- SOL has increased in value 7x since the FTX-induced downturn.
- Solana’s network advantages and a loyal developer community fueled a comeback.
This time last year, Solana [SOL]the popular smart contract network, grappled with perhaps its biggest challenge.
One of the largest crypto exchanges in the world at the time, FTX, collapsed in spectacular fashion, triggering a domino effect on entities with exposure to the bankrupt platform. The Solana ecosystem was one of them.
Although not directly related to FTX, SOL was widely supported by the exchange’s disgraced co-founder Sam Bankman-Fried (SBF). So much so that critics held SBF’s campaign partially responsible for the token’s previously seen price increase.
Apart from this, FTX has made significant investments in projects built on the blockchain.
Solana’s supporters did not know that the association would come back to haunt them immensely.
The fall and rise
Native token SOL plunged to an all-time low in the days following the implosion. From a record high of $259 just a year ago, the asset fell below $9 in the latter stages of 2022.
In addition, users, capital and projects began to leave the network.
According to data retrieved by AMBCrypto from DeFiLlamaBetween the first week of November, when the issue surfaced, and the end of 2022, liquidity worth $769 million was drained from Solana.
The sentiment surrounding the project, once positioned as Ethereum [ETH] murderer, was at an absolute low point.
But like all good things, all bad things must come to an end!
Cut to 2023 and Solana may have written the best comeback ever in the history of cryptocurrencies.
If a year ago, amid all the FUD, you believed in SOL’s long-term prospects and resisted the temptation to sell, congratulations! If you read this piece, you would be seven times richer with your SOL holdings.
Most of the gains came at the end of the year, as seen below. Broader market optimism, combined with Solana’s performance throughout the year, propelled SOL to a market capitalization of $44.83 billion at the time of writing, the fifth largest of all cryptos.
Source: CoinMarketCap
The increase in the price of SOL also increased the USD value of the capital invested in various projects on Solana. At the time of writing, the TVL stood at $1.42 billion, erasing all the losses incurred in the aftermath of the FTX collapse.
Source: DefiLlama
What’s behind the turnaround?
Nearly all the analysts AMBCrypto spoke to cited Solana’s fundamental advantages as key to the turnaround. Rahul Maradiya, co-founder and global CEO of Dubai-based blockchain ecosystem CIFDAQ, said:
“Solana has a vibrant community of developers looking to take advantage of its innate scalability. Mainly thanks to its transaction speed, it can boast many usage scenarios.”
The sentiment was echoed by Jeff Owens, co-founder of layer 1 blockchain Haven 1, who argued:
“The fact that Solana is fast, cheap and seems to have shaken off the reliability issues that plagued the chain in 2021 seems to indicate that Solana is here to stay.”
Solana even credited the hard work of the developer community in turning things around. In a statement shared via post, Solana Foundation Chief Strategy Officer Austin Federa said:
“The collapse of FTX hit the entire industry hard, but the position the network is in today is entirely down to the resilience and capabilities of Solana’s global builder community. The Solana community went back to work, built up because of the bear, and a year later we see the culmination of that determination and effort.”
At first glance, these arguments make sense. Solana is one of the fastest blockchains currently in use at the time of writing, with an average of 3,500 transactions per second (TPS) in the past month, according to Solscan.
Theoretically, Solana can handle 50,000–65,000 TPS, in line with payment giants from the Web2 world. By comparison, Ethereum, the much larger smart contract network, was on average in between 10-13 TPS during the year.
Source: Solscan
Moreover, Solana also offers exceptionally low transaction fees compared to Ethereum.
The average transaction costs paid by Solana users in the past period were 0.00003304 SOL, or $0.002, according to SOL’s market value at the time of writing. On the other hand, Ethereum charged 48 gweion average equal to $2.19 to validate a transaction.
It was clear that Solana never lost its fundamental strengths – cost-effectiveness and speed – crucial qualities for any blockchain worth its salt.
Such network advantages can go a long way in attracting decentralized applications (dApps) in various areas such as finance, gaming and non-fungible tokens (NFT).
This is precisely why many developers of the ecosystem stayed with the network and contributed to its growth.
The year that passed
Amid the relative calm of the bear market, Solana focused on building high-profile partnerships with Web2 giants.
Perhaps the most important of these was the partnership with payment giant Visa. The partnership included expanding its stablecoin settlement capabilities to the Solana chain.
The development was enthusiastically welcomed by the Solana community as a major TradFi player first considered the network for payments.
While Visa was already using Ethereum [ETH] For the pilot project, the decision to add support for Solana was driven by its high transaction throughput and low fees.
