Key Takeaways
- Solana made some big announcements at Breakpoint this weekend, but SOL didn’t respond.
- Solana has faced many challenges during the crypto winter, including persistent outages and a decline in DeFi activity.
- Although Solana has to overcome challenges and face the competition, it remains one of crypto’s strongest and most promising ecosystems.
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Solana is one of many Layer 1 networks that have suffered from the ongoing crypto winter. But sunny skies could return, writes Chris Williams.
Solana impresses Breakpoint
It was a big weekend for Solana as the Layer 1 Network hosted the 2022 edition of its Breakpoint conference. As for SOL? Not so much.
The thousands of Solana fans who came to Lisbon for the Layer 1 blockchain flagship event were treated to several big announcements during the conference. Perhaps the biggest came on Saturday when Google Cloud revealed that it was running a Solana validator and would begin indexing Solana data through its BigQuery product in early 2023. Google Cloud will also make Solana available through its Blockchain Node Engine to help users run their own nodes in the cloud. Per CoinGecko dataSOL immediately rose double digits above $38 when the announcement was made, but the momentum did not last. It has cooled 5.5% since then and is trading around $34 today.
In a different approach to other blockchains such as Ethereum, the various engineers working in the Solana ecosystem have focused on building products for the mass market. An example of such a product is the Saga phone, which aims to be the world’s first Web3-ready smartphone. Solana announced at Breakpoint that it would ship the product to developers as early as next month.
USDC publisher Circle also appeared on Breakpoint, announce that it would make its Euro Coin offering available on Solana in the first half of 2023. Euro Coin is already live on Ethereum. Circle also revealed that its upcoming cross-chain protocol would support Solana.
Perhaps GameFi’s most anticipated title, Star Atlas developers shared an early demo for the game on Breakpoint. Solana’s high-speed capabilities (it claims to process 65,000 transactions per second) could make it a prime candidate for the Web3 gaming space, but with no leading titles currently available to play, it’s unclear how much progress teams have made – and or Solana will become a hub for the niche. Game development typically takes years, so it may take some time for Solana’s GameFi ecosystem to get going again.
The State of Solana DeFi
Like much of the crypto space, Solana has had a rocky year, not least in its DeFi ecosystem.
Solana surpassed the $10 billion mark as SOL approached $260 in November 2021, around the time of Breakpoint’s first edition.
However, Solana DeFi has taken a beating this year thanks to crashing market prices, liquidity fleeing to other networks, and brutal token unlock schemes that are diluting the value of some of the stars of the 2021 ecosystem. Defi Llama dataCurrently, Solana’s total value is around $968 million, which is slightly less than Avalanche’s $1.31 billion and a fraction of Ethereum’s $32.29 billion. If the numbers don’t change drastically in the future, Solana may flourish in other areas. However, it is also worth noting that the total value has remained more stable in SOL terms this year, down around 54% from the peak in June 2022 to around 31.3 million SOL.
Notably, Solana now trails the Ethereum Layer 2 network Arbitrum in terms of total value, and is only slightly ahead of Optimism. If Layer 2 continues to grow at its current pace, Solana could find that it isn’t just competing with other Layer 1 networks for liquidity.
Both Mango Markets and Solend’s exploits were possible because of the low liquidity levels on their platforms, which made it easier for whales to manipulate their markets to take out excessive loans. While Solana protocols come up with solutions to such problems, the network’s DeFi ecosystem may continue to run into problems as long as liquidity is low.
Although Solana DeFi is offline, by far the biggest criticism of the network is about the repeated outages. Solana has suffered several hours of downtime over the past two years, most notably in September 2021, when the outage lasted 18 hours. Solana has been hit by four major outages in 2022, with the most recent downtime occurring last month due to a misconfigured node.
Although outages are an ongoing problem for the network, says Anatoly Yakovenko, CEO of Solana Labs has said that an upcoming upgrade will prevent such incidents in the future. If Solana can overcome the problem as he promises, the network should be in a much better position come the next crypto market boom.
Take advantage of high speeds and low costs
While Solana DeFi may be in a slump, the same cannot be said for the network’s NFT ecosystem.
With the second largest NFT ecosystem behind Ethereum, Solana has built a rapidly growing community of so-called ‘JPEG enthusiasts’. This year, collections like DeGods and y00ts have taken the NFT scene by storm, trading for thousands of dollars on the secondary market despite adverse market conditions.
Solana has also attracted many big names from the digital art world. At Breakpoint, Metaplex announced that it would launch Beeple’s “immersive 3D NFTs” on Solana, acquiring a notable branch of Ethereum. pplpleasr, another leading artist in the NFT space, has also previously launched Solana NFTs. While much of the mainstream attention for non-fungible digital collectibles has been on Ethereum, NFT residents have seen activity grow on the strongest competitor’s network. The next NFT bull cycle could look different than the last one now that Solana’s NFT community and infrastructure have gained so much pace during the bear market.
Solana also seems to be aware of its position in the GameFi world due to its high speed and cheap capabilities. Breakpoint featured an entire day dedicated to the vibrant sector, where Star Atlas and other teams showed off their latest progress to a packed room of potential Web3 gamers.
What’s next for Solana?
Although the network has challenges to overcome, it is clear that many positive developments are coming from the network. The various announcements on Breakpoint prove that talented companies, artists and projects are showing great interest in the Solana network, despite the difficulties it has faced.
It is also worth pointing out that Solana and SOL are not the only victims of the crypto winter. While SOL is down about 86.9% from its peak after outperformance in 2021, many other Layer 1 networks have suffered similar losses. DeFi has also taken a hit across the board, with Ethereum coming out on top. Historically, Ethereum’s competitors – sometimes referred to as ‘Ethereum Killers’ – have seen activity decline and their tokens die out in bear markets, but none have seen as much positive development as Solana has in recent months.
Perhaps the biggest hurdle for the network lies in competition. The new Layer 1 networks Aptos and Sui, both developed by former Meta employees, have been compared to Solana for their promise of high speeds, and both projects have raised nine-figure war chests this year. Aptos, which claims it can process 100,000 transactions per second through its Move programming language, launched with a token airdrop last month and expectations for its growth are high. It is also believed that Sui is preparing his own airborne landing. Capital is merciless in crypto; If these projects successfully capture the space’s attention, they could ultimately surpass Solana at the next market rally.
Like other leaders of what has become known as the “alternative Layer 1” space, Solana will soon face competition in the form of Layer 2 networks. Arbitrum and Optimism’s rapid growth this year has proven that liquidity will flow into Layer 2 if Ethereum succeeds, and many other Layer 2 projects have yet to launch in earnest.
Still, Solana has one of crypto’s most active and fastest-growing ecosystems, with several promising developments on the horizon. Despite the problems, it’s clear that the network isn’t going anywhere anytime soon. As for SOL, while the utility token may not move today, that is not unusual for crypto bear markets – no matter how positive the news cycle looks. However, once sentiment turns bullish, there is good reason to believe SOL could see the benefits.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
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