Solana: Domino effects from FTX crash – does SOL still have a future?

Nov 14, 2022

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Solana: Domino effects from FTX crash – does SOL still have a future?

Originally posted here.
By: guido

Overview

Solana (SOL) was known for playing a central role in the strategies of the bankrupt crypto empire of FTX and Alameda Research. Now Solana is […]

The Post

Solana (SOL) was known for playing a central role in the strategies of the bankrupt crypto empire of FTX and Alameda Research. Now Solana is in danger of being swept away by the bankruptcy maelstrom.

When it became clear in the middle of last week that Sam Bankman-Fried’s crypto empire consisting of FTX and Alameda Research was going bust, eyes immediately turned to Solana (SOL) as well. That’s because Bankman-Fried had consistently backed Solana, and his companies held major portions of their reserves in SOL. A total crash of Solana, which was thought to be possible, has not yet occurred, but a 50 percent drop in price remains a shock. Experts like Satoshi Stacker  try to classify the future chances of Solana.

In the short term, Solana must therefore expect negative trends to continue. After all, FTX and Alameda Research will be forced to sell their SOL holdings, with an estimated value of a good $1 billion, in bankruptcy proceedings. But more serious in the medium term is how FTX and Alameda Research are intertwined with the entire Solana ecosystem. They invested heavily in DeFi projects like Serum (SMR) that relied on SOL as a base. These investments now need to be predictably monetized to provide for FTX customer compensation. In addition, DeFi projects in the Solana ecosystem have often relied on FTX as a crypto exchange through which to connect to the fiat system. Here, millions in FTX assets are also likely to be frozen, triggering funding gaps for projects. Another piece in the puzzle: Wrapped tokens for Solana’s ecosystem for mapping Bitcoin (BTC) or Ethereum (ETH), for example, are now sudden shaky candidates and could suffer from being trapped in FTX’s bankruptcy estate.

In this respect, Satoshi Stacker does not expect SOL to be given the all-clear for the time being. The data from DeFi-Llama  show that at Solana, parallel to the FTX crash, about 50 percent of the capital previously invested there was withdrawn in the DeFi division. This is important because the DeFi use cases in particular were a strong pro-SOL argument. Satoshi Stacker believes: Only if developers, community and investors give Solana a second chance can the ecosystem hope for a future. After all, the Solana team has stated that it has no reserves invested in FTX and still has funds for around 30 Monte. In this respect, the Solana Foundation is apparently still fully capable of acting for the time being. It is also considered encouraging that Solana has more than 11 million active users and that other key figures demonstrate an active and growing ecosystem.

Conclusion: Solana under heightened scrutiny

You will find voices other than Satoshi Stacker’s on the crypto scene regarding Solana, but optimists are in short supply. Investments in SOL have become a high-risk business. It will likely take months to gain more transparency on how deeply FTX, Alameda Research, Sam Bankman-Fried and other illiquid market participants are entangled in the Solana ecosystem. At this point, therefore, you should definitely do your own research if SOL appeals to you – Solana’s foundation is proving fragile and prospects for a rebirth of the ecosystem are influenced by many external factors.

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