Solana's 30 days of Fright, re-examine the past, present and future of this "VC chain"

In this article:0xLaughingBeat the BlockBeats

BTC/SOL/FTT decline comparison

In the last month, the whole crypto world has been shrouded in the cloud of FTX/Alameda thunder events. First of all, DeFi, NFT and other sectors under each public chain ecosystem have been affected to varying degrees and experienced a decline, especially Solana ecosystem which is closely related to FTX. Based on its relative high on Nov. 5, the price of Solana Eco's native Token SOL fell as much as 66.9 percent from 38.79 to 12.84, compared with BTC's maximum drop of 25.4 percent.

The overshoot has shattered investor confidence, and even the DeGods series, Solana's biggest NFT project, is getting bad news and seems to be planning to "escape" Solana for another public chain. For a moment, the "Solana is dead" argument was rampant.

This paper tries to make an in-depth interpretation of the reasons for this phenomenon, the possible future trend of Solana, and reposition Solana in the current public chain competition from the following questions:

• What effect did FTX thunder have on Solana's ecology that made the project owners flee?

• What is the cause of Solana Eco overselling?

• Will a subsequent liquidation of FTX push Solana further into the abyss?

• What does it mean for Solana to lose the VC "VC chain"?

• What are the future advantages and challenges of Solana's layout for post-disaster reconstruction?

directory

What impact has the FTX thunder had on the Solana ecology?

The Token price in the ecosystem fell sharply

Solana price K chart

Based on the relative high on November 5, the price of Solana Eco's native Token SOL dropped from 38.79 to 12.84, with a decrease of 66.9%, and 94.4% compared with the record high of 229.94, returning to the low price in March last year. That almost wiped out the year-and-a-half gains and put them back where they started.

The price of the mainstream DeFi Token on Solana fell all the way along with Sol. For example, the price of SRM dropped by 87.2%, Ray by 73.6%, Orca by 56.8% and SLND by 60.3%. At the same time, the normal operation of these DeFi protocols has been seriously affected.

Liquidity crunch and TVL plunge

Since most of the liquidity in the crypto market is dominated by a few large market makers such as Alameda, Wintermute, Amber Group, Genesis, etc., the market liquidity plummeted as Alameda, one of the largest market makers, announced that it would stop trading. To make matters worse, Amber Group, Wintermute and Genesis have all died following the FTX explosionannouncedTheir money is tied up in FTX. The liquidity crunch is exacerbated by the combination of buildings collapsing and retail investors fleeing in panic,

BTC and ETH liquidity changes

According to Kaikoreports, since November 5, the day CoinDesk published its survey of Alameda's balance sheet, BTC liquidity within 2% of the midpoint has fallen from 11.8k BTC to just 7k, the lowest level since early June. The ETH market was also affected by the crash, with the market plunging to levels last seen at the end of May.

In fact, the liquidity of BTC and ETH has stabilized in the crypto market as a whole, and a deep drop in trading will not cause much disruption to the market, but Alameda has invested in dozens of projects and holds millions of dollars worth of illiquid tokens. Since Alameda is also a market maker, It can be assumed that they are also the main liquidity providers for these same tokens. Solana, with its close ties to FTX/Alameda, was at the forefront of the liquidity collapse.

The depth of the SOL Token market changes

The KaikodataShows the liquidity of SOL-USDT /USD/BUSD trading pairs on 9 trading platforms before and after the Alameda storm. It is found that the total market depth of all order books has decreased by 50% from 1 million SOL to less than 500k, and this decrease is felt on every trading platform.

Serum/MAPS market depth changes

Similarly, the depth of SRM and MAPS also showed a huge drop, indicating that market making activity has been severely affected by the Alameda thunder.

Solana ecological TVL plummets

Solana ecological TVL drops sharply, and TVL of each DeFi protocol shows continuous outflow. Solana now has approximately $290 million of TVL remaining on its platform, a decrease of approximately 80.6% compared to three months ago (TVL was $1.5 billion as of August 25, 2022), It is down about 97.1% from its peak (peak TVL of $10.17 billion on November 9, 2021). Mainstream DeFi deals have also seen significant outflows in the past month, with Marinade, Lido and Raydium's TVL all retracting more than 60 per cent.

