Cryptoverse: So long, Solana? Ether Rival was beaten by FTX crash

by Arthur · November 15, 2022

Nov 15 (Reuters) – Solana, a poster coin for the crypto future, is in trouble.

The cryptocurrency, which had been praised by FTX’s founder Sam Bankman-Fried, has been hit harder than any other major coin by the stock market’s collapse.

The Solana token, or SOL , has fallen 53.8% since the furor began to unfold on November 2nd. In comparison, ether has fallen around 20% and bitcoin 19%.

“In the current crypto shakeout, the most unfortunate innocent victim is the Solana ecosystem,” said Stefan Rust, CEO of blockchain wallet company Laguna Labs. He and several other crypto players said FTX and its sister firm Alameda Research likely sold a large amount of the coin in an effort to stay afloat.

Many investors and app developers seem to be abandoning the Solana blockchain, which is widely used for decentralized finance applications; the number of SOL coins deposited there has fallen to 24.74 million, some way south of the 68.2 million seen in June, according to data from aggregator DeFiLlama.

FTX and Alameda Research did not respond to requests for comment. Solana co-founder Anatoly Yakovenko tweeted that the development company Solana Labs had no assets on FTX and had enough financial runway for about 30 months. Another co-founder, Raj Gokal, said this was a “melting pot” moment for the ecosystem, adding “every time, we’re stronger.”

Nevertheless, uncertainty haunts the blockchain that has previously been called an “Ethereum killer” due to its lower transaction fees, faster processing speed and potential to scale.

“It’s not the end for Solana,” said Adam Struck, at LA-based venture firm Struck Capital. “It has established itself as a thriving ecosystem and competitor to Ethereum. But do I think the valuation is a little frothy? Yes.”

Some see a silver lining.

“It is much better for Solana that the association with Sam Bankman-Fried’s empire ends now, even if the result is severe short-term pain,” said Jack Saracco, co-founder of digital banking and payment solutions firm Ping.

SOL’s market capitalization has shrunk about 55% since November 2, from $11.6 billion to $5.1 billion, according to data from CoinGecko. Ether’s market cap has fallen 21% to $150.7 billion, while bitcoins have fallen 18% to $319 billion.

‘BLOOD IN THE STREET’

The FTX saga began to unfold in early November when news website CoinDesk reported a leaked balance sheet that showed Alameda Research was heavily dependent on FTX’s native token, FTT. Reuters was unable to confirm the report. See timeline.

The exchange filed for bankruptcy on Friday after traders rushed to withdraw $6 billion from the platform in just 72 hours and rival Binance abandoned a proposed rescue deal.

The collapse of the company has resulted in more than $190 billion being erased from the value of the overall crypto market.

“This is what the old folks used to call ‘blood in the streets,'” said Martin Leinweber, digital asset product strategist at MarketVector Indexes. “There’s no Fed or Treasury here to support prices, so the market simply cleans itself up.”

But even amid the bloodshed, there was some unexpected stability from stablecoins, which are pegged to the value of common assets like the US dollar in an attempt to reduce tame crypto volatility.

Although the largest stablecoin Tether had a brief wobble when it hit $0.985, according to CoinMarketCap, it managed to maintain its link to the dollar, as did USDCoin, the second largest.

“Most stablecoins performed within their normal volatility bands with the exception of a few small algorithmic ones,” Leinweber added.

It is a reversal from earlier in the year when these coins, especially Tether, lost their peg as the market was hit by volatility following the collapse of the TerraUSD stablecoin.

Some investors attributed the new resilience of stablecoins, often used to move funds between crypto and regular cash, to greater transparency of their reserves.

“Everyone expected Tether to be the first to fall, but it hasn’t,” said Saracco at Ping. “I think many observers don’t realize how battle-tested Tether really is.”