Solana Forced to Clarify Exposure in Wake of FTX Meltdown

Solana Forced to Clarify Exposure in Wake of FTX Meltdown

 Published: November 16th, 2022

The Solana Foundation shared the extent of its financial ties to crisis-ridden firms FTX and Alameda Research this week amid plunging prices for SOL, which has lost more than half of its value since the FTX liquidity debacle began last Tuesday (8th Nov).

Most major coins have seen their value drop significantly over the past seven days as the sudden collapse of popular exchange FTX cratered confidence in the wider crypto market. Solana (SOL) has been hit particularly hard due to its close ties to FTX and embattled founder Sam Bankman-Fried. On Tuesday 15th November the Solana Foundation revealed the extent of its financial links to both.

In a blog on the foundation website, Solana said that it had roughly USD one million in cash or other assets on the exchange before FTX stopped processing customer withdrawals on 6th November. Pending the results of FTX’s bankruptcy proceedings those assets are trapped for the time being. The Foundation noted that the sum amounts to less than one per cent of its funds.

However, the Solana Foundation also holds more than 3.2 million shares of FTX , next to more than 3.4 million FTT tokens and 133 million SRM tokens from the Project Serum decentralized exchange (DEX), another one of Bankman-Fried's businesses.

At time of writing the FTT tokens were valued at about USD 4.34 million, while the SRM tokens were valued at around USD 29.2 million. Both tokens, however, have seen their prices plunge over the past week. On Monday, November 7, Solana’s hoard of FTT tokens were worth about USD 75.4 million, while SRM tokens were worth over USD 100 million.

The blog also explained that FTX and its affiliated crypto trading firm Alameda Research, owned more than 50 million SOL, which were valued at roughly USD 707 million at time of writing. A sizeable proportion of that SOL is held in a monthly unlock schedule that extends to the year 2028.

Even in decentralised currencies, leaders matter

Will Solana be permanently tarnished by its FTX associations? The high-flying coin has already seen its value impacted this year by controversy related to crypto personalities.

In March, SOL was caught up in a rout of Layer 1 network coins that took down market leaders like Terra and Cosmos, which all suffered drops of five per cent or more.

The sudden drop was triggered by an announcement by Fantom Network that key developer Andre Cronje would be leaving the DeFi leader. Fantom saw its value sink by 12 per cent on news of his departure.

Cronje played a central role in expanding the Fantom ecosystem with the launch of Solidly, a new decentralized exchange. Solidly had lifted the total value of all Fantom network projects. On news of his departure however, the network has experienced a crypto version of capital flight.

Alongside Fantom, both the Near Protocol and Cosmos fell in value by close to five per cent, while Solana dropped by closer to six per cent. Terra, the layer 1 blockchain responsible for both the UST stablecoin and the LUNA token, had also lost close to four per cent of its value after an extremely bullish week (wc 28th February), before later imploding.

Smaller layer 1 networks like Harmony and Kadena were also down 4.4 per cent and 4.2 per cent respectively, according to figures from CoinMarketCap.

A layer 1 network is a blockchain that can be used as a sort of base layer for building new crypto applications. It's designed with built-in tools that simplify the creation of things like non-fungible tokens (NFTs), or money markets where users can store stablecoins. Executing a transaction on the network typically incurs a fee which is denominated in a cryptocurency native to the blockchain.

Bitcoin and Ethereum are the biggest layer 1 networks, though Ethereum is the one favoured by developers as its in-built tools make it easier for developers to code. Most of the competing layer 1 networks have their sights on Ethereum, trying to chip away at its dominance by offering faster transaction speeds and lower transaction fees.

As of this week however that rising tide of Ethereum alternatives has lost a significant amount of market allure. While layer 1 cryptos took the brunt of March’s bearish turn, the trend has spread out across the broader crypto market.

Diversified SOL could bounce back

Solana and SOL have been relative bright spots through much of the 2022 crypto bear market. In early October, figures from DappRadar showed that high-value Ethereum NFTs were back in demand, and a rush was on to purchase Solana NFTs in particular.

Solana NFT took off on the back of successful projects like ABC and y00ts. DappRadar said it tracked close to USD 130 million in Solana NFT sales in September 2022, nearly twice the USD 68 million seen in August. The firm tracked USD 945 million in overall NFT trading volume in September, up from USD 925 million in August and USD 914 million in July.

The firm’s data also suggested that OpenSea’s grip on the NFT market was beginning to fade. Though it remains the leading NFT market, posting USD 350 million in trading volume last month, upstart marketplace X2Y2 was closing in fast with USD 296 million in trading volume. Top Solana marketplace Magic Eden saw USD 127 million in September trading volume.

There have also been a few high-profile and high-price sales happening, suggesting there still may be life in the market.

The latest generative art drop from NFT innovator Tyler Hobbs on September 27th pulled in close to USD 18 million in primary sales, while secondary sales reached USD 26 million in the past four days. Over the weekend, a single CryptoPunks NFT, meanwhile, commanded USD 4.3 million on the secondary market.

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