Is Solana dead? Top projects are fleeing the blockchain

Important takeaways

• Solana has lost 95% of its value, falling from $54.5 billion to $4.4 billion
• The association with Sam Bankman-Fried has caused further bearish price action
• Top projects have fled the blockchain this year, with concerns over the long-term future of Solana

For cryptocurrency investors, 2022 was a year to forget.

But even among all the pain, fans of Solana have been hurt more than most. At the start of 2022, Solana was the fifth largest crypto in the world with a market cap of $54.5 billion. Today it is sixteenth in the ranks, having lost over 95% from its peak, now worth $4.4 billion.

What has happened to Solana?

First, the obvious. The macro climate has changed immeasurably in the past year. After a decade of basement interest rates and a free-flowing money printer, the Federal Reserve pulled the plug.

And just like that, for the first time in cryptocurrency’s short history, it is facing a bear market in the broader economy. During the explosive bull run of the previous decade, everything with a pulse saw dizzying returns. But now the party is over.

That said, plotting Solana against Bitcoin shows just how stark the underperformance has been.

Solana’s interruption is a huge problem

The first problem is the incessant power outages. I wrote in June about how Solana reminds me of my broken earphones. You know, good when they work, but since I have to keep twisting the earphones, disconnecting and reconnecting, to listen to music, they’re not much good for me.

Solana is like those earphones. It has flaunted its market-leading TPS and cheap gas fees for some time, positioning itself as an “ETH killer”, and enjoyed a flood of interest and big gains during the pandemic as a result.

Of course, as I said above, this was during a period of expansion of all risk assets, and due diligence in the cryptocurrency 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 the outages have continued at a relentless pace.

Explain this to me – how useful is a blockchain if it shuts down frequently?

Back 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, it has cratered another 70% in price, and the market appears to be giving up on Solana’s hopes of achieving relevance.

The rise of Layer 2s also threatens the core premise of Solana, attacking its core uses. Layer 2s work, which is a simple statement that Solana simply can’t argue for himself right now.

Sam Bankman-Fried

Sigh. It’s been tough this past month to talk about anything crypto-related and not mention the golden knight turned arch-villain that is Sam Bankman-Fried. But unfortunately his passing has had serious consequences for Solana.

The disgraced founder of FTX was a solid early backer of Solana, with the token even appearing on the much-publicized balance sheet of FTX as it desperately sought last-minute investors. In fact, Bankman-Fried was Solana’s greatest champion.

I’ll buy as much SOL as you have right now, for $3.

Sell ​​me anything you want.

Then go away.

— SBF (@SBF_FTX) 9 January 2021

Critics now claim that SOL’s vertical rise during the pandemic was partly caused by Bankman-Fried’s intervention. The distribution of SOL tokens was also notoriously VC-heavy, meaning that whale wallets would likely have been able to influence the price significantly more than other cryptos.

In the nearly two months since FTX’s implosion, Solana has struggled significantly more than other cryptos.

Investors fear that some of Bankman-Fried’s support for SOL came via fraudulent activity, given the revelations about what happened behind closed doors at FTX. Caroline Ellison, CEO of Alameda and close confidant of Bankman-Fried, has stated to the SEC that Bankman-Fired deliberately manipulated the FTT token. In this context, what does it mean to say that he did not do the same for SOL?

In any case, the mere association with the fraudster has been enough to dent Solana’s prospects.

Projects and capital leave Solana

Looking at DeFi, the total value locked (TVL) on the Solana blockchain is now $217 million, compared to over $10 billion at the end of 2021.

Perhaps even more worrying is the migration of projects from Solana to rival blockchains. Prominent NFT aggregators DeGods and y00ts announced last week that they are migrating to Ethereum and Polygon, respectively, a hammer blow to the Solana faithful.

“There’s an argument to be made that (DeGods) has limited himself to Solana,” DeGods project manager and y00ts creator Rohun Vora said in a Twitter Spaces. “It’s hard to accept, but it’s been tough to grow at the rate we want to grow. If Ethereum is where we need to go to continue to grow, that’s what we need to do.”

Solana’s fury has been so fierce that even his supposed biggest rival, Ethereum creator Vitalik Buterin, stepped in to offer a few kind words. It says a lot about SOL’s fall, as it is hard to call it a rival to Ethereum anymore, as it is now not even in the top 10 of blockchains in terms of TVL.

Some smart people tell me that there is a seriously smart developer community in Solana, and now that the horrible opportunistic money has been washed out, the chain has a bright future.

Hard for me to say from the outside, but I hope society gets its fair chance to thrive🦾🦾

— vitalik.eth (@VitalikButerin) 29 December 2022

Can it recover?

The question now is whether all these problems are terminal. Can SOL bounce back? Well, the problem here is twofold. As Vitalik states, “the terrible opportunistic money has been washed out”. This, although this significantly damages SOL as previously discussed, points to a short-term problem.

On the other hand, there are countless problems that predate the Bankman-Fried saga and are still problems. Solana’s market-leading TPS and cheap fees are great, but they come with a trade-off for security and stability, something users have felt strongly over the past year with the much-publicized issues.

Personally, I think Solana has a very difficult road ahead of her. For the entire altcoin space, the tide has run out and it is now clear how much these projects were valued based on zero interest rates and the FOMO frenzy 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 extra battle with some of its biggest projects leaving it, its most famous backer being a fraud and possibly manipulating the price, and a wave of negative emotions, things are particularly murky.

I hope the developers keep at it and that the underlying potential is eventually delivered. But in this climate, the catalysts for a price rise back to where they were are simply not present right now.