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Key Takeaways

• Solana has shed 95% of its worth, falling from $54.5 billion to $4.4 billion
• Its affiliation with Sam Bankman-Fried has precipitated additional bearish worth motion
• Top projects have fled the blockchain this yr, with concern over long-term way forward for Solana

For cryptocurrency buyers, the yr 2022 was one to neglect. 

But even amongst all the ache, followers of Solana have been harm greater than most. At the begin of 2022, Solana was the fifth biggest crypto in the world with a market cap of $54.5 billion. Today, it’s sixteenth in the ranks, having shed over 95% from its peak, now value $4.4 billion. 

What has occurred Solana?

Firstly, the apparent. The macro local weather has flipped immeasurably over the final yr. After a decade of basement-level rates of interest and a free-flowing cash printer, the Federal Reserve pulled the plug. 

And identical to that, for the first time in cryptocurrency’s quick historical past, it’s dealing with a bear market in the wider economic system. During the explosive bull run of the prior decade, every thing with a pulse loved dizzying returns. But now, the social gathering is over. 

Having mentioned this, plotting Solana towards Bitcoin reveals fairly how stark the underperformance has been. 

Solana’s outages are a large drawback

The first drawback is the incessant outages. I wrote in June about how Solana jogs my memory of my broken earphones. You know, nice after they work, however given I have to maintain twisting the earphone, disconnecting and reconnecting, in an effort to take heed to music, they’re not a lot good to me. 

Solana is like these earphones. It has flexed its market-leading TPS and low-cost fuel charges for some time, positioning itself as an “ETH killer”, and loved a flood of curiosity and lofty positive aspects throughout the pandemic because of this. 

Of course, as I mentioned above, this was throughout a interval of growth of all threat belongings, and due diligence in the cryptocurrency altcoin house was not precisely as granular because it ought to have been. There had been – and are – critical issues below the hood of Solana, as the outages have continued at a relentless tempo. 

Riddle me this – how helpful is a blockchain if it ceaselessly switches off?

Back in that article from June, I wrote that “I’m getting a little tired of using the words ‘potential’, ‘could’ and ‘perhaps’ when it comes to discussing Solana”. Since then, it has cratered one other 70% in worth, with the market seeming to all however quit on Solana’s hope of attaining relevance.

The rise of Layer 2s additionally threatens the core premise of Solana, attacking its core use case. Layer 2s work, which is an easy assertion that Solana merely can not argue for itself proper now.

Sam Bankman-Fried

Sigh. It has been robust over the final month to speak about something crypto-related and never point out the golden-knight-turned-arch-villain that’s Sam Bankman-Fried. But sadly, his demise has had dire penalties for Solana. 

The disgraced founding father of FTX was a staunch early backer of Solana, with the token even exhibiting up on the much-publicised stability sheet of FTX because it desperately sought buyers at the final minute. In reality, Bankman-Fried was Solana’s greatest champion. 

I’ll purchase as a lot SOL has you will have, proper now, at $3.

Sell me all you need.

Then go fuck off.

— SBF (@SBF_FTX) January 9, 2021

Critics now argue that SOL’s vertical rise throughout the pandemic was partially brought on by Bankman-Fried’s interventions. The distribution of SOL tokens was additionally infamous for being VC-heavy, that means whale wallets had been more likely to have been capable of affect its worth considerably greater than different cryptos. 

In the close to two months since FTX’s implosion, Solana has struggled considerably greater than different cryptos. 

Investors are fearful that a few of Bankman-Fried’s help of SOL got here by way of fraudulent exercise, given the revelations round what occurred behind closed doorways at FTX. Caroline Ellison, Alameda CEO and shut confidant of Bankman-Fried, has said to the SEC that Bankman-Fired intentionally manipulated the FTT token. In this context, what’s to say that he didn’t do the similar for SOL?

Regardless, the mere affiliation with the fraudster has been sufficient to dent Solana’s prospects. 

Projects and capital are leaving Solana

Looking at DeFi, the complete worth locked (TVL) on the Solana blockchain is now $217 million, in comparison with over $10 billion in late 2021. 

Perhaps much more regarding is the migration of projects from Solana to rival blockchains. Prominent NFT collections DeGods and y00ts introduced final week that they’re migrating to Ethereum and Polygon respectively, a hammer blow to the Solana devoted. 

“There’s an argument to be made that (DeGods) has capped out on Solana,” DeGods challenge chief and y00ts creator, Rohun Vora, mentioned 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 have to go to keep growing, it’s what we have to do.”

The slide of Solana has been so stark that even its supposed greatest rival, Ethereum creator Vitalik Buterin, waded in to say some sort phrases. It speaks volumes about SOL’s fall, as it’s arduous to even name it a rival of Ethereum any longer, given it’s not even in the prime 10 of blockchains when it comes to TVL. 

Some sensible folks inform me there may be an earnest sensible developer neighborhood in Solana, and now that the terrible opportunistic cash folks have been washed out, the chain has a shiny future.

Hard for me to inform from exterior, however I hope the neighborhood will get its honest probability to thrive🦾🦾

— vitalik.eth (@VitalikButerin) December 29, 2022

Can it recuperate?

The query now’s whether or not all these issues are terminal. Can SOL bounce again? Well, the difficulty right here is two-fold. As Vitalik states, “the awful opportunistic money people have been washed out”. This, whereas damaging SOL considerably as beforehand mentioned, does level in the direction of a short-term drawback. 

On the different hand, there are myriad points which predate the Bankman-Fried saga and nonetheless stay issues. Solana’s market-leading TPS and low-cost charges are nice, however they arrive with a trade-off towards safety and stability, one thing customers have felt keenly over the final yr with the much-publicised points. 

Personally, I believe Solana has a really troublesome street forward. For the total altcoin house, the tide has gone out and it’s now evident how a lot these projects had been valued primarily based on zero rates of interest and the FOMO frenzy of the pandemic. With inflation nonetheless excessive, a tenuous geopolitical local weather and plenty of extra bearish variables and uncertainty, the macro local weather received’t change anytime quickly. 

This makes any altcoin a dangerous guess. But for Solana particularly, which is combating a further battle of a few of its greatest projects abandoning it, its most well-known backer being a fraud and presumably manipulating its worth, and a wave of unfavorable sentiment, issues are notably murky. 

I hope the builders maintain at it and the underlying potential does finally get delivered upon. But on this local weather, the catalysts for a worth rise again to the place it was merely are merely not current proper now.