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What was Once one of the More Promising Cryptocurrencies is now Down 94% in the Past Year. What Went Wrong With Solana?

Short answer? FTX happened. But let’s dive a bit deeper into it.

However, let’s first talk about what Solana was supposed to be.

The biggest draws of Solana were that it was fast and had cheap transactions. It was reportedly suggested to handle 65,000 transactions per second with the average cost per transaction being $0.00025. Solana can do that because it uses proof-of-history (proof-of-history provides a way to cryptographically prove the passage of time and where events fall in that timeline), and a unique algorithm to validate transactions. 

Sounds great right? So why did the FTX crash by default affect Solana?

FTX Link With Solana

As mentioned in my last article on the situation, Almeda Research is the sister company to FTX.

In a 2021 private initial coin offering, Solana raised close to USD $300 million from a variety of private investing organisations, including Almeda Research (ICO). Almeda effectively received ownership of a share of SOL in exchange for their participation in the financing round. 

The initial fall of Solana started when there were rumours that the exchange was disposing of assets, such as SOL, to stabilise its own native coin, FTT. This was due to the recent disclosure of liquidity issues that it has. According to reports, Almeda had SOL tokens that were both unlocked and locked and were valued at billions of dollars. All of these gave the purported dumping more credibility, and neither party has refuted or confirmed this rumour.

Furthermore, FTX and Solana had established several other investment partnerships outside of the company’s interests. Early in 2022, FTX and CoinShares worked together to launch a Solana-related ETP that was backed by real tokens and shared its profits with investors. According to reports, Sam Bankman Fried contributed 1 million SOL as the initial finance. 

Such partnerships and investments are more than typical but just not when the company investing crashes overnight like FTX and Almeda. 

NFT Decline

However, this wasn’t the only cause of the currency’s decline in the past year. In addition to the connections to FTX, a sharp decline in Solana-based NFT activity is a major factor contributing to the token’s decline. 

This is contrary to earlier this year when NFTs were a major factor in the currency’s success. 

The total weekly users across all NFT platforms on Solana decreased by more than 33% from 122,410 the week before to 81,811 this week, according to Nansen data.

Solana co-founder Anatoly Yakovenko tweeted that development company Solana Labs didn’t hold any assets on FTX and had enough financial runway for around 30 months. Another co-founder, Raj Gokal, said this was a “crucible” moment for the ecosystem, adding “each time, we’re stronger.” All cryptocurrencies were affected by the FTX situation this past week, and Solana most definitely the most. Whether this is the end of Solana or just something they’ll be able to pivot from is something only time will be able to show.

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