On November 10, 2022, Solana seemed like the future of the crypto industry. By November 11, that wasn’t so clear anymore. Many labeled the chain dead following the FTX crash, but the fall of Solana didn’t happen overnight.
Over half a year on, we can already see signs of Solana’s resurgence.
So how did Solana rise, and fall, and rise again?
Let’s dive in.
The Rise of Solana
In the crypto beginning, there was Bitcoin. Then, Ethereum came around, proposing a faster, more environmentally friendly blockchain technology. A few years later, the idea of an “Ethereum killer” was introduced; a competitive Layer One blockchain that offered increased transactions per second and lower gas fees – Solana.
Solana’s transaction speed is up to 65,000 TPS as opposed to Ethereum’s 10,000 TPS; at its creation, it was easily the fastest blockchain. Like Ethereum, Solana supports smart contracts and NFTs, allowing for diverse application development. Raydium, Serum, Solend, and Star Atlas are only a few follow-worthy Solana projects. Magic Eden competes with OpenSea as an NFT marketplace, and Audius, a Solana-based decentralized streaming platform, is often dubbed as Spotify killer.
But the real reason behind Solana’s skyrocketing success wasn’t solely its speed and versatility. Solana provided crucial crypto network scalability, supporting the increasing load of nodes without affecting performance. How? By using an innovative consensus mechanism known as “Proof of History.”
Proof-of-History allowed nodes to verify transactions without communicating directly with each other. This enabled many more transactions per second.
The Lingering Issues with Solana
Solana seemed poised to fulfil its title and steal market share away from Ethereum. And for a while, it did, reaching nearly 6% of total DeFi TVL in late 2021.
Unfortunately, by 2022 a number of problems emerged. Solana suffered recurring power outages – first in December 2020, then nine more in 2022. And if 2020 Solana had barely any users on the chain, 2022 disruptions caused major inconvenience to investors, keeping their funds locked for up to 17 hours. In one such instance, SOL fell by over 12%.
Anatoly Yakovenko, Solana’s co-founder, responded by promising a long-term fix. But in the meantime, Solana developed even bigger issues to worry about.
Hacks plagued the network throughout 2022. In August, over $5 million worth of Solana-based tokens were stolen from approximately 8,000 users’ wallets. In October, over $100 million were drained from Mango Markets in a flash loan attack. In that case, hackers borrowed funds without collateral, then bought a huge amount of crypto to artificially raise its price and offloaded the coins.
In May-June 2022, Solana’s on-chain clock drifted about 30 minutes backward, resulting in annualized staking rewards. Solana transaction confirmation times surged to 15-20 seconds, nullifying the chain’s main advantage over the likes of Ethereum.
Place Solana’s troubles against a backdrop of increasing crypto doubt and a bear market, and the chain faced ever-stronger headwinds.
That could be seen clearly in the SOL token’s performance. Late 2021, SOL cruised to record heights, peaking at $258. Then came a string of bad news, and by early 2022 SOL had already lost half its value.
An Overview of Solana’s Market Crash
Fact is, Solana was in decline well before the broader crypto crash. But one particular bear-market blow nearly proved to be a knockout punch for the supposed crypto-killer.
During Breakpoint 2022 conference in Lisbon, Yakovenko talked about the challenges faced by Solana. Little did he know what was to come. Less than two weeks later, over $500 million was drained from Solana following the collapse of FTX. As of November 14,2022, the TVL in Solana’s ecosystem stood at $330 billion. By December, TVL dropped to $10 billion, an astounding 96.75% decline.
Sam Bankman-Fried’s alleged FTX fraud prompted questions for Solana’s founders. SBF was a large investor in the chain and had even founded the Serum project. How much did Solana know about the troubles at FTX, and when? The Solana Foundation was quick to share the details of its financial ties with FTX and Alameda Research, and has so far avoided any investigation.
Regardless, the FTX disaster knocked SOL down another 50%, from around $30 to under $15.
What does the future look like for Solana?
The depths of late 2022 turned into the grim realities of a crypto bear market in 2023. Despite the prevailing headwinds, Solana has gone through the first half with some surprising signs of life. There are several reasons to be optimistic.
First, Solana has a large treasury estimated to last for another two years, taking it well into 2024/2025.
Second, Solana’s developer community is massive. Solana remains a fast blockchain with low fees, an accessible programming language, and many developer tools. Want proof? Take a look at how many recent projects are still adding functionality to the Solana network.
Third, despite the dip, Solana is the second largest NFT ecosystem, right after Ethereum. Solanart, Magic Eden, DigitalEyes Market, and Solsea are standing strong, even if DeGods and y00ts will migrate to other blockchains. In fact, in January 2023, Solana NFTs reached $158,000,000 in sales – twice the previous month, and the highest level since May 2022. And in June, Solana’s NFT market briefly surpassed Ethereum, showing that in NFTs, at least, Solana may yet prove to be an ETH-killer, with AI-powered NFT tools set to make their debut on the network.
Lastly, SOL’s price is already recovering. After dropping to just over $9 at the end of 2022, SOL has surpassed a mark of $23 by mid-January. Many of those still believing in Solana saw the dip as an opportunity to buy low.
Tweets from the Solana community prove users aren’t yet ready to give up on the chain. What’s more impressive, Solana continues to attract new users – daily active wallets have tripled since FTX collapse.
None of those reasons by itself guarantees Solana’s success. But together, they demonstrate a continued case for Solana – and proof that the network lives on.
Keep an eye on Solana for the rest of 2023.
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