Solana — once the most ambitious blockchain, is slowly bleeding out of money, users and time.
Solana is a blockchain network focused on fast transactions and high throughput. It uses a unique method of ordering transactions to improve its speed. Users can pay their transaction fees and interact with smart contracts with SOL, the network’s native cryptocurrency.
Until recently, Solana was the top 1 challenger for Ethereum’s position as the backbone of the DeFi world. With more than 3400 transactions per second, compared to Ethereum’s 15, and a lot of potential in terms of scalability combined with security, Solana seemed to be the next top 1 blockchain in 5–6 years. Yet, it failed to deliver on the expectations of its investors and community. Why?
Solana — The Start of The End
The end of Solana started long before the fall of FTX, we just didn’t know it yet. It all started with their ICO, where Alameda Research was one of the top investors of the Solana Blockchain. They invested approximately $60M in the newborn Layer 1. Add there their further investments in Solana and we get that Alameda Research was holding ~11% of the total SOL supply at the moment of their crash, which is the equivalent of ~58M SOL.
The news could have had no impact on SOL’s price. Thus, the moment the crypto community found out about FTX and Alameda, SOL’s price dropped more than 80%.
Moreover, Solana Foundation has stated it has cash/cash equivalent, common stock of FTX, FTX’s FTT tokens, and Serum’s SRM tokens stuck on the then-defunct FTX exchange. To be exact, Solana had $2M in cash or cash equivalents in FTX before the exchange paused withdrawals, The foundation also holds 3.24M common shares in FTX Trading Ltd, along with 3.43M FTT tokens and roughly 135M SRM tokens. All these assets were stuck on the FTX exchange.
As you can see, the two crypto companies were tied together financially. Both were holding huge amounts of tokens that could’ve driven the prices down in no time. That’s just the first reason why Solana started slowly dying.
While the financial matters were manageable, the fact that the majority of Solana’s traffic was coming from FTX was not a manageable thing for the Layer 1. How are the two related from this point of view?
Seven out of the nine projects with Alameda were exclusive to the Solana blockchain. As we know, FTX and Alameda are sister companies and, of course, FTX was promoting these projects. Also, Sam Bankman-Fried chose Solana to build a decentralized exchange called Serum, and its utility token used the ticker SRM. After its launch, Serum became an integral part of the Solana ecosystem. Many protocols based on Solana started using it as their primary source of liquidity.
Moreover, FTX was the entity issuing wrapped Bitcoin and wrapped Ethereum on Solana. However, since FTX’s demise soBTC, and soETH, have lost their peg, and are now trading significantly below their asset’s reference price.
So, as you can see, Solana has had some pretty tight ties with FTX, Alameda Research and SBF.
The State of Solana Right Before FTX’s Collapse
Solana wasn’t the strongest blockchain when the FTX collapse hit. At the time, the crypto market was dealing with a full-blown crypto winter that was cutting out companies like grass. Solana, even though was staying strong, got some hard hits itself.
The problems started in May when the Solana blockchain was shut for 7 hours due to a huge amount of bots trying to mint NFTs. While the ability to process more transactions than Ethereum was a good thing for Solana, the L1 didn’t have the computing power to deliver 100%. Since then, Solana shut down three more times for various reasons. However, this left a stain on the so-called “Ethereum Killer”.
Another major hit for Solana was Hetzner’s request to remove all Solana validators from their servers. This cut more than 40% of Solana’s validators in one blow and raised huge questions about Solana’s decentralization and validation powers. Yet, in the long run, Hetzner’s ban has had some positive impacts on Solana. The fact is that, in the middle of FTX’s collapse and Solana’s failure, Solana had an 80M SOL Epoch that could’ve driven the price into the ground. Without those validators, the investors were able to amortize the deployment of the unstaked SOL.
Lastly, some major crypto exchanges were trying to torpedo Solana out of the market. Both OKX and Binance temporarily suspended USDT and USDC on Solana on the same day. This action came with no explanation from both crypto exchange. Yet, SOL’s price took another hit.
All in all, Solana was not doing well even before FTX and Alameda filed for Chapter 11. This was more of the final blow for the L1 blockchain.
How Is Solana Doing Now?
Not too great. Solana was too dependent on FTX’s traffic and couldn’t recover from the hit. It seems like the “Ethereum killer” is bleeding out of money, users and time to recover. Let’s see some numbers before we draw our conclusion.
Solana’s DeFi TVL, once the biggest on the market, is now down 71.2%. It went from $1B on November 6 to $288M in December. Guess what happened in the meantime. Their market capitalization has also shrunk significantly.
However, these are not the most important metrics we need to talk about. Solana is down 98.8% when it comes to the total daily volume moved on the chain. From $65B to just $724M in a span of a month. That’s just ridiculous. In addition to that, they are down 59% in daily active wallets on-chain are down and 48.2% in daily non-vote transactions. Add there the hack that hit Raydium today, the main DEX on Solana, and you’ll get the full picture yourself.
Closing Thoughts
For now, Solana looks like a dying project with no hope for competition in the long run. There are concerns that the project won’t come out of the bear market and that the devs and the community will lose interest in the blockchain.
Nevertheless, there’s always hope in crypto, as Solana isn’t just a random SBF project. It has never been entirely, it just chose the wrong investor at that time. Solana can come back strong! Will it happen? Only time will tell…
