It already seems a long way away, this month of April when Sam Bankman-Fried was boasting about his Solana project, in front of an audience of guests at the Bahamas Crypto event. Between joyful handshakes with Bill Clinton, Tom Brady, Orlando Bloom and small hops that DJ Steve Aoki was happy with, the founder put the “Crypto Visa” at the heart of the exchanges. As the start of Solana was discreet until July 2020, it was then that FTX and one of its subsidiaries chose to launch their decentralized exchange Serum.
Today, the contrast is striking, because Solana has invested only 220 million in its network. Far, far from the 4 billion of the time.
The SOL in freefall: -96% since the beginning of the year
Let’s start with the most visible sign of the difficulties of the Solana project: the SOL. The fact that his native signal has dropped significantly in recent weeks is already a cause for concern. After a highest $260 in November 2021, SOL has now lost all $10. As of this writing, it’s shipping for $9.44, which is very sad -96% since the beginning of the year.
On the weekly chart, we can see that this tendency has been around for quite some time. The price broke its support at $33, then at $20 and finally at $14. It’s hard to see a reversal of the trend and we can’t help but think about the $5 support, and finally a total disaster below $3.
Price forecast : The downward spiral of the SOL should continue until the beginning of 2023. In our opinion, the fair value of the token lies above $20. Patience will be required, we don’t see a sustained replay until the end of the first half. And again, we will have to rely on a general improvement in the market. You should know that even before the FTX crisis, SOL had a greater impact on the market reversal observed since January than BTC or ETH.
DeFi on Solana: liquidity crisis after bankruptcy Alameda Research
Alameda held nearly $800 million in SOL tokens. It was enough for Solana’s finances to face a real liquidity crisis after the collapse of FTX and its hedge fund. As indicated in the introduction, Solana’s beginnings were low until July 2020, when FTX and one of its affiliates launched their decentralized exchange Serum (SRM) there.
With Solana, Bankman-Fried wanted to have “his” blockchain. Just like Changpeng Zhao (Binance) with the Binance Smart Chain. The list of projects on Solana and subsidized by Sam Bankman-Fried is long, including in particular decentralized protocols. Radium (RAY), Oxygen (OXY) and bonfida (IFAD).
It is the “full value locked” in DeFi protocols almost 80% reduction, rising from 1 billion at the beginning of November to 224.4 million at the time of writing. This was to be expected, as many assets deposited in DeFi protocols such as SOL, ETH, and BTC are volatile. For this reason, a decrease in TVL does not necessarily mean that users withdraw their funds from finances on Solana.
However, the TVL confirms in SOL the disaster situation. If at the beginning of November, they were 27.2 million SOL, they are only 22.9 million at the time of these lines. Meanwhile, we hit a record low of 19.7 million on November 6th. This clearly shows that the decline in TVL expressed in USD is not only a result of lower prices, but the fact that users withdraw their assets by Solana.
The supply of stablecoins on Solana has also decreased significantly in recent weeks. The network’s “stable” market capitalization has fallen by almost 50% since the beginning of November, which we owe to the network. Tether decided to repatriate a large portion of its USDT from Solana to the Ethereum (ETH) network.
In fact, Tether announced on November 18 “chain swap”: transferring $1 billion from USDT-Solana to EthereumEnough to increase this capitalization from 4 billion to 2.1 billion dollars, and withdraw more than 55.5% of the total stable coins on the blockchain.
Hack serum: the end of applause for the flagship?
Of the DeFi protocols that have suffered from the FTX scandal, Serum (SRM) has certainly been the most disruptive. And not just because Solana Foundation has 134.54 million SRM tokens locked on FTX – in addition to his 3.24 million shares of FTX Trading LTD and 3.43 million FTT…
To briefly introduce Serum, it is a decentralized exchange that works through an automated order book (AMM). Its governance token, the SRM, is at the heart of the FTX scandal because it allowed the company to take out large loans based on an inflated valuation of the token.
In fact, the SRM always trades at “fully diluted capitalization” (FDV – fully diluted value) of $2.4 billion despite a price drop of more than 70% in recent weeks.
But you should also know that Serum was a model for all of the DeFi on Solana. Protocols like Raydium, Zeta Markets, PsyOptions and others were built by copying much of the protocol code. This wouldn’t necessarily be a problem if Serum contracts were truly de-exchangeable, as the protocol could function without issue despite its governance token dropping.
However, it has recently become known that the Serum contracts are controlled by administrative keys held by… FTX. This put Serum and consequently the entire Solana ecosystem at risk, as diverting funds to Serum could lead to a catastrophic infection.
So far, such a disaster situation seems to be moving away because the community of Solana has a A “hard fork” of Serum, now called OpenBook. It remains to be seen whether OpenBook will survive, but it could present a band-aid for Serum-based projects until it finds a safe haven for cash on its parent protocol. Meanwhile the TVL on Serum has dropped from $121.7 million pre-crisis to just $396,000 as of this writing.
Solana in 2023: reasons for hope?
The ship Solana was damaged by damage, but did not sink. At least not yet. Although SOL is now approaching the $3 hit at the time of SBF’s famous tweet, Solana’s resilience as a blockchain is amazing. No technical breakdowns, no block production interruptions, no performance drops. And yet the “Crypto Visa” has not been technically flawless in recent months.
However, some aspects remain to be clarified. First it will take return money withdrawn from projects who had close ties to FTX and Alameda, like Serum.
It will also take time for the blockchain to shed the association with FTX and Sam Bankman-Fried, the real father of SOL. It’s still unclear how much SOL Alameda Research actually had when it filed for bankruptcy on Nov. 11. What is certain is that these SOLs will be liquidated by the new management of FTX repay defrauded creditors and depositors.
Finally, there are concerns about Solana’s technical competitiveness. It is worth wondering if the developers and members of the community, who may not have seen a drop of more than 95% before, stick around in the months and years to come. A few days ago, the two most important NFT collections at Solana, for example, made the decision to jump ship.
A glimmer of hope: on November 22, the Messari portal surveyed developers to find out which project they would prefer in the coming weeks. In the lead, we see … Solana.
The Solana ship doesn’t have all the cards in hand to find the way to the sun. When Anatoly Yakovenko had the idea to create his blockchain, he named it Solana, named after a town on the California coast where he lived at the time, Solana Beach. We hope that, despite the headwind, the fastest blockchain will regain its momentum of 2021, with the wind in its sails.