Solana Community Remains Bullish Despite FTX Fallout

An estimated 10% of Solana’s market capitalization belonged to entities affiliated with Sam Bankman-Fried

article-image

BLOCKWORKS EXCLUSIVE ART BY AXEL RANGEL

share

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.”

Loading Tweet..

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, Solend’s head of growth Soju wrote on the its 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.

Community optimism

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. 

Loading Tweet..

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.

Ornella Hernandez contributed reporting.

Updated on Nov. 16, 2022 at 11:11 am ET: Soju is the head of growth at Solend.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

AERODROME TEMPLATE.png

Research

Aerodrome is a "MetaDEX" that combines elements of various DEX primitives such as Uniswap V2 and V3, Curve, Convex, and Votium. Since its launch on Base, it has become the largest protocol by TVL with more than $495M in value locked, doubling Uniswap's Base deployment.

article-image

The SEC has signaled a timeline to issuers that could lead to a July 23 launch for the ETH funds, people close to the process told Blockworks

article-image

PayPal has unequivocally made a name for itself as a crypto adopter among fintech giants

article-image

Also, a look into how the highly-debated SAB 121 could end up shaking out for crypto custodians

article-image

Vance, an Ohio Republican, is largely seen as crypto-friendly

article-image

Plus, all the world is green as prices across the crypto space rally, with solana reaching a nearly two-week high

article-image

Investors add to crypto positions after “turnaround in sentiment due to lower-than-expected CPI,” CoinShares research head says