Stablecoin fled

Solana's market has seen the withdrawal of stablecoins and continued decline in value

According to thereportsOn November 18, Tether officially announced that it would coordinate with third parties to execute cross-chain transactions to transfer 1 billion USDT from Solana Blockchain to Ethereum ERC-20. The DeFiLlamadataThe market values of USDC and USDT on the Solana chain were $2.11 billion and $1.81 billion, respectively, as of November 8, but have dropped to $1.16 billion and $800 million, respectively. As you can see, both official and retail Stablecoin holders are moving away from Solana.

The DeFi protocol is suspended due to the intermittent breakdown of the prophecy machine and the delay of price chain

The oracle Pyth is down intermittently

On Solana, Pyth is mainly used as a predictor to feed the market price to each DeFi protocol in real time. However, after the ferment of FTX thunder event, the Solana market fluctuated too much, and the chain was full of MEV arbitrage trading, loan agreement clearing transactions, etc., which led to network congestion, and the price data of Pyth prophecy machine could not be updated on the chain in time, thus leading to the failure of the normal operation of many DeFi protocols. Subsequently, Solend and Port Finance suspended deposits, while Zeta Markets, Katana and Kamino Finance halted operations.

DeFi protocol "denounce" the seer Pyth

For thisThe problemThe affected DeFi protocols also implied on Twitter that it was the quotation problem of the prophecy machine and the stability of the Solana chain that led to the occurrence of many accidents.

Serum was hacked, the private key taken over by FTX, and serum was suddenly forked in chaos

Serum is the central order-book trading DEX in the Solana DeFi ecosystem and is widely used in the Solana ecosystem, with many applications trading on Serum as its back-end DEX, which is SBFpraiseReally, totally without trust.

However, following the "FTX hack" on Nov. 11, people familiar with the matter said Serum had always been in the hands of the FTX Group, which had the key to renew the license, but did not know who it was and could not contact Serum's developers and maintainers.

In this case, an emergency remedy was taken to prevent hacking attacks from spilling over onto Serum and damaging Solana's ecosystem. Serum was subsequently forked by developers from projects including Mango Markets, Jupiter, and Switchboard, and the forked protocol was namedOpenBook.

On the other hand, Solend, Jupiter, Raydium, Mercurial Finance and other Solana-based DeFi protocols, as well as apps including the Phantom Wallet, limited exposure to Serum on Nov. 12, Disconnects the price data predictor and closes the token trading pool/suspends its trading on the central limit order book.

The lending system is unable to clear bad debts

Solend claims that network congestion makes it difficult for whales to clear

On November 9, Solana Eco's Token price fell sharply in the wake of the FTX explosion, which triggered a loan liquidation on Solana's lending protocol Solend. According to thereports, after an unidentified whale borrowed $44 million in SOL worth $51 million and had to be liquidated due to the declining value of the SOL collateral. However, when prices plunged 43 per cent in 48 hours, the on-chain SOL liquidity took a huge hit, leaving Solend struggling to liquidate the whale account.

To attract depositors and incentivize borrowers to repay their loans, thereby increasing liquidity, Solend's team tried to address this sudden situation by raising the interest rate on SOL to more than 2,500%. In addition, they created a Binance account to handle SOL clearing, as SOL on Binance is more liquid than the Solana chain itself.

Despite the commendable efforts of the Solend team to speed up the liquidation of the whale accounts, the combination of rapidly falling SOL prices, failed liquidation, and low trade slippage due to the liquidity crunch eventually led to insolvency (selling the SOLs as collateral would not have paid off the lenders' supply), Solend ended up with $6.5 million in bad debt.

