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Solana lost 95% of its value, falling from $54.5 billion to $4.4 billion His association with Sam Bankman-Fried caused more bearish price action Solana’s long-term future For cryptocurrency investors, 2022 was an unforgettable year. But even with all the market pain, Solana’s fans were still hurt more than most. In early 2022, Solana was the fifth largest cryptocurrency in the world, with a market cap of $54.5 billion. Today, it sits at number 16 on the rankings, having lost more than 95% of its peak, now worth $4.4 billion.
What happened to Solana?
First, the obvious. The macro climate has changed immensely over the past year. After a decade of low interest rates and a free-flowing money printing press, the Federal Reserve pulled the plug. And so, for the first time in the cryptocurrency’s short history, it faces a bear market in the wider economy. During the explosive bull run of the previous decade, everything that had a pulse made dizzying returns. But now, the party is over. That said, plotting Solana against Bitcoin shows just how rigid the underperformance has been.
Solana Outages are a Huge Problem
The first problem was the incessant interruptions. I wrote in June about how Solana reminded me of my broken headphones. You know, great when they work, but since I have to keep turning the headphones off and on to listen to music, they don’t do me much good. Solana is like those headphones. It flexed its market-leading TPS and cheap gas rates for a while, positioning itself as an “ETH killer”, and enjoyed a wave of interest and high earnings during the pandemic as a result. Of course, as I said above, this was during a boom period for all risk assets, and the due diligence in the cryptocurrency altcoin space wasn’t exactly as granular as it should have been. There were – and are – serious issues under Solana’s hood as the outages continued at an unrelenting pace. Explain this to me – how useful is a blockchain if it goes down frequently? In that June article, I wrote that “I’m getting a little tired of using the words ‘potential’, ‘could’ and ‘maybe’ when it comes to discussing Solana.” Since then, the coin’s price has dropped a further 70%, with the market appearing to give up hope of Solana achieving relevance. The rise of Tier 2 also threatens Solana’s core premise by attacking her core use case. Tier 2 work is a simple statement that Solana simply cannot argue for himself right now.
Sam Bankman-Fried
It’s been hard over the last month to talk about anything crypto-related and not mention the golden knight turned archenemy that is Sam Bankman-Fried. But unfortunately, his fall brought dire consequences for Solana. The hapless founder of FTX was an early staunch supporter of Solana, with the token appearing on FTX’s much publicized balance sheet as it desperately sought out investors at the last minute. In fact, Bankman-Fried was Solana’s biggest supporter.
I’ll buy as much SOL has you have, right now, at $3. Sell me all you want. Then go fuck off. — SBF (@SBF_FTX) January 9, 2021
Critics now argue that SOL’s vertical rise during the pandemic was partly caused by Bankman-Fried’s interventions. The distribution of SOL tokens was also notorious for being venture capital, meaning that whale wallets were likely able to influence their price significantly more than other cryptocurrencies. In the nearly two months since the FTX implosion, Solana has struggled significantly harder than other cryptocurrencies. Investors fear that some of Bankman-Fried’s support for SOL has come through fraudulent activity, given the revelations about what happened behind closed doors at FTX. Caroline Ellison, CEO of Alameda and a close confidant of Bankman-Fried, told the SEC that Bankman-Fired deliberately manipulated the FTT token. In this context, how can you say he didn’t do the same with SOL? Regardless, the mere association with the fraudster was enough to undermine Solana’s prospects.
Projects and capital are leaving Solana
Looking at DeFi, the total amount blocked (TVL) on the Solana blockchain is now $217 million, compared to over $10 billion at the end of 2021. Perhaps even more concerning is the migration of Solana projects to blockchains rivals. Prominent NFT collections DeGods and y00ts announced last week that they are moving to Ethereum and Polygon respectively, a hammer blow for Solana faithful. “There is an argument to be made that (DeGods) broke with Solana,” DeGods project leader and y00ts creator Rohun Vora said in a Twitter Spaces. “It’s hard to accept, but it’s been hard to grow at the pace we want. If Ethereum is where we have to go to keep growing, then this is what we have to do.” Solana’s slip was so strong that even his supposed biggest rival, Ethereum creator Vitalik Buterin, stepped in to say a few kind words. This speaks volumes for SOL’s downfall, as it is difficult to call it an Ethereum rival any longer, as it is now not even in the top 10 of blockchains in terms of TVL.
Some smart people tell me there is an earnest smart developer community in Solana, and now that the awful opportunistic money people have been washed out, the chain has a bright future. Hard for me to tell from outside, but I hope the community gets its fair chance to thrive🦾🦾 — vitalik.eth (@VitalikButerin) December 29, 2022
Can it recover?
The question now is whether all these problems are terminal. Can SOL recover? Well, the issue here is twofold. As Vitalik puts it, “the terrible opportunistic money of the people has been eliminated”. This, while significantly harming SOL, as discussed earlier, points to a short-term problem. On the other hand, there are numerous issues that predate the Bankman-Fried saga and still remain as obstacles. Solana’s industry-leading TPS and cheap rates are great, but it comes with a trade-off in regards to security and stability, something users have felt keenly over the past year with the widely publicized issues. Personally, I think Solana has a very difficult road ahead of her. For the entire altcoin space, the tide has turned and it is now evident how much these projects have been valued based on zero interest rates and with the frenzy of the pandemic. With inflation still high, a tenuous geopolitical climate and many other pessimistic and uncertain variables, the macro climate is unlikely to change anytime soon. This makes any altcoin a risky bet. But for Solana in particular, who is fighting an additional battle of some of her biggest projects dropping out, her most famous backer being a fraud and possibly price gouging, and a wave of negative sentiment, things are particularly murky. I hope the developers keep it up and that the underlying potential ends up being delivered. But in this climate, the catalysts for a price hike back to where it was are simply not present right now.
