- SOL has surged 7x in value since the FTX-induced recession.
- Solana’s network advantages and loyal developer community helped prepare it for its return.
Around this time last year, popular smart contract network Solana (SOL) faced perhaps its biggest challenge yet.
The spectacular collapse of FTX, one of the world’s largest cryptocurrency exchanges at the time, had a knock-on effect for companies exposed to the bankrupt platform. The Solana ecosystem was one of them.
Although not directly related to FTX, SOL has received widespread support from disgraced exchange co-founder Sam Bankman-Fried (SBF). Critics have blamed SBF’s campaign for being partially responsible for the token price increases seen previously.
In addition to this, FTX has made significant investments in projects built on blockchain.
Little did Solana supporters know that the Society would come back to haunt them in a big way.
fall and rise
Native token SOL plummeted to historic lows in the days following the collapse. From an all-time high of $259 recorded just a year ago, the asset has fallen below $9 in its dying stages in 2022.
Additionally, users, capital, and projects are starting to leave the network.
According to data obtained by AMBCrypto from DeFiLlama, $769 million worth of liquidity was lost on Solana between the first week of November when the issue surfaced and the end of 2022.
Sentiment towards the project that was once positioned as an Ethereum (ETH) killer is at an all-time low.
But like all good things, all bad things must come to an end!
Fast forward to 2023, and Solana has scripted one of the greatest comebacks in cryptocurrency history.
A year ago, amidst all the FUD, if you believed in SOL’s long-term prospects and resisted the temptation to sell, congratulations! After reading this article, your SOL holdings will be 7x richer.
As you can see below, most profits flourished towards the end of the year. Broader market optimism, combined with Solana’s performance for the year, has brought SOL’s market capitalization to $44.83 billion at the time of writing, making it the fifth-largest of all cryptocurrencies.
Source: CoinMarketCap
The surge in SOL prices also increased the USD value of capital invested in Solana’s various projects. At press time, TVL was worth $1.42 billion, recouping all of the losses incurred following the FTX collapse.
Source: DefiLlama
What’s behind the twist?
Almost all analysts interviewed by AMBCrypto cited Solana’s fundamental strengths as key to its turnaround. Rahul Maradiya, Co-founder and Global CEO of Dubai-based blockchain ecosystem CIFDAQ, said:
“Solana has an active developer community aimed at leveraging its innate scalability. “We can boast many use cases, especially thanks to our transaction speed.”
This sentiment was echoed by Jeff Owens, co-founder of layer 1 blockchain Haven 1, who argued:
“The fact that Solana is fast, cheap, and appears to have shaken off the reliability issues that have plagued the chain in 2021 seems to indicate that Solana is here to stay.”
In fact, Solana itself acknowledged the work of the developer community in turning the situation around. Austin Federa, head of strategy at Solana Foundation, said in a statement shared via his email:
“The collapse of FTX was a huge blow to the entire industry, but where the network is today is entirely due to the resilience and capabilities of Solana’s global community of builders. The Solana community got back to work and built through bears, and a year later we are seeing the culmination of that determination and hard work.”
On the surface, these claims have validity. According to Solscan, Solana is one of the fastest blockchains at the time of this writing, averaging 3,500 transactions per second (TPS) over the past month.
In theory, Solana can handle 50000-65000 TPS by working with the payment giants of the Web2 world. In comparison, Ethereum, a much larger smart contract network, averaged 10-13 TPS per year.
Source: SolScan
Additionally, Solana offers very low transaction fees compared to Ethereum.
The average transaction fee paid by Solana users in the last epoch was 0.00003304 SOL, or $0.002, based on the market value of SOL at the time of press. Ethereum, on the other hand, charged a fee. 48 On average, it costs $2.19 gwei to verify a transaction.
It was clear that Solana had never lost its fundamental strengths of cost-effectiveness and speed, which are the core characteristics of any blockchain worth its salt.
These network advantages go a long way in attracting decentralized applications (dApps) in various areas such as finance, gaming, and non-fungible tokens (NFTs).
This is why many developers in the ecosystem have stuck with the network and contributed to its growth.
year gone by
Amid the relative calm of the bear market, Solana has focused on forging high-profile partnerships with Web2 giants.
Chief among them was its partnership with payments giant Visa. This partnership includes extending stablecoin payment capabilities to the Solana Chain.
The Solana community enthusiastically cheered this development, as it was the first time a major TradFi player was considering the network as a payment method.
Visa was already using Ethereum (ETH) in pilot projects, but decided to add support for Solana because of its high transaction throughput and low costs.