Solend initiated a vote to use the Treasury to pay for the bad debt

Eventually, however, Solend initiates the DAOThe proposalVoted, wanted the bad debt to be paid by the Treasury, and voted. Since some of the whale's debt was thus transferred, it also avoided liquidation and further selling of SOL, which would have caused prices to fall and caused an even bigger crash.

soBTC/soETH issued by FTX/Alameda is not callable

soBTC has seriously shed anchor

According to thereports，11 月 12 日，据 Sollet 界面公告显示，由 FTX 或 Alameda 在 Solana 上发行的 soBTC 目前已不可赎回，当前 soBTC 价格暴跌 77%，交易价格仅为 3,866 美元。此外，Sollet 钱包上的 soETH 也下跌了 9%，当前交易价格仅为 1138 美元。 开源投资组合跟踪器 Rotkiapp 创始人在社交媒体上发文表示，Solana 链上封装 Token 资产都由 FTX/Alameda Research 托管，这意味着相关 Token 将不再可赎回，未来可能会归零。

So far, according toCoinGeckoData show that the soBTC price has fallen to $1,026, and the soBTC/BTC ratio has plummeted from around 1 to 0.06, a decline of as much as 94%; The soETH price has fallen to $184, and the soETH/ETH ratio has plummeted from around 1 to 0.14, a drop of 86%.

'Davis Double Play' in NFT panic Sell-off

DeGods are priced in USD

The collapse of Solana eco-token price also triggered a stampede of NFT selling panic. As the price of NFT and Sol fell at the same time, a "Davis double murder" occurred. Take DeGods, the largest NFT project on Solana, for example, according toSol SniperSince the FTX explosion, its floor price has plunged 71.33% in USD from $9,206 to $2,639, data show.

What is the cause of Solana Eco overselling?

Symbiotic relationship between Solana ecology and FTX

SBF's most popular "SOL Enclosure"

"I buy as many $3 SOLs as I can get."

This articletweetsIn perhaps the most direct illustration of the link between SBF/FTX/Alameda and Solana, venture capital funds have flocked to Solana on the back of the SBF call. Solana Labs raised $314 million in funding in June 2021, Alameda Research, CMS Holdings, CoinShares, Jump Trading, Multicoin Capital, Sino Global Capital and others participated in the investment. The "Ethereum killer", known for its high scalability and low transaction fees, was born. With the capital call, the price of SOL Token soared, peaking as high as $260 in November 2021.

In addition to Solana, FTX Ventures/Alameda has also participated in the construction and financing of a large number of Solana ecological projects. Examples include Serum, Dust Labs, Oxygen, Neon Labs, Pyth Network, Chingari, Zebec, Coral, Vybe Network, Genopets, and more.

Investment and ecological construction make the relationship between FTX/Alameda and Solana increasingly close. On the one hand, the investment and resources that Solana obtains from FTX help its ecological development rapidly; on the other hand, FTX also gains rich returns from Solana's ecological investment. This will show up in FTX's liabilities.

FTX's last minute balance sheet

According to the Financial TimesreportsA purportedly last-minute balance sheet from FTX showed that on November 10th it held $982 million worth of SOL, $2.188 billion of SRM and $616 million of MAPS, all of which it had single-hantedly backed in the early days of Solana. Before the collapse, they were valued at $2.245 billion, $5.43 billion and $865 million, respectively.

The symbiotic relationship between Solana ecology and FTX can be seen here: First of all, FTX supported the rapid development of Solana ecosystem in the early stage, and obtained low price chips through investment. After pushing up the price of these tokens, FTX constructed seemingly huge asset reserves with these Solana tokens with low circulation and high FDV.

This symbiotic relationship, then, led to a panic sell-off of Solana-type tokens as asset reserves when FTX was reported to be insolvent.

Solana Eco Some of the project side's money is deposited in FTX

According to the Solana FoundationThe statementAs of Nov. 6, when FTX stopped processing withdrawals, the Solana Foundation had about $1 million in cash or cash equivalents on FTX. As of November 14, Solana Foundation still had about 3.24 million ordinary shares of FTX Trading LTD, 3.43 million FTT tokens and 135 million SRM tokens in FTX.

