30 days of Solana's horror: What will happen to the "VC chain" without VC?
Original author:0xLaughing, Rhythm BlockBeats
image description
BTC/SOL/FTT drop comparison
In the past month, the entire encrypted world has been shrouded in the cloud of the FTX/Alameda thunderstorm incident. First of all, the DeFi, NFT and other sectors under the various public chain ecosystems have all been affected to varying degrees and ushered in a decline. This is especially true for the Solana ecosystem, which is closely related to FTX. Based on the relative high point on November 5th, the price of Solana’s native Token SOL dropped from 38.79 to 12.84, a drop of 66.9%, compared with BTC’s biggest drop of only 25.4%.
The oversold has crushed the confidence of investors, and even the largest NFT project on Solana, the DeGods series, has bad news, and it seems that it is planning to "escape" from Solana to other public chains. All of a sudden, the "Solana is dead" argument was rampant.
This article attempts to start from the following questions to deeply interpret the reasons for this phenomenon, the possible future direction of Solana, and reposition Solana in the current public chain competition:
• What impact did the FTX thunderstorm have on the Solana ecology that made the project team flee?
• What is the reason for the oversold Solana ecology?
• Will FTX's subsequent bankruptcy and liquidation further push Solana into the abyss?
Table of contents
Table of contents
What impact did the FTX thunderstorm have on the Solana ecology?
The price of Token in the ecology fell sharply
image description
Solana Price Candlestick Chart
The price of the mainstream DeFi protocol Token on Solana has been falling along with Sol. For example, the biggest drop of SRM is 87.2%, the biggest drop of Ray is 73.6%, the biggest drop of Orca is 56.8%, and the biggest drop of SLND is 60.3%. The normal operation of the DeFi protocol itself has also been severely affected.
secondary title
Since most of the liquidity in the crypto market is dominated by several large market makers such as Alameda, Wintermute, Amber Group, Genesis, etc., as Alameda, one of the largest market makers, announced the suspension of trading, market liquidity plummeted . What's more serious is that following the advance of the FTX thunderstorm incident, Amber Group, Wintermute and Genesis have also allAnnounceTheir funds are trapped on FTX. The building is about to collapse, and retail investors are also fleeing in panic to avoid risks. The superposition of various reasons has further exacerbated the crisis of tight market liquidity.
image description
According to Kaikoto reportto report
In fact, the liquidity of BTC and ETH has stabilized in the entire crypto market, and the decline in transaction depth will not cause too much damage to the market, but the altcoins are not so optimistic. Alameda has invested in dozens of projects and holds value Millions of dollars in illiquid tokens, and since Alameda is also a market maker, it can be assumed that they are also the main liquidity provider for these same tokens. Solana, which has a close relationship with FTX/Alameda, bears the brunt of the liquidity collapse.
image description
Kaiko'sdataIt shows that comparing the liquidity of SOL-USDT/USD/BUSD trading pairs on 9 trading platforms before and after the Alameda thunderstorm, it is found that the total market depth of all order books has dropped by 50% from 1 million SOL to less than 500 k, and each The decline is being felt across trading platforms.
image description
Likewise, the depth of SRM and MAPS has also seen a huge drop, suggesting that market-making activity has been severely impacted by the Alameda thunderstorm.
image description
The TVL of the Solana ecosystem has plummeted, and the TVL of each DeFi protocol has shown continuous outflows. Solana now has ~$290M TVL remaining on its platform, down ~80.6% from 3 months ago ($1.5B TVL on Aug 25, 2022) TVL is 10.17 billion US dollars) compared with a decrease of about 97.1%. Mainstream DeFi protocols have also seen massive outflows over the past month, with Marinade, Lido, and Raydium all seeing more than 60% retracements in their TVL.
Stablecoin Escape
image description
according toto report, On November 18, Tether officially announced that it will coordinate with a third party to execute cross-chain transactions, transferring 1 billion USDT from the Solana blockchain to Ethereum ERC-20. DeFiLlama'sdataIt shows that the market value of USDC and USDT on the Solana chain on November 8 was 2.11 billion US dollars and 1.81 billion US dollars respectively, and has dropped to 1.16 billion US dollars and 800 million US dollars respectively as of the publication. It can be seen that both official and retail holders of stablecoins are showing signs of withdrawing from Solana.
