Solana’s ecosystem was unstoppable in 2021 as it expanded at a rapid pace. DeFi’s Serum and Raydium projects, as well as Mango Markets were funded. NFT markets like Magic Eden started to compete with Ethereum rivals such as OpenSea and the network experienced record-breaking transactions. Alameda Research was a major contributor to this rise, but it also had a significant dependence on FTX.
The two companies founded by Sam Bankman Fried, who has since been incarcerated, were early and important backers of Solana. Alameda was involved in many funding rounds. They acquired a large amount of SOL Tokens. FTX organized Solana hackathons. They also played a key role in launching Serum – a decentralized trading platform that was the flagship application of Solana.
Initially, the close relationship with FTX seemed to be an advantage. Bankman-Fried — who was viewed at the time as something of a visionary — became one of Solana’s most vocal supporters, frequently touting its superiority over Ethereum. It helped Solana gain liquidity, credibility among developers and institutions. But it was also a sign that Solana would be closely related to FTX’s success.
Everything unraveled in November 2022. It was reported that FTX suffered an $8 billion deficit in its financial statements, allegedly due to Alameda’s reckless practices and the founder SBF. The panic spread quickly. FTX clients rushed out to withdraw money, triggering a liquidation crisis the exchange couldn’t survive. Within days FTX had imploded and Alameda was in the same boat. Both exchanges lost billions and Sam Bankman Fried’s empire became a sand-sized void.
It was a catastrophic fallout for the crypto industry as a whole, but Solana suffered most. Fearing further contagion from the market, investors rushed to sell their holdings. SOL had fallen from an all-time price high of $250 to a trading level around $37. This decline was largely due to the bear market, however the fall of FTX pushed its price even lower. It now stands at $9.77.
The DeFi network activity ceased instantly. Serum, a trading platform that relied heavily on FTX, crashed, forcing traders to look for alternative solutions. Web3 users, who were already skeptical about Solana due to past outages on its network, have now branded it as “Sam’s Chain,” The blockchain was too near the sun, and it would soon fade away. The crash did not last as long as many expected. Solana recovered above $20-24 in the weeks that followed, but remained stuck for most of the year at a sideways stagnant price.
There was no doubt that the emotional toll of this disaster outweighed any economic damage. The developers who built on Solana began to question the future of the network. Venture capitalists, who were once keen to finance Solana startup companies, have now turned their attention to Ethereum, and its promise of L2s. Even as walls began to close in on Solana, the core community of this deeply committed project refused to give up. Convinced the technology would work, a small group of dedicated creators, validaters, and users insisted on continuing to develop and propagate. Will their conviction be sufficient?
Next time: The comeback. How Solana resisted the odds and rebuilt itself from the ashes to regain its position as a Web3 powerhouse.
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