The Star Atlas debacle still has 50% of Treasury funds trapped in the FTX

Some Solana-affiliated projects have also suffered, such as Star Atlas, one of Solana's best-known GameFi projects, which still has 50% of its Treasury funds tied up in FTX.

In other words, if these Solana-like projects become trapped and can't get new funding, they will become unsustainable, and when investors can't assess the real damage FTX is doing to these projects, they will panic and sell for risk.

Will FTX's subsequent liquidation push Solana further into the abyss?

According to the Solana FoundationThe statementTogether, Solana Foundation and Solana Labs sold more than 58 million SOLs to FTX and Alameda Research, representing about 10% of the total supply.

The announcement further stoked fears that FTX might sell SOL en masse. Could a subsequent liquidation of FTX push Solana further into the abyss? In fact, these SOLs may not sell off in the near term for a number of reasons.

Much of the SOL sold to FTX/Alameda is still locked up

Details of capital exposure issued by Solana Foundation

Details of the deal can be found in the details provided by the Solana Foundation: FTX received 4 million Sols from Solana Foundation on August 31, 2020 and a total of 12 million SOLs starting on September 11, 2020 through a "linear monthly unlock" mechanism, And receive nearly 34.52 million SOLs from January 7, 2021 through the "linear monthly unlock" mechanism; FTX received 7.5 million Sols from Solana Labs on February 17, 2021, to be unlocked in full on March 1, 2025, received approximately 62,000 SOLs on May 17, 2021, It will be fully unlocked on May 17, 2025.

As you can see, most of these SOLs are locked up and won't be unlocked until 2028 at the latest.

With Mt.Gox in mind, liquidations can last for years, a period that amounts to a lock-up

On November 12, FTX announced that FTX US, Alameda Research, and approximately 135 additional affiliates have voluntarily and orderly begun the process of reviewing and monetizing all stakeholder benefits under Chapter 11 bankruptcy proceedings.

FTX has debts of at least $10bn to $50bn, according to its bankruptcy filing. Chapter 11 allows a company to go through a reorganization process overseen by a U.S. federal bankruptcy court, which is very different from Chapter 7, which requires the immediate liquidation of a company with no prospects for recovery. Companies that file for Chapter 11 bankruptcy must submit a reorganization plan to the court and have the opportunity to be "resurrected" with the help of government support and debt restructuring, and then continue to operate their businesses. At the same time, a Chapter 11 company may not make any material decisions regarding its operations or financial activities without the approval of the court, and the bankruptcy court may intervene in the restructuring of the company's debt and the fulfillment of its obligations.

In other words,The court will not immediately sell the tokens held by FTX and Alameda Research such as SOL. In order to give creditors as much money back as possible, all assets will be auctioned off to the highest bidder, which is equivalent to an over-the-counter transaction rather than a direct sale on the secondary market. In addition, with reference to the Mt.Gox incident, bankruptcies and liquidations can last for many years, during which time the tokens are essentially locked up without selling pressure on the market.

The Solana Foundation lost only a fraction of its money and is still operating normally

According to Solana Foundation's balance sheet exposure to FTX/Alameda, Solana Foundation has approximately $1 million in cash or cash equivalents on FTX, which is less than 1% of Solana Foundation's cash or cash equivalents. Therefore, The impact on Solana's operations will be negligible.

Solana Labs founder Anatoly Yakovenko says the team is currently well-funded

Solana Labs founder Anatoly Yakovenko also tweeted on November 9 that the team currently has enough money to operate for about 30 months, during which time Solana can cut costs or raise money to extend the project's life.

What does it mean for Solana to lose the VC "VC chain"?

Initial token allocation comparison of public chain

In the initial token allocation, according toMessari's dataShows that approximately 48% of Solana's tokens are owned by insiders, including members of the Solana Labs team and venture capital institutions, leading to the persistent stigma of "VC chain."

