main conclusions
Solana lost 95% of its value, falling from $54.5 billion to $4.4 billion
His association with Sam Bankman-Fried caused more bearish price action
Major projects have fled blockchain this year, out of concern for Solana's long-term future.
For cryptocurrency investors, the year 2022 was unforgettable.
But even with all the market pain, Solana's fans were still hurt more than most. In early 2022, Solana was the fifth largest cryptocurrency in the world, with a market cap of $54.5 billion. Today, it sits at number 16 on the rankings, having lost more than 95% of its peak, now worth $4.4 billion.
What happened to Solana?
First, the obvious. The macro climate has changed immensely over the past year. After a decade of low interest rates and a free-flowing money printing press, the Federal Reserve pulled the plug.
And so, for the first time in the cryptocurrency's short history, it faces a bear market in the broader economy. During the explosive bull run of the previous decade, everything that had a pulse made dizzying returns. But now, the party is over.
That said, plotting Solana against Bitcoin shows just how rigid the underperformance has been.
Sam Bankman-Fried
It's been difficult over the last month to talk about anything crypto-related and not mention the golden knight turned archenemy that is Sam Bankman-Fried. But unfortunately, his fall brought dire consequences for Solana.
The hapless founder of FTX was an early staunch supporter of Solana, with the token appearing on FTX's much publicized balance sheet as it desperately sought out investors at the last minute. In fact, Bankman-Fried was Solana's biggest supporter.
Critics now argue that SOL's vertical rise during the pandemic was partly caused by Bankman-Fried's interventions. The distribution of SOL tokens was also notorious for being venture capital, meaning that whale wallets were likely able to influence their price significantly more than other cryptocurrencies.
In the nearly two months since the FTX implosion , Solana has struggled significantly harder than other cryptocurrencies.
Investors fear that some of Bankman-Fried's support for SOL has come through fraudulent activities, given the revelations about what happened behind closed doors at FTX. Caroline Ellison, CEO of Alameda and a close confidant of Bankman-Fried, told the SEC that Bankman-Fired deliberately manipulated the FTT token. In this context, how can you say he didn't do the same with SOL?
Regardless, the mere association with the fraudster was enough to undermine Solana's prospects.
Projects and capital are leaving Solana
Looking at DeFi, the total blocked amount (TVL) on the Solana blockchain is now $217 million, compared to over $10 billion at the end of 2021.
Perhaps even more troubling is the migration of Solana projects to rival blockchains. Prominent NFT collections DeGods and y00ts announced last week that they are moving to Ethereum and Polygon respectively, a hammer blow for Solana faithful.
"There is an argument to be made that (DeGods) broke with Solana," DeGods project leader and y00ts creator Rohun Vora said in a Twitter Spaces. “It's hard to accept, but it's been hard to grow at the pace we want. If Ethereum is where we have to go to keep growing, then this is what we have to do.”
Solana's slip was so strong that even his supposed biggest rival, Ethereum creator Vitalik Buterin, stepped in to say a few kind words. This speaks volumes for SOL's downfall, as it is difficult to call it an Ethereum rival any longer, as it is now not even in the top 10 of blockchains in terms of TVL.
Can it recover?
The question now is whether all these problems are terminal. Can SOL recover? Well, the issue here is twofold. As Vitalik puts it, “the terrible opportunistic money of the people has been eliminated”. This, while significantly harming SOL, as discussed earlier, points to a short-term problem.
On the other hand, there are numerous issues that predate the Bankman-Fried saga and still remain as obstacles. Solana's industry-leading TPS and cheap rates are great, but it comes with a trade-off in regards to security and stability, something users have felt keenly over the past year with the widely publicized issues.
Personally, I think Solana has a very difficult road ahead of her. For the entire altcoin space, the tide has turned and it is now evident how much these projects have been valued based on zero interest rates and with the frenzy of the pandemic. With inflation still high, a tenuous geopolitical climate and many other pessimistic and uncertain variables, the macro climate is unlikely to change anytime soon.
This makes any altcoin a risky bet. But for Solana in particular, who is fighting an additional battle of some of her biggest projects dropping out, her most famous backer being a fraud and possibly price gouging, and a wave of negative sentiment, things are particularly murky.
I hope the developers keep it up and that the underlying potential ends up being delivered. But in this climate, the catalysts for a price hike back to where it was are simply not present right now.