it is that this allows Neon transactions to be executed on Solana as native entities. As a result, Ethereum transactions can now take advantage of all the wonderful performance innovations on Solana, including parallel execution of transactions, which has remained one of the bottlenecks of scalability on Ethereum. dApps also built for Ethereum can seamlessly run on Solana with minimal or no changes to the existing codebase! For developers, this is really the holy grail of interoperability.

A New Multi-Chain Era and Ecosystem Implications

Since the inception of Bitcoin there has explosion in the number of layer-1 chains, many offering additive performance enhancements. Ethereum was the first to bridge a Turing complete state machine with BFT consensus, but others, like Kadena, have shied away from Turing-completeness and newer proof-of-stake (PoS). However, this big bang in blockchain development has also led to a fragmentation that resembles the early days of the Internet: small, isolated clusters of activity.

Neon offers a unique consolidation effort combining the power of battle tested smart contracts on EVM compatible chains with Solana’s parallelism and extremely fast execution. Each stakeholder benefits immensely:

Users – Lower fees, higher throughput, multi-chain app composability
Developers – Wealth of tooling and dApp infrastructure on Ethereum (including Solidity, Remix, Truffle, and others up and down the stack) while deploying on Solana’s efficient execution layer
Validators/Miners – perform the same duties as before, but higher transaction volume on both networks generates higher MEV

Cross-chain interoperability is fundamentally about facilitating trade, and therefore offers many advantages: (1) increased knowledge-sharing; (2) longer product lifespan; (3) opportunities to specialize; and (4) better products and services available to more users.

These flywheel effects will likely introduce traditional Ethereum developers to the Solana ecosystem while influencing the creation of new and better infrastructure/tools on Ethereum. If you’re new to Solana and love building on Ethereum, check out Neon!

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