Is Solana dead? Top projects are leaving the blockchain

Key points

• Solana has lost 95% of its value, falling from $54.5 billion to $4.4 billion
• His connection with Sam Bankman-Fried has led to further downward price movements
• Top projects have left the blockchain this year due to concerns about Solana’s long-term future

For crypto investors, 2022 was a year to forget.

But despite all the pain, the fans of Solana more than most. At the beginning of 2022, Solana, with a market capitalization of $54.5 billion, was the fifth largest crypto in the world. Today it is sixteenth in the ranks, having lost over 95% from its peak and is now valued at $4.4 billion.

What happened to Solana?

First, the obvious. The macro climate has taken an immeasurable turn in the last year. After a decade of low interest rates and the money printing machine flowing freely, the US Federal Reserve pulled the plug.

And so, for the first time in its short history, cryptocurrency is facing a bear market in the wider economy. During the explosive bull market of the last decade, anything with a pulse delivered dizzying returns. But now the party is over.

However, a comparison between Solana and Bitcoin shows how severe the underperformance was.

Solanas outages are a massive problem

The first problem is the constant dropouts. I wrote in June about how Solana reminds me of my broken headphones. They’re great when they work, but since I have to constantly twist, unplug and reconnect the headphones to listen to music, they’re not very useful to me.

Solana is like those headphones. It has put its market-leading TPS and cheap gas fees to the test for a while, positioning itself as an “ETH killer” and thereby enjoying a flood of interest and high gains during the pandemic.

Of course, as I said above, this was during a time of expansion for all risk assets, and due diligence in the cryptocurrency altcoin space wasn’t exactly as granular as it should have been. There were – and are – serious problems under the hood of Solana, as outages continue at a relentless pace.

How useful is a blockchain if it shuts down frequently?

Back in June, I wrote in an article that “I’m getting tired of using the words ‘potential,’ ‘could,’ and ‘maybe’ when talking about Solana.” Since then, the price has plummeted another 70%, and the market seems to have all but given up hope of Solana achieving any significance.

The rise of Layer 2s also threatens Solana’s core premise and attacks its core use case. Layer 2s work, which is a simple statement that Solana simply cannot claim for itself at the moment.

Sam Bankman-Fried

Phew. Over the last month, it’s been difficult to talk about anything crypto-related without mentioning the golden knight turned arch-villain, Sam Bankman-Fried. But unfortunately, his downfall had dire consequences for Solana.

The disgraced founder of FTX was a staunch early supporter of Solana, with the token even appearing on FTX’s much-watched balance sheet as it desperately sought last-minute investors. In fact, Bankman-Fried was Solana’s biggest champion.

I’ll buy as much SOL has you have, right now, at $3.

Sell me all you want.

Then go fuck off.

— SBF (@SBF_FTX) January 9, 2021

Critics now argue that SOL’s vertical rise during the pandemic was caused in part by Bankman-Fried’s interventions. SOL token distribution was also notorious for being VC-heavy, meaning whale wallets were likely able to influence their price significantly more than other cryptos.

In the almost two months since the implosion of FTX Solana has struggled significantly more than other cryptos.

Given the revelations about what happened behind closed doors at FTX, investors fear that some of Bankman-Fried’s support for SOL was through fraudulent activity. Caroline Ellison, CEO of Alameda and a close confidant of Bankman-Fried, has told the SEC that Bankman-Fired intentionally manipulated the FTT token. In this context, what is to say that he didn’t do the same for SOL?

Regardless, the mere association with the scammer was enough to damage Solanas’ prospects.

Projects and capital leave Solana

Looking at DeFi, the total value locked (TVL) on the Solana blockchain is now $217 million, up from over $10 billion at the end of 2021.

Perhaps even more worrying is the migration of projects from Solana to rival blockchains. Prominent NFT collections DeGods and y00ts announced last week that they were migrating to Ethereum and Polygon respectively, a hammer blow for Solana believers.

“There is an argument that (DeGods) has reached a cap on Solana,” said Rohun Vora, project lead of DeGods and creator of y00ts, in a Twitter Spaces. “It’s hard to accept, but it’s been difficult to grow at the pace we want to grow. If Ethereum is where we need to go to continue to grow, then that’s what we need to do.”

Solana’s slide was so severe that even its supposed biggest rival, Ethereum creator Vitalik Buterin, came in to say a few kind words. It speaks volumes about SOL’s decline as it’s hard to even call it a rival to Ethereum anymore as it’s now not even in the top 10 blockchains in terms of TVL.

Some smart people tell me there is an earnest smart developer community in Solana, and now that the awful opportunistic money people have been washed out, the chain has a bright future.

Hard for me to tell from outside, but I hope the community gets its fair chance to thrive🦾🦾

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

Can it recover?

The question now is, are all of these problems permanent? Can SOL bounce back? Well, the problem here is two-fold. As Vitalik notes, “the horrible opportunistic money people have been washed out.” Although this is significantly damaging to SOL, as previously discussed, it does indicate a short-term problem.

On the other hand, there are countless issues that predate the Bankman-Fried saga and still remain problems. Solana’s market-leading TPS and cheap fees are great, but they come with a trade-off against security and stability, which users have felt strongly with the much-publicized issues over the past year.

Personally, I think Solana has a very difficult road ahead. The tide has gone out for the entire altcoin space, and it is now evident how much these projects were valued based on zero interest rates and the pandemic FOMO frenzy. With inflation still high, a weak geopolitical climate, and many more bearish variables and uncertainties, the macro climate is not going to change anytime soon.

That makes any altcoin a risky bet. But for Solana in particular, which is fighting an additional battle with some of its biggest projects abandoning it, its most famous backer being a scammer and potentially manipulating its price, and a wave of negative sentiment, things are especially grim.

I hope the developers stick with it and the underlying potential is eventually realized. But in this climate, the catalysts for a price increase back to where it was just aren’t there at the moment.