With the FTX explosion, some of the institutions that had invested in Solana also sold SOL in the process, and the "VC chain" lost its VC. To evaluate whether this was good or bad for Solana and its ecology, you need to look at what has changed and what has not changed in the process.

Technically, Solana is still the same high performance public chain

Solana has been committed to being the "fastest high performance public chain" from the very beginning. It uses PoH, Tower BFT algorithm, Turbine protocol, Sealevel and other technologies to build a completely different system architecture, which gives it higher speed and lower cost than other blockchains.

Solana's average daily TPS is above 3000

According to thereportsSolana's transaction volume per second hit a record high of 8,453 TPS and the daily average TPS was above 3,000. In comparison, Ethereum TPS is around 30, and the highest TPS is 86.77 (ethtps.info). The highest TPS recorded on Ethereum's most popular L2 solution, Arbitrum One, is 286, which is also well below Solana. Not to mention, Solana is theoretically capable of up to 710,000 TPS. Its TPS is comparable to Visa and Mastercard, making it quickly an industry leader in terms of speed and global scalability.

Average transaction fees per chain (Source: A16Z)

In addition to transaction speed, Solana's transaction fees are much lower than those of Ethereum. A transaction on Ethereum typically costs $10 + in Gas Fee, while a transaction on Solana costs just $0.00001.

Solana has technically performed well even during the FTX explosion, and it remains a high performance public chain known for its high scalability and low transaction costs.

Passive demining and the loss of VC optimize Solana's token allocation and decentralization to some extent

As mentioned above, although Solana sold a large part of its SOL tokens to VC, due to FTX thunderstorms, many institutions sold out of risk control in the process of SOL decline, and the SOL controlled by FTX would also be in a passive lock-up state for a long period of time.

The removal of FTX/Alameda and the reduction of SOL controlled by VC have optimized Solana's token allocation and decentralization to a certain extent, which helps Solana rebuild and develop its image from scratch, thus removing the stigma of "VC chain".

The VC confidence, but also doused the enthusiasm of "free rider"

FTX had the trust and financial backing of the world's leading investors, including Tiger Global, Sequoia Capital and BlackRock, which had participated in the fund raising.

With the collapse of the $32 billion unicorn, VCS and investors have suffered heavy losses, and could dent confidence in other crypto investments for a long time.

In addition, the disenchantment of white elites and top investment institutions will also dampen the enthusiasm of ordinary retail investors to "free ride". In other words, if ordinary investors are too superstitious about the star products that are "touted" by VCS, they flock to them and may be "cut leek" if they make a little mistake. Solana ecological crash should be a wake-up call to people.

What are the future advantages and challenges of the Solana layout for post-disaster reconstruction?

Backed by a strong developer community

Solana is second only to Ethereum in the number of developers it has

Solana is backed by a strong and committed developer community. According to Xangle, Solana Eco had only 2,405 developers in August 2021, but this number has grown by 761% in one year, to 20,717 in November 2022. Solana is second only to Ethereum in the number of developers it has, and the fact that Solana Hacker House has become one of the most popular blockchain events (with approximately 64,000 attendees in 2022) is a testament to Solana's popularity with developers.

NFT's ecological achievements are remarkable

Solana has the second largest NFT ecosystem

According to theCRYPTOSLAM DataThe Solana NFT market has long ranked second in terms of transaction volume, behind Ethereum. In the meantime, Solana has spawned a number of highly recognized NFT projects, such as DeGods, y00ts, Okay Bears, Solana Monkey Business (SMB), and Degenerate Ape Academy (DAA).

Instagram and Facebook have both endorsed Solana NFT

With Instagram recentlyannouncedSupport Solana NFT. Expectations are high that Solana will continue to grow in the NFT market in the future, and this is a good opportunity for Solana to further emerge from the circle.

We will actively expand the multi-chain ecosystem

Solana expands multi-chain ecology

Solana is actively expanding multi-chain ecology in many aspects. For Ethereum, NEON EVM, which allows developers to extend Ethereum dApp on Solana directly by migrating code, takes advantage of Solana's strengths without having to refactor code with Rust, is about to launch on December 12.

