Solana Endures ‘Crucible’ As FTX Connection Removes 70% Of TVL – The Defiant

There was a time when Solana’s relationship with Sam Bankman-Fried was a good thing.

No longer.

Perhaps no DeFi player has been hit harder by the FTX disaster than Solana, the Layer 1 blockchain that until recently had attracted users and buzzed with its high-speed and low-cost performance.

Important test

While Solana was poised to challenge Ethereum at this time last month, it is now enduring the most important test of its two-year existence. Solana’s total value locked down has fallen nearly 70% since November 7 to $303 million, and its token has lost a quarter of its value in the past seven days compared to a 7% decline in Ether.

That’s the price Solana investors have paid as a result of the network’s strong ties with FTX and its sister company, hedge fund Alameda Research, which invested in nine Solana projects from December 2020 to March 2022.

FTX, which handled $10 billion in daily trading volume before its collapse, declared bankruptcy on November 11 and is being investigated by the US Department of Justice and other federal and state authorities. On Thursday, John J. Ray, FTX’s new CEO and a turnaround specialist, said in a bankruptcy filing that the company was a “complete failure of corporate control.”

Raj Gokal, Solana Labs co-founder and COO, tried to rally support for his network. “This crucible moment for the Solana ecosystem is as difficult as the last,” Gokal tweeted. “The difference is we’re 10 times more likely to join forces this time.”

On November 9, Anatoly Yakovenko, Solana Labs co-founder and CEO, tweeted that it has learned the lessons of the 2018 crypto crash and is maintaining reserves to sustain the company’s current burn rate for about 30 months.

Suspended

On Thursday, Binance, the #1 cryptocurrency exchange worldwide, temporarily halted deposits for USDC and USDT on the Solana blockchain without any explanation. USDT soon started accepting deposits again. OKX, another exchange, said on its website that it will delist USDC and USDT hosted on the Solana blockchain.

Then there are operational measures: On November 10, epoch 370 ended, where investors set up SOL at a faster pace. Almost 29.22 million SOL tokens stopped the bet, according to Solana Compass.

Solana players from epoch 370 to 372 have about 39 million SOL tokens unstaked. This is drastically higher than the nearly 4.3 million SOL tokens unlocked by stakers for staking purposes during the same period. This suggests that many SOL investors are risk averse.

Top challenger

Processing more than 3,400 transactions per second compared to Ethereum’s 15, Solana carved out a position as the main contender for the backbone of DeFi. Now its future is clouded by contamination from FTX and Alameda, which Bankman-Fried owned and controlled.

Seven of the nine projects with Alameda were exclusive to the Solana blockchain. And Bankman-Fried chose to build a decentralized exchange called Serum on Solana, and its utility token used the ticker SRM. After the launch, Serum became an integral part of Solana’s ecosystem. Many protocols based on Solana started using it for their primary source of liquidity.

The Solana Foundation and Solana Labs revealed that they have sold 58.08 million SOL tokens to Alameda Research and FTX trading since 2020. This represents approximately 11% of Solana’s total supply. In addition, the Solana Foundation stated that it holds cash/cash equivalents, common shares of FTX, FTX’s FTT tokens and Serum’s SRM tokens on the now-defunct FTX exchange.

However, Serum’s upgrade key did not have control over Serum DAO, instead it was held by FTX. As such, to mitigate any future malicious actions, Solana’s anonymous developer Mango Max bandaged a group of Solana developers to help create a community fork of Serum. The project has already received support from several protocols, including lending protocols Mango markets.

FTX was the entity that issued wrapped Bitcoin and wrapped Ethereum on Solana. However, since the demise of FTX, soBTC and soETH have lost their connection and are now trading significantly below their asset’s reference price.

The FTX collapse struck just as Solana was finding its footing after a series of problems this year. On February 2, Solana’s primary cross-chain bridge, the Wormhole, was tapped for $320 million. But the next day, Jump Crypto announced that they will step in to fill the hole left by the hack. This was the first major incident of a DeFi bailout.

Mobile phone

On May 2, the Solana network was down for seven hours after bots flooded the network to create NFTs. It was one of several interruptions that have plagued the venture.

Then in June, Solana surprised the crypto industry by announcing plans to build Saga, a smartphone designed for Solana’s ecosystem. Never mind the difficulty of making hardware, consumer interest didn’t quite catch on for Saga with only 6,545 orders for the product, according to Dune Analytics.

Still, none of these challenges will mean much if Solana fails to overcome the FTX fallout. Solana’s market capitalization has fallen more than 63%, to just under $5 billion, in the past two weeks. It may be cold comfort, but the blockchain provider will have plenty of company when disaster strikes the industry.