Byline: Hannah Parker
The collapse of FTX had dire effects on the crypto industry, as other coins were dragged to the pits due to their corresponding financial crisis. The market value price of digital currencies, including Bitcoin and Ethereum, dropped and kept declining with breaking news regarding FTX announcing its dissolution and that they have been hacked, with millions of dollars in crypto vanishing from investors’ wallets. However, FTX countered this by moving the remaining coins into cold storage. This resulted in the market price value of Bitcoin plummeting below $20,000 for the first time since late October 2022, leading to the market price of other cryptocurrencies declining even further. Solana, one of the most popular cryptocurrencies among more than the existing 10,000, is the most adversely impacted coin by FTX’s collapse.
Throughout the week of FTX’s financial crunch and its declaration of bankruptcy, the market value of Solana was dragged to the trenches, with the company suffering a quick and enormous decline. In November 2021, Solana traded at a record high of $259.96. A year later, prices reached a low of $14.12 — a 95% decline. CoinGecko is a data firm providing fundamental cryptocurrency analytics that tracks price, volume, and market capitalization and further tracks community growth, open-source code development, major events, and on-chain metrics. In addition to the aforementioned, since the 8th of November 2022, the coin has plummeted by 51.5%, equivalent to a loss of $5.5 billion in market value. This vastly significant decline consequently led to the collapse of the digital currency.
Why does the FTX scandal impact Solana?
Throughout the week leading to FTX announcing its dissolution and days prior, the two dominating cryptocurrencies, Bitcoin and Ethereum, declined by 22.4% and 24.4%, respectively, in the space of a week. However, Solana suffered the most decline of all currencies, leading to the currency collapsing. Why is this the case? Well, Solana actually has ties with FTX! Here is a breakdown:
Solana is a cryptocurrency with a native coin titled SOL that was first launched in 2017 and had its first block created in March 2020 by Anatoly Yakovenko. The blockchain platform, with a market cap of over $12.438 billion, functions as a worldwide network that supports executable code in the form of smart contracts and a unique proof of history mechanism that enables the network to process thousands of transactions per second. Solana can process a total of up to 50,000 transactions per second. This is achievable as nodes within the network do not need to communicate to validate a block (containers holding a record of transactions on the blockchain).
Now, what ties Solana with FTX?
Solana is interlinked to Serum, a decentralized exchange software built on Solana where traders buy and sell cryptocurrencies. Here’s what’s interesting: Serum was actually created by Sam Bankman-Fried, the notorious founder of FTX, who chose the easy way out by resigning after it was found that FTX went against its terms of service that prevented the company from using customer assets by actually misusing user funds to pay out their company loans and keep the company afloat. They hid behind Alameda, its sister company, and Sam’s trading firm. A balance sheet was leaked to Coindesk, detailing evidence of the misuse of users’ funds.
The balance sheet indicated that by the 30th of June 2022, Alameda had $14.6 billion in assets and $8 billion in liabilities on its balance sheet. Of these assets, $3.66 billion were “unlocked” FTT tokens, of which $2.16 billion were listed as “FTT collateral” and $3.37 billion in “crypto held.” Along with $2 billion in equity securities, $863 million “locked” SOL, the native token of the Solana blockchain, $292 million “unlocked” SOL, and $41 million in SOL collateral. It was further reported that there was approximately $292 million worth of “locked” FTT and $7.4 billion in loans, which comprised most of the trading firm’s liabilities.
Serum is a core aspect and foundation of Solana as it is built on the currency’s blockchain to bring speed and convenience of centralized exchanges to DeFi while remaining fully trustless and transparent. This year alone, Serum processed approximately $32 billion in volume. The unfortunate part is that despite all of these encouraging statistics that give evidence to the efficiency and functionality of both platforms, in the space of a week, everything crashed and burned, bringing both platforms into disrepute due to being associated with Sam Bankman-Fried.
Bitcode method specialist writes current and more in-depth news concerning FTX as more investigations are being conducted regarding its fraud, criminality, and alleged “hack,’’ which left many people wondering if it was perhaps an inside job. The timing could not be more perfect for stealing money while your company is going down in flames, only to cover it up as a “hack.”
Most, if not all, digital currencies are known to be volatile. This means there are seasons when coins will be on a rampant high, and the trading price is low within the market, which is the perfect time to buy and hold a currency until its value inclines again. Then you can sell or trade for a profit. Despite the current happenings, Solana will increase in value again. Such cycles are inevitable, especially because both minute and broadly significant factors can positively impact a currency, leading to a great incline or a low incline. The most crucial aspect is determining if the coin is sustainable and scalable by looking at its core functions, its efficiency and if there is consistent growth from its inception. The main reason Solana is collapsing and being dragged to the pits of no return is due to its association with Sam Bankman-Fried, who fried the crypto-economy leaving great public scrutiny and negative public sentiment regarding cryptocurrency as a whole. However, prior to the FTX saga, Solana functioned as one of the most popular cryptocurrencies in the world, increasingly gaining traction and interest among investors and crypto enthusiasts. Due to its efficiency and core functions, the currency will incline again.