- The recent withdrawal of significant projects from the Solana ecosystem has raised concern about the chain’s long-term prospects
- It is worth noting that Solana had lingering issues before its FTX connection became public knowledge.
Over the past few days, the argument in the crypto community has been about the prospects of the Layer-1 smart contract protocol, Solana, and how it can rival Ethereum. Solana saw rapid growth during the 2020–2021 bull rally, with venture capitalists at the center of SOL’s price surge. However, the recent withdrawal of significant projects from the Solana ecosystem has raised concern about the chain’s long-term prospects.
Solana has witnessed a massive drop in its on-chain activities over the last few days, which is unusual for the network. Furthermore, skeptics cite technological challenges as the reason why Solana would not be able to compete with Ethereum. In addition, Ethereum’s Layer-2 protocol threatens Solana’s central theme of proven fast and low-cost transactions.
Read more: Solana suffers huge blow as DeGods and Y00ts plans to shift to Ethereum and Polygon
Apart from this, the main reason for Solana’s drop has been the impact of the fall of FTX and its embattled ex-CEO, Sam Bankman-Fried. The then billionaire was Solana’s biggest supporter, with doubters implying that the FTX owner influenced SOL’s price appreciation during the last two bull market trends.
However, the skeptics were partially right about Solana based on recent events in the Solana ecosystem. As of November 2021, SOL recorded its all-time high price of $258.76, but its current value is slightly under $10. This means that the asset has seen a 96% drop in value, which is more than the price drawdown for BTC and ETH.
SOL’s Sharp Decline
Meanwhile, SOL’s sharpest price decrease occurred in November following the FTX collapse after an allegation of fraud and money laundering against its founder. Interestingly, within the digital asset ecosystem, speculation is making the rounds that funds from FTX’s mismanagement extensively aided Solana’s previous wins through the influence of Bankman-Fried.
Additionally, former executives of Alameda Research, including its past CEO, Caroline Ellison, disclosed in a recent testimony to the US Securities and Exchange Commission (SEC) that Bankman-Fried led the price manipulation of the FTX’s native token, FTT.
This implies that not only was the disgraced FTX CEO manipulating the price of Solana-based projects, which he helped establish, but he also controlled massive stakes in the accounting and loan scheme that became the core of the FTX fraud. Using Alameda Research to manipulate crypto market prices, Bankman-Fried could trade customers’ funds in other assets, such as BTC or ETH, with SOL or FTT tokens.
Ongoing Issues
It is worth noting that Solana had lingering issues before its FTX connection became public knowledge. The network, since its inception, has been occasionally overwhelmed by spam, causing a frequent halt to Solana’s operations. Industry experts link its perennial issues to its value proposition as a fast and affordable L1 alternative to Ethereum’s L2. Experts believe there is always a trade-off between a protocol with low transaction fees and high speed.
In this case, Solana is a victim of its core vision, which its developers are still trying to solve. Following the recent performances, Solana is now under the spotlight as it begins another long walk back to the top.