Visa recognized Solana’s strategic benefits and announced the partnership.
In addition, Solana announced the integration of Solana Pay, its proprietary payment solution, with popular e-commerce company Shopify.
The integration allowed merchants and merchants to avoid the high transaction fees typically associated with Web2-based third-party payment processors.
Solana’s technical prowess was also recognized by colleagues from the Web3 community. MakerDAO, a leading stablecoin issuance protocol, was considering using Solana instead of Ethereum for its upcoming standalone blockchain.
Maker’s co-founder Rune Christensen praised Solana’s technical capabilities, stating that the PoS network would remain the best to meet Maker’s specific needs.
He also attributed the strong developer ecosystem as a key reason behind choosing Solana.
Just the ‘Fire’ Solana needed
It’s no secret that Solana has a history of downtime issues and network shutdowns. Co-founder Anatoly Yakovenko even went so far as to mention network outages “Solana’s Curse” in one of his older interviews.
Solana suffered the first major network outage of 2023 in February, which lasted almost twenty hours. Since then, however, the network has maintained 100% uptime.
But even these one-off issues could be a thing of the past once Solana’s upcoming validator client, Firedancer, gets going. Firedancer, an alternative to the existing natively developed client, is being developed by a third party.
Solana director Austin Federa commented:
“At the Foundation, we look forward to the launch of FireDancer, a brand new validator client for the Solana network. Having a second validator client implementation will further increase the resiliency and reliability of the network.”
At the time of writing, the test version of Firedancer has been launched, with the mainnet launch expected in the first half of 2024.
Solana finally becomes BONKers
During the height of the FTX-induced negativities, Solana introduced a dog-themed token Bonk [BONK]. The stated purpose of the meme coin was to shift the focus from “toxic Alameda tokenomics.”
Although the asset initially succeeded in bringing a positive atmosphere to SOL, it quickly faded into irrelevance. However, the real show started much later.
The year-end rally and improving sentiment around the Solana ecosystem trickled down to the meme coin.
From a market cap of $10 million in mid-October, BONK exploded to $1.29 billion on December 17, delivering an unreal 106x return for holders.
The surge made BONK the third largest meme coin on the market, AMBCrypto noted CoinMarketCaps facts.
Source: CoinMarketCap
Unlike some of the other memecoins that have no use, BONK has use cases in the Solana ecosystem, including using the token as payment for NFTs.
What next for Solana?
Now that Solana is all set to end 2023 on a high note, the next question on Solana enthusiasts’ minds will be: what should we expect in 2024?
As for the much-discussed ‘Ethereum Killer’ story, it could probably get a good night’s sleep. Most experts AMBCrypto spoke to ruled out the possibility of Solana dethroning Ethereum anytime soon.
Stefan Rust, CEO of independent economic data aggregator Truflation, opined:
“I don’t think Solana is an Ethereum killer. There is already too much momentum and strong leadership behind the Ethereum network, to the extent that Ethereum is no longer building on ETH alone. Furthermore, the liquidity advantage available on Ethereum will be very difficult to catch up on.”
However, Solana backers still have a lot to look forward to. On the prospects of SOL storming the top 5 cryptos by market cap in 2024.
To that extent, Johnny Gabriele, head of decentralized finance at Web3-native incubation studio CryptoOracle, made a bold prediction.
“At the top of this bull market, Coinmarketcap will say: 1. Bitcoin 2. Ethereum 3. Solana. I believe that one day three will live in harmony.”
Rahul Maradiya also gave a thumbs up to Solana’s chances of making it into the top 5,
“As Solana continues to rise, there is the very real possibility that BNB becomes entangled in the ongoing Binance-related drama. BNB doesn’t need to crash for Solana to take off. Instead, they only need to move marginally in opposite directions.”
Take the challenges into account
Perhaps the biggest barrier to achieving these goals will come from regulators.
Recall that the US Securities and Exchanges Commission (SEC) labeled SOL, along with a few other major cryptos, as securities in a lawsuit filed against Binance earlier this year.
The regulators’ crackdown this year, and in general, has caused significant damage to the targeted entities. No matter how strong the fundamentals appear to be, it may all ultimately come down to compliance and legality.
Second, FTX received court approval to liquidate the recovered crypto assets and pay out creditors who have been patiently waiting for their money since the platform’s demise last year.
The problem: It could put significant downward pressure on SOL.
SOL was FTX’s largest holding company, according to a recent report from Coin gecko. At approximately 55.8 million, this equated to almost 13% of the asset’s circulating supply.
If all SOL shares are dumped on the market, the price of SOL risks falling to the lows seen after last year’s stock market collapse.