Solana, once championed as the “Ethereum Killer” has seen the price of its native token SOL tank by roughly 47% over the past week dominated by the FTX train wreck.
SOL is the second largest-holding of Alameda Research, and was heavily promoted by former FTX CEO Sam Bankman-Fried, who resigned today.
According to an earlier report by CoinDesk, Alameda held $292 million of “unlocked SOL,” $863 million of “locked SOL” and $41 million of “SOL collateral,” as of June 30, 2022.
Akeel Qureshi, core contributor to Solana-based Hubble Protocol and Kamino Finance told Blockworks that the current crypto crisis ensuing from FTX’s bankruptcy filing is reminiscent of the fall of banks during the 2008 financial crisis.
FTX contagion effects
“The fallout from the bankruptcy announcement was immediate contagion, and we’re watching another leg down for assets associated with FTX and Alameda,” Qureshi said. “SOL, the native token of Solana, has taken a further hit due to Sam Bankman-Fried’s past open support of the network.”
In fact, according to a post by Twitter user weremeow, one of the largest challenges that the Solana ecosystem faces is that wrapped Sollet tokens such as soBTC are issued by the now-insolvent FTX.
“These tokens were launched very early in the Solana DeFi cycle to help generate liquidity in the space, and supposed to be backed 1-1 by BTC or ETH,” they tweeted. “But unlike wBTC, there was no formal process and no one knows if FTX still have the underlying assets.”
1/ One of the most challenging and unspoken issue facing the @solana ecosystem are the wrapped Sollet tokens, namely soBTC, which is used widely across lending and AMM platforms.The problem? These tokens are issued by FTX (or Alameda, no one really knows)
— meow (@weremeow) November 9, 2022
As all major Solana-based DeFi platforms have soBTC assets as collateral, if it is revealed that soBTC no longer has any underlying assets backing its value, the contagion effect of all of this could be much worse than expected.
Weighing on the situation, Blockworks Research analyst Spencer Hughes said, “Solana currently has $271M of soBTC and $612M of soETH on the network. These assets were supposedly bridged from the Ethereum network. It is unclear who exactly is backing these assets, but many speculate that it is FTX.
As a consequence, he added, “soBTC is currently trading at $13.5K, a steep 25% discount from the price of BTC. At one point, soBTC was trading for $3,400. In the meantime, DeFi lending platform Solend has paused all borrows collateralized by soBTC.”
Earlier this week, Solend struggled to liquidate a whale account which tanked. Although the situation was later resolved, its founder Soju wrote on the Solend Discord that the situation was “looking very bad now.”
Liquidity crunches are not the only concerns faced by the Solana community. Earlier this week, the Solana Foundation revealed that 47 million SOL would be unstaked from the ecosystem, a poorly-timed move that was quickly reversed.
Despite these multiple challenges since the FTX fallout, many builders in the ecosystem remain resilient.
Tiffany Huang, the head of marketing at Magic Eden, the largest NFT Marketplace on Solana told Blockworks that, “in spite of these developments, we remain as hopeful as ever about Solana’s critical role in building a decentralized ecosystem.”
“As we pick up the pieces, we are going to keep building from a place of deep belief. We remain bullish on the future of Solana and have seen the community come together to remind each other of the incredible projects that have come to market,” Huang said.
This sentiment is shared by Jules Mossler the chief marketing officer at Metaplex Studios who told Blockworks, “We are now seeing projects support each other and plan the next chapter of reinvestment together, and we’ll be right there with them.”
An outpouring of support from crypto twitter has also been apparent over the past few days.
this crucible moment for @solana ecosystem is as difficult as the last one. the difference is, there are 10x more of us to band together this time. next time, there will be 10x more.and each time, we’re stronger. the fundamentals are better.same goes for crypto at large, tbh
— raj 🖤 (@rajgokal) November 9, 2022
Co-founder of Solana Labs Anatoly Yakovenko tweeted, “the builders on Solana are second to none, and the projects they’re building can often only be built on Solana.”
Adding that, “we launched in 2020 after markets crashed and the world went into lockdown — chewing glass is in our DNA, and we’ll get through together.”
Qureshi believes that the latest events that have unfolded is a tell-tale sign which echoes the importance of decentralization.
“Meanwhile, centralized crypto exchanges and lenders with closed books are in the crosshairs, but decentralized finance (DeFi) is looking stronger than ever due to its transparency and reliance on users custodying their own assets,” Qureshi said.
As the ecosystem works on recovering from the shakeup, it is expected that there will be a lot more quality DeFi projects that will help the ecosystem prevail, he said.
The price of solana is now around $16, down by about 9% in the past 24 hours