The oracle machine is intermittently down, and the price on-chain delay leads to the suspension of the DeFi protocol
image description
Solana mainly uses Pyth as an oracle machine to feed market prices to various DeFi protocols in real time. However, after the FTX thunderstorm event fermented, the Solana market fluctuated too much, and the chain was full of MEV arbitrage transactions, loan agreement liquidation transactions, etc., which led to network congestion, and the price data of the Pyth oracle machine could not be updated to the chain in time, and thus As a result, many DeFi protocols cannot operate normally. Subsequently, Solend, Port Finance suspended deposits, and Zeta Markets, Katana, Kamino Finance shut down.
image description
The DeFi protocol "condemns" the oracle machine Pythfor this, multiple DeFi protocols that were affected also hinted on Twitter that these accidents were caused by the oracle quotation problem and the stability of the Solana chain.
secondary title
Hacking, private key controlled by FTX, Serum was urgently forked in the chaosSerum is the central order book transaction DEX in the Solana DeFi ecosystem. It is widely used in the Solana ecosystem. Many applications use Serum as its back-end DEX for transactions. It is recognized by SBFcommend
as "truly, completely trustless".
However, after the "FTX hacking incident" on November 11, according to people familiar with the situation, Serum has been in the hands of FTX Group. FTX has the key to update the authorization, but it does not know who it is and cannot contact Serum's Development and maintenance personnel.OpenBook。
On the other hand, Solend, Jupiter, Raydium, Mercurial Finance, and other Solana-based DeFi protocols, as well as applications including Phantom Wallet, limited their exposure to Serum on November 12, disconnecting the price data oracle, Closed the token trading pool/suspended its trading on the central limit order book.
The lending system cannot liquidate bad debts
image description
On November 9th, the Token price of the Solana ecosystem fell sharply with the FTX thunderstorm, which triggered the loan liquidation on Solend, the Solana lending agreement. according toto reportto report
, previously an unidentified whale who borrowed $44 million in SOL worth $51 million had to be liquidated due to a drop in the value of the SOL collateral. However, when the price plummeted by 43% within 48 hours, SOL liquidity on the chain suffered a huge blow, and Solend had difficulty liquidating giant whale accounts.
Despite the laudable efforts of the Solend team to expedite the liquidation of whale accounts, the combination of rapid price declines in SOL, liquidation failures, and low transaction slippage due to tight liquidity eventually led to insolvency ( Selling all of these mortgaged SOLs would not be able to repay the lender's supply), and Solend ended up with $6.5 million in bad debt.
image description
But in the end Solend launched DAOproposalVote, hoping that the bad debt will be compensated by the treasury, and finally voted to pass. As part of the whale's debt was thus transferred, it also avoided liquidation further selling SOL and causing a price drop, which in turn caused a bigger crash.
soBTC/soETH issued by FTX/Alameda is not redeemable
image description
according toto reportto report
On November 12, according to the Sollet interface announcement, the soBTC issued by FTX or Alameda on Solana is currently irredeemable. The current soBTC price has plummeted by 77%, and the transaction price is only 3,866 US dollars. Additionally, soETH on the Sollet wallet has also dropped by 9% and is currently trading at just $1,138. The founder of the open source portfolio tracker Rotkiapp posted on social media that the Token assets packaged on the Solana chain are all managed by FTX/Alameda Research, which means that the relevant Token will no longer be redeemable and may return to zero in the future.CoinGeckoThe data shows that the price of soBTC has dropped to $1,026, and the ratio of soBTC/BTC has plummeted from around 1 to 0.06, a drop of up to 94%; the price of soETH has dropped to $184, and the ratio of soETH/ETH has plummeted from around 1 to 0.14, a drop of up to 86%.
NFT panic selling ushered in "Davis Double Kill"
image description
DeGods is priced in USDSol SniperAccording to the data, since the FTX thunderstorm event fermented, its floor price in USD has plummeted from $9,206 to $2,639, a drop of up to 71.33%.
What is the reason for the oversold Solana ecology?
The symbiotic relationship between Solana Ecology and FTX
image description
SBF's most popular "SOL Charter"
thistweetstweets
Perhaps the most direct interpretation of the connection between SBF/FTX/Alameda and Solana, venture capital funds have flocked to Solana behind SBF's call for orders. Solana Labs completed a financing of US$314 million in June 2021, with Alameda Research, CMS Holdings, CoinShares, Jump Trading, Multicoin Capital, Sino Global Capital and others participating. The "Ethereum Killer", known for its high scalability and low transaction costs, was born out of nowhere. With the call of capital, the price of SOL Token soared all the way, reaching a peak of $260 in November 2021.
Investment and ecological construction have made the relationship between FTX/Alameda and Solana closer. On the one hand, Solana’s investment and resources from FTX have helped its ecology develop rapidly. On the other hand, FTX has also obtained rich returns from the investment in Solana’s ecology. Will be reflected in FTX's liabilities.
image description
According to the Financial Timesto reportto report
A purportedly last-minute balance sheet for FTX shows that on November 10, FTX held $982 million worth of SOL, $2.188 billion in SRM, $616 million in MAPS, etc. The Solana series projects supported by China, but before the collapse, their values were 2.245 billion, 5.43 billion, and 865 million US dollars respectively.