Solana is further extended by Eclipse, the universal Layer 2 protocol, which is designed to enable developers to deploy their own rollup powered by Solana virtual machines and use any chain for secure data storage. Eclipse has partnered with a number of public ecosystems, including Celestia, Oasis Labs, Polygon, Cosmos, and NEAR, and received a development grant from the Solana Foundation, To support the development of rollup powered by the Solana virtual machine.

It will take time to rebuild the ecosystem and restore confidence

The data suggest that developers seem to be moving out

While Solana is second only to Ethereum in the number of developers, according toArtemis dataThe number of developers and progress on Solana has declined in the last month or two.

DeGods may migrate to another chain

In addition, the NFT community seems to be wavering. Frank, the founder of DeGods, the largest NFT project on Solana, asked the community after FTX thunderstorms if they would consider migrating to a chain such as ETH.

These phenomena indicate that developers, builders and investors all show a lack of confidence in the Solana ecology to some extent. Solana Foundation is also making active attempts to restore the confidence in the ecology, such as canceling the pledge of about 12.5 million SOLs within the next two epochs. The Solana Foundation's plan to "re-pledge" them, rather than sell or transfer them, will go some way to persuading investors not to panic further, but it will take time to rebuild the Solana ecosystem and restore it to its former prosperity.

Old problems like outages need to be solved

Solana outages frequently

Solana has been plagued by network reliability issues, experiencing at least seven network outages since its launch in 2020, according to SolanaSolana status report, went down for more than 18 hours in January, more than five and a half hours in May, and the last extended outage of more than six hours occurred in October.

Anatoly Yakovenko, founder of Solana Labs, said the outage was caused by validators not being able to handle transaction loads at peak times, To this end, Solana has solved the problems of network congestion and downtime by means of QUIC, Stake Weighted QoS, Fee Market and Firedancer.

It's tough against challengers like Ethereum Layer2, Aptos, Sui

Solana used to rise rapidly with the advantages of ultra-high TPS and low transaction fees, and was once dubbed as the "Ethereum killer". However, due to frequent outages in the past year, many reliability problems were exposed, and it still could not shake the powerful multi-chain ecosystem of Ethereum. In addition, the emerging public chains such as Aptos and Sui better tell the high-performance narrative of the original Solana with the new consensus mechanism and MOVE language.

Some developers and projects chose to "betray" and prepared or already migrated to Aptos. In this context, Solana ecology suffered from FTX thunderstorms, which resulted in capital loss and damage to confidence. Compared with Aptos and Sui, Solana ecology may be less attractive in terms of financing at present. This is worse.

Solana needs to survive this challenge with its accumulated advantages and successfully solve the existing problems such as downtime, which is a serious challenge.

conclusion

AC used to be in hislong"The spirit of Crypto is similar to the concept of self-sovereignty, self-guardianship and self-empowerment, while the culture of Crypto is similar to the concept of wealth, equity, enrichment and ego. The culture of Crypto kills the spirit of Crypto."

Solana ecology should represent the Crypto spirit, but when it is surrounded by greedy centralized capital, it only hopes on the builder community, while ignoring the risks of mortgage assets, Token allocation, data provider of prediction machine and other aspects. Finally, when the capital tower collapses, "Crypto culture kills Crypto spirit".

Solana's second Breakpoint Summit in Lisbon

While the FTX storm was brewing, Solana was hosting its second Breakpoint summit in Lisbon, where developers were buzzing about the future of Solana's ecosystem and the crypto market was collapsing. Breakpoint stands for "breakpoint," meaning a place in a program where you deliberately stop or pause for debugging purposes. There is a certain drama in the fact that Solana was hit by the fish and set a "break point."

Now, the VC Chain is working hard to minimize the negative impact of the Black Swan event and restore confidence to rebuild, hoping that it can find its way back to the new challenges.

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