How Badly is Solana Exposed to FTX contagion — An Overview

LUCKNOW (CoinChapter.com) — Solana (SOL) price has declined by over 70% in the aftermath of the collapse of its biggest investor, FTX. On Nov 16, the token was changing hands for around $14. And now, Solana’s revelations about the degree of its exposure to the FTX fiasco have raised concerns about more disasters ahead.

The article shows that Solana Labs Inc and the Solana Foundation, parent firms of the Solana network, have been in constant dealings with FTX and its sister company Alameda since August 2020. FTX and Alameda collectively owned over 58 Million SOL tokens, representing 11% of its total supply. 

The stark amount of SOL resources held by FTX is certainly troubling for investors. Since FTX filed for bankruptcy, liquidating its SOL holdings could trigger an even larger collapse for Solana. 

However, social media user @alex_valaitis said that, for the moment, it remained unclear how many SOL tokens have been dumped already versus how many would be locked up in litigation. 

Talking about SOL’s market value, the user added – “It’s not entirely clear how much of this was from FTX/Alameda dumping vs. other insiders/holders dumping out of fear.” 

SOL DeFi Takes Major Hit 

With lower translation fees, faster processing speed, and the potential to scale, Solana’s future looked bright as the project made its way to the upper echelons of the cryptoverse. However, these advantages began to fade after the network suffered numerous outages and hacks.

The recent FTX collapse incentivized retail investors and traders to pull out their funds from the network. This can be observed in the Total Value Locked on Solana’s network. 

Source: Defillama

Total Value Locked, or TVL is a summation of all the coins deposited in all the functions DeFi protocols offer, including staking, lending, and liquidity pools. A high TVL count indicates money entering a blockchain, while a declining TVL points to capital depletion. 

Since the FTX fiasco triggered a wider market collapse, Solana TVL was nearly completely wiped out, declining from $9.95 Billion to its Nov 16 value of $329 Million. 

User @alex_valaitis confirmed that the bulk of the decline was due to a top decentralized exchange Serum, which provided liquidity for Solana protocols. Interestingly, the protocol was launched by none other than Sam Bankman Fried. 

Source: Twitter

Furthermore, Solana’s wrapped tokens, which provide liquidity to its DeFi network, were also connected with FTX. 

Solana’s wrapped tokens $soBTC and $soETH were heavily dumped on the market since they were both backed by collateral on FTX. As a result, both tokens were down by over 84% over the week. 

Future of Solana? 

While the near-term future for Solana remains unclear, many think that the Ethereum killer would eventually steady the ship.

This is largely due to its thriving NFT ecosystem, which remains the 2nd largest ecosystem despite recent price crashes. 

Solana could weather the storm since it still has many use cases, considering its Phantom wallet, partnerships with Instagram, and the launch of StepN – a fitness app linked with Solana’s network.