Then, when FTX was revealed to be insolvent, this symbiotic relationship also caused these Solana-based tokens, which were used as asset reserves, to be panic-sold.
secondary title
According to the Solana Foundationstatement, as of November 6, when FTX stopped processing withdrawals, the Solana Foundation had approximately $1 million in cash or cash equivalents on FTX. As of November 14, the Solana Foundation still has approximately 3.24 million common shares of FTX Trading LTD, 3.43 million FTT Tokens, and 135 million SRM Tokens stored in FTX.
image description
Star Atlas reveals 50% of treasury funds are still trapped in FTX
That is to say, if these Solana projects are unable to obtain a new round of financing due to financial difficulties, their operation will be unsustainable. When investors cannot assess the real damage of FTX to these projects, they will tend to Hedging and panic selling.
first level title
According to the Solana Foundationstatementstatement
This statement further triggered people's panic, worrying that FTX may sell a large number of SOL, so will FTX's subsequent bankruptcy liquidation further push Solana into the abyss? In fact, these SOLs may not be sold off in the short term, mainly for the following reasons.
Most of the SOL sold to FTX/Alameda is still locked
image description
Fund exposure details issued by the Solana Foundation
It can be seen that most of the SOLs are locked and will not be unlocked until 2028 at the latest.
secondary title
Referring to the "Mt.Gox incident", the bankruptcy liquidation may last for many years, which is equivalent to a lock-up
On November 12, FTX announced that FTX US, Alameda Research, and approximately 135 additional affiliates have voluntarily and orderly commenced the process of reviewing and monetizing all stakeholder interests under Chapter 11 bankruptcy proceedings.
According to FTX's bankruptcy filing, its debts range from at least $10 billion to $50 billion. Chapter 11 of the U.S. Bankruptcy Code allows companies to go through a restructuring process under the supervision of a U.S. federal bankruptcy court, which is very different from Chapter 7, which requires the immediate liquidation of a company with no prospect of recovery. Companies filing for Chapter 11 bankruptcy must file a reorganization plan with the courts and have the opportunity to be "resurrected" with government support and help with debt restructuring, and then continue to operate their businesses. Also, such Chapter 11 companies cannot make any major decisions about their operations or financial activities without court approval, and bankruptcy courts intervene in the company's debt restructuring and performance obligations.At present, the court will not immediately sell Tokens such as SOL held by FTX and Alameda Research. In order to give creditors as much return of funds as possible, all assets will be auctioned to the highest bidder. This is equivalent to an off-market transaction rather than a direct Sell in the secondary market. In addition, referring to the "Mt.Gox incident", the bankruptcy liquidation may last for many years. During this period, these Tokens are equivalent to being locked up and will not generate selling pressure on the market.
secondary title
Based on the Solana Foundation's balance sheet exposure to FTX/Alameda, the Solana Foundation has about $1 million in cash or cash equivalents on FTX, which is less than 1% of the Solana Foundation's cash or cash equivalents, so this The impact on Solana Foundation operations will be negligible.
image description
Anatoly Yakovenko, founder of Solana Labs, also tweeted on November 9 that the current team has enough funds to operate for about 30 months, during which Solana can reduce expenses or raise funds to extend the life of the project.
What does it mean for Solana to lose the "VC chain" of VC?
image description
Comparison of Initial Token Allocation of Public ChainsIn the initial token distribution, according toMessari data
With the thunder of FTX, some institutions that once invested in Solana also sold SOL in the process. The "VC chain" lost VC. If you want to evaluate whether this is good or bad for Solana and its ecology, you need to look at this process What things are changed and what things are not.
secondary title
Solana has been committed to becoming "the fastest high-performance public chain" from the very beginning. It uses the history proof mechanism (PoH), Tower BFT algorithm, Turbine communication protocol, Sealevel engine (Sealevel) and other technologies to build a completely different system architecture, which makes it have a higher speed and lower speed than other blockchains. the cost of.
image description
according toto reportto reportethtps.info). The highest TPS recorded on Ethereum's most popular L2 solution, Arbitrum One, is 286, which is also far lower than Solana. Not to mention, Solana can theoretically reach a maximum of 710,000 TPS. Its TPS rivals that of Visa and Mastercard, making it quickly the industry leader in speed and global scalability.
image description
Average transaction fees for each chain (source: A16Z)
Even during the FTX storm, Solana has always performed well technically, and it is still the high-performance public chain known for its high scalability and low transaction fees.
secondary title
Passive demining, loss of VC optimizes Solana’s token distribution and decentralization to a certain extent
The removal of FTX/Alameda and the reduction of SOL in the hands of VCs have optimized Solana’s token distribution and decentralization to a certain extent, helping Solana to rebuild and develop its own image from scratch, thus washing away the “VC chain” the stigma.
secondary title
It hurt the confidence of VC, and also extinguished the enthusiasm of "free-riding"
FTX has the trust and financial support of global top investors, including Tiger Global, Sequoia Capital, BlackRock and other investment giants have participated in the financing of FTX.
