Solana logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on August 21, 2021.
Jakub Porzycki | NurPhoto | Getty Images
Among Solana’s biggest problems in late 2022 was its close relationship to FTX founder Sam Bankman-Fried, who faces eight criminal fraud charges after his crypto exchange went bankrupt last month. The disgraced former crypto billionaire was one of Solana’s most public boosters, touting the advantages of the blockchain technology and investing over a half-billion dollars in Solana tokens.
“Sell me all you want,” Bankman-Fried told one skeptic in January 2021. “Then go f— off.”
Bankman-Fried’s companies held nearly $1.2 billion worth of the token and associated assets in June, according to documents reviewed by CoinDesk.
When FTX fell apart, investors bailed on Solana to the tune of about $8 billion. But in recent days, as the rest of the crypto world has been relatively quiet and prices stable, Solana has plummeted further.
Two of the biggest non-fungible token (NFT) projects built on Solana announced their migration off of Solana’s platform on Christmas Day. But the recent slides came after that news had already broken, making Solana’s recent slide something of a mystery.
In the last week, Solana has declined over 30%. Ether has held steady, shedding 1.7% in the same time period, while bitcoin has only dropped 1.2%. Among the 20 most-valuable cryptocurrencies tracked by CoinMarketCap, the next biggest loser over that stretch is Dogecoin, which has fallen 9%.
In just one hour of trading on Thursday, Solana slid 5.8%, bringing it to the lowest since early 2021, around the time that Bankman-Fried began to vocally offer his support for the project.
Solana has since come off the lows, with a market cap now crossing $3.5 billion. Its 24-hour trading volume is up over 200% on a relative basis.
During the crypto market’s heyday in 2021, Bankman-Fried was hardly alone in his bullishness.
Developers raved about Solana’s support for smart contracts, pieces of code that execute pre-programmed directives, as well as an innovative proof-of-history consensus mechanism.
Consensus mechanisms are how blockchain platforms assess the validity of an executed transaction, tracking who owns what and how well the system is working based on a consensus between multiple record-keeping computers called nodes.
Bitcoin uses a proof-of-work mechanism. Ethereum and rival Solana use proof-of-stake. Rather than relying on energy-intensive mining, proof-of-stake systems ask big users to offer up collateral, or stake, to become “validators.” Instead of solving for a cryptographic hash, as with bitcoin, proof-of-work validators verify transaction activity and maintain the blockchain’s “books,” in exchange for a proportional cut of transaction fees.
Solana’s supposed differentiating factor was augmenting proof-of-stake with proof-of-history — the ability to prove that a transaction happened at a particular moment.
Solana soared over the course of 2021, with a single token gaining 12,000% for the year and reaching $250 by November. Yet even before the collapse of FTX, Solana faced a series of public struggles, which challenged the protocol’s claim that it was a superior technology.
Much of Solana’s popularity was built around growing interest in NFTs. Serum, another exchange backed by Bankman-Fried, was built on Solana. When the calendar turned to 2022, Solana’s limitations started to become apparent.
Barely a month into the year, a network outage took Solana down for over 24 hours. Solana’s token fell from $141 to a low of a little over $94. In May, Solana experienced a seven-hour-long outage after NFT minting flooded validators and crashed the network.
A “record-breaking four million transactions [per second]” took out Solana and caused the price of its token to drop 7%, CoinTelegraph reported at the time, pushing it further into the red during the bruising onset of crypto winter.