The Solana logo displayed on the phone screen and the representation of cryptocurrencies are visible in this illustrative photo taken in Krakow on August 21, 2021.
Jakub Porzycki | NurPhoto | Getty’s paintings
Solana was touted as a cryptocurrency that will challenge the ether with a more environmentally friendly approach, faster transactions and more consistent costs.
The investors who placed this bet had an unlucky yr. The token’s market capitalization fell from over $55 billion in January to only over $3 billion by the tip of the yr.
One of Solana’s biggest concerns in late 2022 was her close relationship with FTX founder Sam Bankman-Fried, who faced eight felony counts of criminal fraud after his cryptocurrency exchange went bankrupt last month. The disgraced former crypto billionaire has been one of Solana’s most public promoters, touting the advantages of blockchain technology and investing over half a billion dollars in Solana tokens.
“Sell Me Anything You Want” Bankman-Fried told one skeptic in January 2021 “so fuck off.”
Bankman-Fried corporations held the token and related assets price nearly $1.2 billion in June, in keeping with data documents checked by CoinDesk.
When FTX fell apart, investors bought up Solana for about $8 billion. But in recent days, with the remainder of the cryptocurrency world relatively quiet and costs stable, Solana has fallen even further.
Two of the most important non-fungible token (NFT) projects built on Solana announced their migration from the Solana platform on Christmas Day. But the ultimate slides got here after that news had already gone bad, making Solana’s final slide something of a mystery.
Within the last week, Solana has fallen by more than 30%. Ether held regular, losing 1.7% over the identical period bitcoins decreased by only one.2%. Among the many top 20 most dear cryptocurrencies tracked by CoinMarketCap, the following biggest loser this episode is dogecoinwhich fell by 9%.
In only one hour of trading on Thursday, Solana fell 5.8% to its lowest level since early 2021, across the time Bankman-Fried began vocally offer your support for the project.
Solana has since come out of the lows, with now market capitalization exceeding $3.5 billion. Its 24-hour trading volume has increased over 200% in relative terms.
Through the 2021 crypto market boom, Bankman-Fried was not alone in his bullish attitude.
Developers raved about Solana’s support for smart contracts, code snippets that execute programmed directives, and the revolutionary consensus mechanism that proves history.
Consensus mechanisms are how blockchain platforms judge the validity of a transaction by tracking who owns what and the way well the system works based on consensus between multiple computers storing data, called nodes.
Bitcoin uses a proof-of-work mechanism. Ethereum and rival Solana use proof of stake. As a substitute of counting on energy-intensive mining, proof-of-stake systems ask large users to supply collateral or stakes to grow to be “validators”. As a substitute of in search of a cryptographic hash as with bitcoin, job validators validate transaction activity and maintain the blockchain’s “books” in exchange for a proportionate reduction in transaction fees.
Solana’s alleged differentiating factor was the rise in proof of stake with proof of history — the power to prove that the transaction took place at a certain point in time.
Solana skyrocketed over the course of 2021, with a single token gaining 12,000% in a yr and reaching $250 by November. Nonetheless, even before the demise of FTX, Solana faced a series of public fights that undermined the protocol’s claim that it was superior technology.
Much of Solana’s popularity has been built across the growing interest in NFTs. Serum, one other exchange backed by Bankman-Fried, was built on Solana. Because the calendar shifted to 2022, Solana’s limitations began to grow to be apparent.
Just a month a yr network failure he defeated Solana for over 24 hours. The Solana token dropped from $141 to a low of just over $94. In May, Solana experienced seven-hour outage after knocking NFTs flooded the validators and crashed the network.
“A record 4 million transactions [per second]eliminated Solana and caused the value of her token to fall by 7%, CoinTelegraph reported right nowpushing it further into the red through the violent start of crypto winter.
In June, one other failure caused a decrease of 12%. The hours of downtime got here after validators stopped processing blocks, disabling Solana’s advertised consensus mechanism and forcing the network to restart.
The outages were worrying enough for a protocol that sought to topple the dominance of ether and secure its position as a stable, fast platform. Solana publicly experienced growing pains. The project was first launched in 2020 and is a younger protocol than ether which was launched in 2015.
Technological challenges are to be expected. Unfortunately for Solana in the Bahamas, something else was about to occur.
The SEC called it a “brazen” scam. Bankman-Fried’s use of customer money at FTX to finance all the things from trading and lending at his hedge fund, Alameda Research, to his lavish lifestyle in the Caribbean has rocked the crypto markets. Bankman-Fried was fired for $250 million bond last week while he awaits trial for fraud and other criminal charges in the southern borough of Recent York.
Solana from November 2022, the month FTX didn’t file for bankruptcy protection.
Solana lost more than 70% of its total value in the weeks after FTX filed for bankruptcy in November. Investors ran away from anything related to Bankman-Fried and the costs of FTT (FTX native token), Solana and Serum dropped dramatically.
The founder of Solana, Anatoly Yakovenko he told Bloomberg that as an alternative of specializing in price motion, the general public should proceed to give attention to “getting people to construct something amazing that’s decentralized.”
Yakovenko didn’t immediately reply to CNBC’s request for comment.
FTT fared the worst, losing virtually all of its value. But Solana has seen constant flight in recent days, reflecting continued concerns about FTX contagion and skepticism concerning the long-term viability of its own protocol.
Essentially the most pressing problem is the flight of programmers. Solany’s raison d’etre was the answer to the Bitcoin-ether struggle “to scale above 15 transactions per second globally,” in keeping with the developer documentation. Based on Token Terminal, the number of lively developers on the platform has dropped to 67 from an October 2021 high of 159.
Multicoin Capital, a cryptocurrency investment firm, maintains a bullish stance on Solana. Even after the FTX implosion, Multicoin continued to strike an optimistic tone regarding the suddenly beleaguered blockchain.
“We realized that SOL is more likely to underperform in the near term given its link to SBF
and FTX; nonetheless, for the reason that starting of the crisis, we’ve got decided to carry our position based on various aspects,” Multicoin wrote in a message to partners obtained by CNBC.
Multicoin and other outstanding crypto voices maintain that the results of FTX highlight the necessity for a return to basics for the crypto industry: moving away from centralized exchanges to decentralized finance (DeFi) and self-care.
some increase in every day activity in the mean time, the peerless Binance may suggest that many crypto enthusiasts have yet to take this letter to heart.
No wonder Yakovenko still believes in Solana. Nonetheless, even Vitalik Buterin, the person behind ethereum, voiced his support for Solana on Thursday. “It’s hard for me to inform from the surface, but I hope the community gets a fair likelihood to grow,” Buterin wrote on Twitter.
Chris Burniske, a partner at Web3 enterprise capital firm Placeholder, said he “still misses” Solana in a December 29 Twitter thread.
Crypto has seen mass adoption due to centralized platforms comparable to FTX, Crypto.com, and Binance. FTX spent tens of millions of dollars on stadium deals and naming rights. Crypto.com has invested heavily in significant promoting campaigns. Even Binance announced sponsorship relationship with the Grammys.
2023 could prove to be a breakthrough yr for Def as curious cryptocurrency investors search for safer ways to gather returns and store their assets. Bitcoin was born out of the 2008 financial crisis. Now the cryptocurrency industry is facing its own test.
“Lehman was not the tip of the banking sector. Enron was not the tip of the energy industry.
And FTX won’t be the tip of the crypto industry,” Multicoin told investors.
– Ari Levy and MacKenzie Sigalos of CNBC contributed to this report.