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Solana's Accelerated Year-Long Slide Wipes Over $50 Billion

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The Solana logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland, August 21, 2021.

Jakub Porzycki | NurPhoto | Getty Images

Solana was touted as the cryptocurrency that would challenge ether with a more environmentally friendly approach, faster transaction speeds, and more consistent costs.

Investors who made that bet had a miserable year. The token’s market capitalization fell from over $55 billion in January to just over $3 billion by the end of the year.

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One of Solana’s biggest issues at the end of 2022 was her close relationship with FTX founder Sam Bankman-Fried, who faces eight charges of criminal fraud after his crypto exchange went bankrupt last month. The disgraced former crypto-billionaire was one of Solana’s most public boosters, touting the benefits of blockchain technology and investing over half a billion dollars in Solana tokens.

“Sell me anything you want,” Bankman-Fried told a skeptic in January 2021. “So go.”

Bankman-Fried companies owned nearly $1.2 billion of the token and associated assets as of June, according to documents reviewed by CoinDesk.

When FTX collapsed, investors bailed out Solana for about $8 billion. But in recent days, when the rest of the crypto world was relatively calm and prices were stable, Solana fell further.

two of the greatest non-fungible token (NFT) built on Solana announced their migration off the Solana platform on Christmas Day. But the recent slides came after news had already broken, making Solana’s recent slide a mystery.

Last week, Solana was down more than 30%. Ether remained stable, losing 1.7% over the same period, while bitcoins fell only 1.2%. Among the 20 most valuable cryptocurrencies tracked by CoinMarketCap, the next biggest loser over this period is Dogecoinwhich fell 9%.

In just one hour of trading on Thursday, Solana slid 5.8%, bringing it back to the lowest since the start of 2021, around the time Bankman-Fried began to vocally supports the project.

Solana has since come out of the lows, with a market cap now exceeding $3.5 billion. Its 24-hour trading volume is up over 200% on a relative basis.

At the peak of the crypto market in 2021, Bankman-Fried was not alone in being optimistic.

The developers were delighted with Solana’s support for smart contracts, pieces of code that execute pre-programmed directives, as well as an innovative proof-of-history consensus mechanism.

Consensus mechanisms are how blockchain platforms assess the validity of an executed transaction, tracking who owns what and how well the system is performing based on consensus among multiple record-keeping computers called knots.

Bitcoin uses a proof-of-work mechanism. Ethereum and its rival Solana use proof of stake. Rather than relying on energy-intensive mining, proof-of-stake systems require heavy users to offer collateral, or stakes, to become “validators.” Instead of resolving for a cryptographic hash, as with bitcoin, proof-of-work validators verify transaction activity and maintain the blockchain’s “books”, in exchange for a proportional reduction in transaction fees.

Solana’s supposed differentiator increased proof-of-stake with proof of history — the ability to prove that a transaction took place at a given time.

Solana has soared through 2021, with a single token gaining 12,000% for the year and hitting $250 in November. However, even before the FTX collapseSolana faced a series of public struggles, which challenged the protocol’s claim that it was superior technology.

Much of Solana’s popularity has been built around the growing interest in NFTs. Serum, another exchange backed by Bankman-Fried, was built on Solana. When the timeline shifted to 2022, Solana’s limitations began to become apparent.

Barely a month in the year, a network failure shot Solana for over 24 hours. Solana’s token fell from $141 to just over $94. In May, Solana experienced a seven hour blackout After the NFT strike flooded the validators and crashed the network.

A record four million transactions [per second]Solana came out and caused the price of his token to drop 7%, CoinTelegraph reported at the timepushing it further into the red during the deadly start of the crypto winter.

Why Anatoly Yakovenko left traditional technology for co-founder Solana

In June, another breakdown caused a 12% drop. The hours of downtime came after validators stopped processing blocks, bringing Solana’s vaunted consensus mechanism to a standstill and forcing the network to restart.

The outages were concerning enough for a protocol that sought to overthrow ether dominance and establish itself as a stable and fast platform. Solana was experiencing growing pains in public. The project was first built in 2020 and is a younger protocol than Ether, which went live in 2015.

Technological challenges are to be expected. Unfortunately for Solana, something else is brewing in the Bahamas.

The second called him “shameless” fraud. Bankman-Fried’s use of FTX client money to fund everything from trading and lending in its hedge fund, Alameda Research, to its lavish Caribbean lifestyle rocked the crypto markets. Bankman-Fried was released on a $250 million obligation last week as he awaits trial on fraud and other criminal charges in the Southern District of New York.

Solana since November 2022, the month FTX failed and filed for bankruptcy.

Solana lost more than 70% of its total value in the weeks after FTX filed for bankruptcy in November. Investors shunned anything associated with Bankman-Fried, with the prices of FTT (the native token of FTX), Solana and Serum plunging dramatically.

Anatoly Yakovenko, founder of Solana told Bloomberg that instead of focusing on price action, the public should stay focused on “getting people building something awesome that’s decentralized.”

Yakovenko did not immediately respond to CNBC’s request for comment.

The FTT is the one that has suffered the most, losing almost all of its value. But Solana has seen continued flight in recent days, reflecting lingering concerns about FTX Contagion and skepticism about the long-term viability of its own protocol.

Developer leakage is the most pressing concern. Solana’s raison d’etre was to solve bitcoin and ether’s struggle “to top 15 transactions per second globally,” according to the developer. Documentation. But active developers on the platform fell to 67 from 159 in October 2021, according to Token Terminal.

Multicoin Capital, a cryptocurrency investment firm, maintained a bullish stance on Solana. Even after the FTX implosion, Multicoin continued to set an optimistic tone about the suddenly beleaguered blockchain.

We recognized that SOL was likely to underperform in the short term given its affiliation with SBF
and FTX; however, since the onset of the crisis, we have decided to maintain the position based on various factors,” Multicoin wrote in a message to partners. obtained by CNBC.

Multicoin and other leading crypto voices argue that the FTX fallout highlights the need for a homecoming for the crypto industry: a transition away from centralized juggernaut exchanges in favor of decentralized finance (DeFi) and self-care.

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One increased daily activity as of today, Binance, unparalleled, might suggest that many crypto enthusiasts have yet to take this missive to heart.

It’s no surprise that Yakovenko continues to believe in Solana. Yet even Vitalik Buterin, the man behind Ethereum, voiced his support for Solana on Thursday. “Hard for me to say from the outside, but I hope the community gets its fair chance to thrive,” Buterin wrote. on Twitter.

Chris Burniske, Partner at a Web3 venture capital firm, said he “still wanted” Solana during a press conference in December. 29 Twitter feed.

The crypto has seen massive adoption through centralized platforms such as FTX, Crypto.com, and Binance. FTX has spent millions of dollars to stadium deals and naming rights. Crypto.com heavily invested in leading advertising campaigns. Even Binance announced a sponsorship link with the Grammys.

2023 could prove to be a pivotal year for defi, as crypto-curious investors look for safer ways to earn returns and safekeeping their assets. Bitcoin was born out of the 2008 financial crisis. Now the cryptocurrency industry is facing its own test.

Lehman was not the end of the banking industry, Enron was not the end of the energy industry.
And FTX will not be the end of the crypto industry,” Multicoin told investors.

CNBC’s Ari Levy and MacKenzie Sigalos contributed to this report.

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