key takeaways
- Solana has slashed 95% of its value, falling from $54.5 billion to $4.4 billion
- Its association with Sam Bankman-Fried has led to further bearish price action.
- Top projects exit blockchain this year amid concerns over Solana’s long-term future
For cryptocurrency investors, 2022 was one to forget.
But even in the midst of all the pain, fans of solana have been hurt more than In early 2022, Solana was 5th largest crypto in the world with a market cap of $54.5 billion. Today, it is ranked sixteenth, down more than 95% from its peak, now worth $4.4 billion.
What happened Solana?
First of all, the obvious. The macro climate has been extremely mild compared to last year. After a decade of basement-level interest rates and a free-flowing money printer, the Federal Reserve pulled the plug.
And just like that, for the first time in the cryptocurrency’s short history, it is facing a bear market in the broader economy. During the explosive bull run of the last decade, everything with a pulse enjoyed dizzying returns. But now the party is over.
Having said that, Solana plotting against bitcoin shows just how poor the performance has been.
Solana’s outage is a big problem
The first problem is frequent outages. I wrote in June about how Solana reminds me my broken earphones, You know, they’re great when they work, but I need to keep moving, disconnecting, and reconnecting the earphones to listen to music, they’re not great for me.
Solana is like those earphones. It has flexed its market-leading TPS and cheap gas fees for some time, positioning itself as the “ETH killer”, and has consequently enjoyed a flood of interest and high profits during the pandemic.
Of course, as I said above, this was during a period of expansion for all risk assets, and due diligence in the crypto altcoin space was not exactly as granular as it should have been. There were — and are — serious problems under the hood of the Solana as outages continue at a relentless pace.
This puzzles me – how useful is a blockchain if it frequently shuts down?
Back in that June article, I wrote that “I’m a little tired of using the words ‘likely’, ‘might’ and ‘probably’ when it comes to discussing Solanas”. Since then, its price has plummeted 70%, with the market seeming to have all but given up hope of Solana regaining relevance.
The rise of Layer 2s has also threatened the core premise of Solana, attacking its original use case. Layer 2 works, which is a simple statement that Solana just can’t argue for itself.
Sam Bankman-Fried
breath. Talking about anything crypto-related and not mentioning Sam Bankman-Fried’s golden-knight-turned-arch-villain has been tough during the past month. But unfortunately, his passing has dire consequences for Solanas.
The disgraced founder of FTX was an early supporter of Solana, with the token even appearing on FTX’s much-publicized balance sheet as it desperately sought last-minute investors. In fact, Bankman-Fried was Solana’s greatest champion.
I’ll buy whatever SOL you have now for $3.
Sell me whatever you want
Then go to hell.
— SBF (@SBF_FTX) January 9, 2021
critics now argue SOL’s The vertical growth during the pandemic was partly due to Bankman-Fried’s intervention. The distribution of the SOL token was also notorious for being VC-heavy, meaning whale wallets were able to influence its price significantly more than other cryptos.
in about two months since explosion of FTXSolana has struggled much more than other cryptos.
Given the revelations of what happened behind closed doors at FTX, investors fear that some of the bankman-fried endorsement of SOL came through fraudulent activity. Caroline Ellison, CEO of Alameda and a close confidante of Bankman-Fried, told the SEC that Bankman-Fried intentionally manipulated the FTT token. What’s to say in this context that he didn’t do the same for SOL?
Regardless, a mere association with the impostor may have been enough to dent Solana’s prospects.
Projects and capital leaving Solana
Looking at DeFi, the total value locked (TVL) on the Solana blockchain now stands at $217 million, compared to over $10 billion at the end of 2021.
Perhaps even more concerning is the migration of projects from Solana to rival blockchains. Major NFT collections DeGods and y00ts announced last week that they are migrating to Ethereum and Polygon, respectively, in a major blow to the Solana faithful.
DeGods project leader and Y00ts creator, Rohun Vora, said in a Twitter space, “There is an argument to be made that (DeGods) is finished on Solana.” “It’s hard to admit, but it’s hard to grow at the rate we want to grow. If Ethereum is where we want to keep growing, this is what we have to do.”
Solana’s decline has been so rapid that even its biggest rival, Ethereum creator Vitalik Buterin, got up to say some kind words. This says a lot about the decline of SOL, as it is hard to even call it a rival to Ethereum now that it is no longer even in the top 10 of blockchains in terms of TVL.
Some smart people tell me that Solana has an honest smart developer community, and now that the awful opportunistic money has been washed out of the public, the future of the chain is bright.
It’s hard for me to tell from the outside, but I hope the community gets a fair chance to flourish🦾🦾
— vitalik.eth (@VitalikButerin) December 29, 2022
Can it be ok?
The question now is whether all these problems are terminal. Can SOL bounce back? Well, the issue here is twofold. As Vitalik says, “terrible opportunistic riches have been washed away”. As discussed earlier, significantly damaging the SOL points to a short-term problem.
On the other hand, there are myriad issues that predate the Bankman-Fried saga and continue to be problematic. Solana’s market-leading TPS and cheap fees are great, but they come with a trade-off against security and stability, something users have keenly realized with the much-publicized issues over the past year.
Personally, I think Solana has a very rough road ahead. For the entire altcoin space, the tide has turned out and it is now clear how much these projects were worth based on zero interest rates and the FOMO mania of the pandemic. With inflation still high, a weak geopolitical climate and many more bearish variables and uncertainties, the macro climate will not change anytime soon.
This makes any altcoin a risky bet. But especially for Solana, which is fighting an additional spate of some of its biggest projects abandoning it, its most famous proponents of fraud and possibly manipulating its price, and a wave of negative sentiment, things are special. are clearly unclear.
I hope the developers keep at it and the built-in capability eventually gets delivered. But in this environment, the catalyst for prices to revert to where it simply doesn’t exist right now.