Visa reveals its USDC payment settlement: why it chose the Solana network

Author: Mustafa Bedawala, Visa Crypto Product Manager; Arjuna Wijeyekoon, Vice President of Visa Crypto Fintech; Translation: Golden Finance 0xjs

There have long been proposals for blockchain networks as a new innovative payment rail. However, over the years, blockchain networks have struggled to scale to support the high-throughput, low-cost, secure transactions that payment companies need and consumers expect. Over the past year, the Visa team has been keeping a close eye on the technological innovation behind blockchain scalability and is excited by the significant progress being made with new L2 networks on Ethereum, as well as alternative blockchain networks built from scratch. Rejoice. Our goal is to gain a deep understanding of the technical features of blockchain networks and try to see how they can be leveraged to help enhance our existing networks and create new products for commerce and financial flows.

While we believe the payments ecosystem will likely use multiple blockchain networks, we believe the Solana blockchain network has the potential to be one of the networks that helps drive mainstream payment flows. Due to its speed, scalability, and low transaction costs, Solana has significant payment advantages, which helps make it an excellent candidate for efficient blockchain settlement rails using stablecoins such as USDC. The Solana blockchain network has many key features and novel innovations worth exploring for anyone interested in payments technology.

1. Visa-scale transaction throughput

As a global payments network, Visa can process more than 65,000 transactions per second. While Solana has not executed transactions on the scale of Visa, Solana averages 400 user-generated transactions per second (TPS), often surging to over 2,000 TPS during peak demand periods. This is a significant level of throughput, making it useful for testing and pilot payment use cases. In comparison, Ethereum handles an average of 12 TPS and Bitcoin handles around 7 TPS.

Parallel transaction processing: Based on its high transaction throughput design, Solana can process transactions in parallel, helping to greatly improve network efficiency. Transactions affecting separate accounts can be executed simultaneously, allowing Solana to effectively support payment and settlement scenarios for two-party transactions or one-way multi-party payments.

In Solana, smart contracts called programs can also be executed in parallel. Transactions specify the state or account to interact with, allowing validators to run conflict-free transactions simultaneously. Unlike other chains such as Ethereum that use a single-threaded model, Solana adopts a multi-threaded approach for parallel transaction execution. In short, while blockchains such as Bitcoin and Ethereum process transactions sequentially, the Solana architecture allows multiple transactions to be processed simultaneously. This design helps prevent congestion in one part of the network from impacting overall network performance.

2. Predictable low transaction costs help improve payment efficiency

As for cost, Solana’s transaction fees are typically less than $0.001, making it not only affordable but also predictable. This low-cost predictability makes it an attractive network for exploring efficiency improvements and cost savings for existing payments operations. Below, Solana clearly outperforms from a cost perspective compared to Bitcoin and Ethereum, where fees can fluctuate in unpredictable ways depending on the demand for transactions performed on the network. A network with unpredictable transaction costs could make it harder for payments companies to manage their products and could lead to a confusing consumer experience.

Cost predictability through localized fee marketplace: Solana’s localized fee marketplace is unique in blockchain. This innovation goes hand-in-hand with Solana’s parallel processing capabilities, where non-overlapping transactions are executed in separate threads, like vehicles traveling on separate roads. Network congestion is a big reason why other blockchain networks may experience fee increases, which can have a negative impact on the entire system. The popularity of NFT issuance may increase network congestion, making consumer P2P transactions (which may occur simultaneously) more expensive or even unfeasible from an economic perspective.

Solana’s approach helps ensure that congestion in one account (e.g., Alice’s USDC balance) does not affect other accounts (e.g., Bob’s USDC balance). If an account becomes busy due to high demand for a specific asset (such as an NFT), then only that specific account’s fees will increase. Fees on other accounts will not be affected by this congestion and will remain stable. This results in a fee market that responds to the needs of the use case. When demand for a particular asset surges, the cost of trading that asset temporarily rises. At the same time, the costs of other transactions on the chain are not affected. By allowing computations using different states to run in parallel, Solana can create fee markets based on "state competing" fields, rather than having a single global fee market.

3. Transaction finality expected by consumers

Transaction finality measures how quickly users can expect their operations to be confirmed on the blockchain network. For payments, transaction confirmation time is as important as network throughput. For example, Ethereum's transaction confirmation time averages about 12 TPS; however, due to gas limits during network congestion and smart contract requirements, users may experience several minutes of wait time before a transaction is confirmed. Solana's target slot time is 400 milliseconds, but the actual achievable range is between 500 and 600 milliseconds.

The vast majority of applications in Solana use the "optimistic confirmation" model to achieve finality. Optimistic confirmations are a mechanism used by the Solana blockchain to achieve finality without waiting for all validators (or entities responsible for generating blocks) to vote on a block. In optimistic confirmation mode, if validators representing more than two-thirds of the delegated staked validators vote on a block, and none of the optimistically confirmed blocks are rolled back or all successfully achieve finality, it is considered The block has been finalized. This mechanism allows Solana to achieve finality in less time than many other blockchains. Faster transaction completion times lead to a better payment experience. By comparison, Bitcoin can take up to 60 minutes to create six additional blocks before a transaction is considered secure and final.

4. Availability: large number of nodes and multi-validator clients

This payment network is effective only if the payment network can always initiate and execute transactions at the moment when a user needs to pay. For blockchain networks, availability is best measured by the number of independent participants or nodes that collectively operate the network so that consumers can initiate transactions. As of July 2023, the Solana network has 1,893 active validators (the entities responsible for generating and voting blocks), which is an astonishing number. In addition, there are 925 nodes called RPC nodes, which may not create blocks themselves but maintain local records of transactions. The large number of nodes in a blockchain network enhances its resiliency and redundancy. If some nodes experience problems or go offline, the network can still function without data loss as long as a sufficient number of nodes remain running. The Solana community also focuses on diversity of node geographies and infrastructure providers to make the network more robust to events such as natural disasters or vendors changing access policies. Solana network nodes are located in more than 40 countries, with hundreds of unique hosting arrangements and locations. This helps ensure that the network runs smoothly and reliably even when facing technical challenges.

Validator clients are software tools that enable node operators to act as validators on proof-of-stake blockchains. Diversity of validator clients increases network resiliency. While one client may have a bug or vulnerability, another may not. This ultimately reduces the likelihood of a single software issue bringing down the network. The original validator client used by Solana comes from Solana Labs. In August 2022, Jito Labs launched the second validator client jto-Solana for the main network. Soon after, Jump Crypto launched Firedancer (in beta), a standalone C++ validator client. Firedancer stood out for its potential to deliver substantial performance enhancements, with a live demonstration reaching 600,000 TPS. The purpose of requiring different validator clients is to maintain stable operation of the network. Besides Ethereum, Solana is one of the very few chains to have multiple fully independent validator clients.

5. Meet modern needs

Solana’s unique technical advantages, including high throughput for processing transactions in parallel, low cost for localized fee markets, and high resiliency with large numbers of nodes and multi-node clients, combine to create a scalable blockchain platform with compelling payment value proposition. This is part of the reason we decided to expand the stablecoin settlement pilot to include transactions on the Solana network. When we experiment with our stablecoin settlement function on Solana, we also plan to test whether Solana has the ability to meet the needs of modern enterprise financial operations.