The Solana logo and an image of cryptocurrencies displayed on a phone screen are seen in this illustration photo taken on Aug. 21, 2021, in Krakow, Poland.
Jakub Porzycki | NurFoto | Getty Images
Solana was introduced as a cryptocurrency that would challenge ether with an eco-friendly approach, faster transaction speeds and more consistent costs.
These betting investors had a miserable year. The token’s market capitalization fell from more than $55 billion in January to more than $3 billion at the end of the year.
Among Solana’s biggest problems at the end of 2022 was his close relationship with FTX founder Sam Bankman-Fried, who faces eight felony fraud charges after the cryptocurrency exchange collapsed last month. The disgraced former crypto-billionaire was one of Solana’s most public supporters, touting the benefits of blockchain technology and investing more than half a billion dollars in Solana tokens.
“Sell me what you want” Bankman-Fried told a skeptic In January 2021. “Then f— off.”
According to documents reviewed by CoinDesk, Bankman-Fried’s companies held roughly $1.2 billion worth of tokens and related assets in June.
When FTX collapsed, investors guaranteed Solan nearly $8 billion. But in recent days, Solana has fallen further as the rest of the cryptocurrency world has been relatively quiet and prices have been stable.
Two of the largest non-fungible token (NFT) projects built on Solana announced on Christmas Day that they were migrating from the Solana platform. But the final slides came after the news had already spread, making Solana’s final slide a mystery.
Solana is down more than 30% in the last week. Ether remained flat, down 1.7% over the same period bitcoin decreased by only 1.2%. Among the 20 most valuable cryptocurrencies tracked by CoinMarketCap, it is the next biggest loser during this period. Dogecoindecreased by 9%.
Solana fell 5.8% in just one hour of trading on Thursday, hitting its lowest level since early 2021 on Bankman-Fried. vocally offers its support to the project.
Solana has hit its lowest point since then, with a market cap now above $3.5 billion. Its 24-hour trading volume is over 200% on a relative basis.
Bankman-Fried was hardly alone in his rise during the cryptocurrency boom of 2021.
Developers appreciated Solana’s support for smart contracts, pieces of code that execute pre-programmed directives, as well as an innovative consensus mechanism that proves history.
Consensus mechanisms are how blockchain platforms evaluate the validity of a transaction performed, tracking who owns what and how well the system is performing based on consensus among multiple record-keeping computers called nodes.
Bitcoin uses a proof-of-work mechanism. Ethereum and competitor Solana use proof-of-stake. Instead of relying on energy-intensive mining, proof-of-stake systems ask large users to offer pledges or stakes to become “validators.” Instead of settling for a cryptographic hash as in Bitcoin, proof-of-work verifiers verify transaction activity and maintain the blockchain’s “books” in exchange for a proportional cut of transaction fees.
Solana’s supposed differentiating factor was to augment proof of stake with proof of history, the ability to prove that a transaction occurred at a specific point in time.
Solana soared throughout 2021, with the single token gaining 12,000% for the year and reaching $250 by November. Even before the collapse of FTX, Solana faced a series of public struggles that challenged the protocol’s claim to be a superior technology.
Much of Solana’s popularity is built around the growing interest in NFTs. Another Bankman-Fried-backed exchange was founded on Serum, Solana. As the calendar turned to 2022, Solana’s limitations began to become apparent.
Just one month into the year, a grid outage put Solan out of business for more than 24 hours. Solana’s token fell from $141 to just below $94. In May, Solana experienced a seven-hour outage after NFT’s validators flooded and crashed the network.
“A record-breaking four million transactions [per second]” It took out Solana and sent its token price down 7%, CoinTelegraph reported at the time, pushing it further into the red during a bruising start to the crypto winter.
Another cut in June led to a 12% drop. The hours-long outage came after validators stopped processing blocks, disabling Solana’s voiced consensus mechanism and forcing the network to restart.
The outages were enough for a protocol trying to raise the bar on ethereum and establish itself as a stable, fast platform. Solana experienced growing pains in public. The project was first built in 2020 and is a younger protocol than ether, which started in 2015.
Technological challenges are to be expected. Unfortunately for Solana, something else was brewing in the Bahamas.
The SEC called it “brazen” fraud. Bankman-Fried’s use of client money at FTX to finance everything from trading and lending at his Alameda Research hedge fund to a lavish lifestyle in the Caribbean has rocked cryptocurrency markets. Bankman-Fried was released on $250 million bail bond last week while awaiting trial on fraud and other criminal charges in the southern region of New York.
Solana from November 2022, the month FTX failed and filed for bankruptcy protection.
Solana lost more than 70% of its total value in the weeks after FTX filed for bankruptcy in November. Investors shunned anything related to Bankman-Fried, with prices of FTT (FTX’s native token), Solana and Serum plummeting.
Solana founder Anatoly Yakovenko told Bloomberg that rather than focusing on price action, the public should focus on “people building something awesome that’s decentralized.”
Yakovenko did not immediately respond to CNBC’s request for comment.
FTT recorded the worst result, losing practically all its value. But Solana has seen a steady flight in recent days amid ongoing concerns about FTX contagion and skepticism about the long-term viability of his protocol.
Developer flight is the most pressing issue. Solana’s reason, according to its developer documentation, was to solve the struggle between bitcoin and ether “to surpass 15 transactions per second worldwide.” According to Token Terminal, active developers on the platform have fallen from a peak of 159 in October 2021 to 67.
Cryptocurrency investment firm Multicoin Capital maintained its bullish stance on Solana. Even after FTX’s implosion, Multicoin continued to strike an optimistic tone about the suddenly blocked blockchain.
“We realized that SOL is likely to underperform in the near term given its relationship with SBF.
and FTX; however, since the crisis began, we have decided to take a stance based on various factors,” Multicoin wrote in a message to partners obtained by CNBC.
Multicoin and other well-known cryptocurrencies highlight the need for a return to basics for the crypto industry: Decentralized finance (DeFi) and a shift away from knightly centralized exchanges in favor of self-regulation.
The spike in daily activity on the now unique Binance may indicate that many crypto enthusiasts have yet to embrace this mission.
It is not surprising that Yakovenko continues to believe in Solan. However, even Vitalik Buterin, the man behind ethereum, expressed his support for Solana on Thursday. “It’s hard for me to say from the outside, but I hope that society will get its fair chance to develop,” Buterin said. on Twitter.
Chris Burniske, a partner at Web3 venture capital firm Placeholder, said on Twitter Dec. 29 that he “still misses” Solan.
Cryptocurrency has gained mass adoption thanks to centralized platforms such as FTX, Crypto.com, and Binance. FTX splashed millions of dollars on stadium deals and naming rights. Crypto.com has invested heavily in prominent advertising campaigns. Even Binance announced a sponsorship tie-up with the Grammys.
2023 could be a key year for def as investors interested in cryptocurrency look for safer ways to generate income and hold their assets. Bitcoin was born out of the 2008 financial crisis. Now the cryptocurrency industry is facing its own trials.
“Lehman was not the end of the banking industry, and Enron was not the end of the energy industry.
And FTX will not be the end of the crypto industry,” Multicoin told investors.
— CNBC’s Ari Levy and MacKenzie Sigalos contributed to this report.