Visa acknowledged Solana’s strategic advantages in announcing the partnership.
Additionally, Solana announced that it is integrating its native payment solution, Solana Pay, with popular e-commerce company Shopify.
The integration allowed merchants and entrepreneurs to bypass the high transaction fees typically associated with Web2-based third-party payment processors.
Solana’s technical prowess has also been recognized by its peers in the Web3 community. MakerDAO, a leading stablecoin issuance protocol, considered using Solana instead of Ethereum for its upcoming standalone blockchain.
Maker co-founder Rune Christensen praised Solana’s technical capabilities, saying the PoS network would be best suited to address Maker’s specific needs.
He also cited the strong developer ecosystem as a key reason for choosing Solana.
All I needed was ‘Fire’ Solana.
It’s no secret that Solana has a history of downtime issues and network outages. In fact, co-founder Anatoly Yakovenko even called the network outage “the curse of Solana” in a previous interview.
Solana experienced its first major network outage in February 2023, which lasted nearly 20 hours. However, the network has maintained 100% uptime since then.
However, these one-off glitches may become a thing of the past once Solana’s upcoming validator client, Firedancer, goes live. Firedancer, an alternative to existing homegrown clients, is being developed by a third party.
Solana executive Austin Federa said:
“The Foundation is looking forward to the launch of FireDancer, an entirely new verification client for the Solana Network. “The implementation of a second validator client will further improve the resilience and reliability of the network.”
As of this writing, a test version of Firedancer has been released, with mainnet launch expected in the first half of 2024.
Solana finally became a BONKers.
At the height of the negative reviews surrounding FTX, Solana launched Bonk (BONK), a dog-themed token. The stated goal of the meme coin was to shift focus away from the ‘toxic Alameda token economics’.
Although the asset initially succeeded in injecting a positive vibe into SOL, it quickly became irrelevant. But the real show started much later.
The year-end rally and improved sentiment surrounding the Solana ecosystem trickled down to meme coins.
From a market capitalization of $10 million in mid-October, BONK exploded to $1.29 billion on December 17, giving holders an unrealistic 106x return.
This surge makes BONK the third-largest meme coin on the market, AMBCrypto said, using data from CoinMarketCap.
Source: CoinMarketCap
Unlike some other memecoins that lack utility, BONK has use cases in the Solana ecosystem, such as using the token as an NFT payment method.
What’s next for Solana?
With Solana poised to end 2023 on a good note, the next question on Solana enthusiasts’ minds is — what to look for in 2024?
As far as the widely publicized ‘Ethereum killer’ story is concerned, you can probably get a good night’s sleep. Most experts interviewed by AMBCrypto ruled out the possibility of Solana dethroning Ethereum any time soon.
Stefan Rust, CEO of independent economic data aggregator Truflation, said:
“I don’t think Solana is the Ethereum killer. There is already too much momentum and strong leadership behind the Ethereum network for Ethereum to no longer be built on ETH alone. Moreover, the liquidity advantages available on Ethereum will be very difficult to match.”
But Solana backers still have a lot to look forward to. It is predicted that SOL will enter the list of top 5 cryptocurrencies by market capitalization in 2024.
Johnny Gabriele, head of decentralized finance at Web3-based incubation studio CryptoOracle, made a bold prediction.
“At the peak of this bull market, Coinmarketcap will say: 1. Bitcoin 2. Ethereum 3. Solana. I believe that one day the three of us will live in harmony.”
Rahul Maradiya also gave a thumbs up to Solana’s chances of making the top five.
“As Solana continues to rally, it is very likely that BNB will get caught up in the ongoing Binance-related drama. BNB does not need to crash for Solana to rise. Instead, each should move only slightly in the opposite direction.”
Be mindful of the challenge
Perhaps the biggest obstacle to achieving these goals comes from regulators.
Recall that the U.S. Securities and Exchange Commission (SEC) labeled SOL along with several other major cryptocurrencies in a lawsuit it filed against Binance earlier this year.
This year’s regulatory crackdowns have generally caused significant harm to the companies they target. No matter how strong the underlying principles may seem, it can ultimately come down to compliance and legality.
Second, FTX received judicial approval to liquidate recovered cryptocurrency assets and repay creditors who have been waiting patiently for their money since the platform was shut down last year.
Problem – This can put significant downward pressure on SOL.
According to a recent report by CoinGecko, SOL was FTX’s largest holding. At approximately $55.8 million, it represents nearly 13% of the asset’s circulating supply.
If the entire stock of SOL is sold in the market, there is a risk that the price of SOL will fall to the lowest level since the exchange crash last year.