In addition, the disenchantment of white elites and top investment institutions will also dampen the enthusiasm of ordinary retail investors to "free ride". In other words, if ordinary investors are too superstitious about the star products “promoted” by VCs and flock to them, they may be “cut leeks” if they make a slight mistake. The sudden drop in Solana’s ecology should sound a wake-up call for people.
Post-disaster reconstruction, what are the advantages and challenges in the future from the perspective of Solana's layout?
Backed by a strong developer community
image description
Solana is backed by a strong and committed developer community. According to Xangle data, there were only 2,405 developers in the Solana ecosystem in August 2021, but the number has rapidly increased by 761% within a year, and it will become an army of 20,717 by November 2022. Solana has the second most developers after Ethereum, and the fact that Solana Hacker House has become one of the most popular blockchain events (~64,000 attendees in 2022) is a testament to Solana's popularity with developers.
Remarkable achievements in NFT ecology
image description
Solana has the second largest NFT ecosystemaccording toIt shows that the transaction volume of Solana NFT market has long been ranked second, second only to Ethereum. At the same time, Solana has produced many well-recognized NFT projects, such as DeGods, y 00 ts, Okay Bears, Solana Monkey Business (SMB) and Degenerate Ape Academy (DAA).
image description
With Instagram recentlyAnnounceSupporting Solana NFT, people have higher and higher expectations for Solana to continue to grow in the NFT market in the future, and this is also a good opportunity for Solana to go further out of the circle.
Actively expand the multi-chain ecology
image description
Solana expands multi-chain ecology
In addition, the general Layer 2 protocol Eclipse helps Solana to expand further. Eclipse aims to allow developers to deploy their own rollup driven by the Solana virtual machine and use any chain for secure data storage. Eclipse has partnered with a range of public chain ecosystems, including Celestia, Oasis Labs, Polygon, Cosmos, and NEAR, and has received a development grant from the Solana Foundation to support the development of rollups powered by the Solana virtual machine.
It will take time to rebuild the ecology and restore confidence
image description
Data Shows Developers Seem to Be ExodusAlthough the number of developers on Solana is second only to Ethereum, according toIt shows that the number of developers and development progress on Solana have shown a downward trend in the past one or two months.
image description
DeGods may migrate to other chains
These phenomena show that developers, builders, and investors have shown a certain degree of lack of confidence in the Solana ecology. The Solana Foundation is also making active attempts to restore confidence in the ecology. For example, in the next two Epoch The Solana Foundation plans to "re-pledge" them instead of selling or transferring them. These measures can persuade investors not to panic sell further. However, rebuilding the Solana ecology restores the past Prosperity will take time.
Old problems such as downtime need to be solved urgently
image description
Solana goes down frequentlySolana has been plagued by network reliability issues for a long time. Since its launch in 2020, Solana has experienced at least seven network outages, according toSolana Status Report
Anatoly Yakovenko, founder of Solana Labs, said that the downtime was caused by validators not being able to handle transaction loads during peak hours. Therefore, Solana is solving problems such as network congestion and downtime through QUIC, Stake Weighted QoS, Fee Market, Firedancer, etc. .
secondary title
Facing challengers such as Ethereum Layer 2, Aptos, Sui, etc., the situation is grim
Solana once rose rapidly with the advantages of ultra-high TPS and low transaction fees, and was once dubbed the "Ethereum Killer". Shake the powerful multi-chain ecology of Ethereum. In addition, emerging public chains such as Aptos and Sui use new consensus mechanisms and MOVE language to better tell the original high-performance narrative of Solana.
first level title
epilogue
epilogueAC had in hislong text
The Solana ecology should represent the Crypto spirit, but when it is surrounded by greedy centralized capital, it only places its hopes on the builder community, while ignoring the risks of mortgage assets, Token distribution, oracle data providers, etc. When the capital building collapsed, "Crypto culture killed the Crypto spirit."
image description
Solana's Second Breakpoint Summit in Lisbon
When the FTX thunderstorm was gradually fermenting, Solana was holding the second Breakpoint Summit in Lisbon. The venue was very lively. Developers were full of expectations for the future of the Solana ecology, but the encryption market was collapsing. Breakpoint stands for "breakpoint", which means a place in a program where you intentionally stop or pause for debugging purposes. There is a certain drama in Solana's suffering and being set as a "breakpoint".
