Is Solana dead? Top projects flee the blockchain

Is Solana dead? Top projects flee the blockchain

By Dan Ashmore - min read

Key Takeaways

  • Solana has shed 95% of its value, falling from $54.5 billion to $4.4 billion
  • Its association with Sam Bankman-Fried has caused further bearish price action
  • Top projects have fled the blockchain this year, with concern over long-term future of Solana


For cryptocurrency investors, the year 2022 was one to forget. 

But even amongst all the pain, fans of Solana have been hurt more than most. At the start of 2022, Solana was the fifth biggest crypto in the world with a market cap of $54.5 billion. Today, it is sixteenth in the ranks, having shed over 95% from its peak, now worth $4.4 billion. 

What has happened Solana?

Firstly, the obvious. The macro climate has flipped immeasurably over the last year. After a decade of basement-level interest rates and a free-flowing money printer, the Federal Reserve pulled the plug. 

And just like that, for the first time in cryptocurrency’s short history, it is facing a bear market in the wider economy. During the explosive bull run of the prior decade, everything with a pulse enjoyed dizzying returns. But now, the party is over. 

Having said this, plotting Solana against Bitcoin shows quite how stark the underperformance has been. 

Solana’s outages are a massive problem

The first problem is the incessant outages. I wrote in June about how Solana reminds me of my broken earphones. You know, great when they work, but given I need to keep twisting the earphone, disconnecting and reconnecting, in order to listen to music, they’re not much good to me. 

Solana is like those earphones. It has flexed its market-leading TPS and cheap gas fees for a while, positioning itself as an “ETH killer”, and enjoyed a flood of interest and lofty gains during the pandemic as a result of this. 

Of course, as I said above, this was during a period of expansion of all risk assets, and due diligence in the cryptocurrency altcoin space was not exactly as granular as it should have been. There were – and are – serious problems under the hood of Solana, as the outages have continued at a relentless pace. 

Riddle me this – how useful is a blockchain if it frequently switches off?

Back in that article from June, I wrote that “I’m getting a little tired of using the words ‘potential’, ‘could’ and ‘perhaps’ when it comes to discussing Solana”. Since then, it has cratered another 70% in price, with the market seeming to all but give up on Solana’s hope of achieving relevance.

The rise of Layer 2s also threatens the core premise of Solana, attacking its core use case. Layer 2s work, which is a simple statement that Solana simply cannot argue for itself right now.

Sam Bankman-Fried

Sigh. It has been tough over the last month to talk about anything crypto-related and not mention the golden-knight-turned-arch-villain that is Sam Bankman-Fried. But unfortunately, his demise has had dire consequences for Solana. 

The disgraced founder of FTX was a staunch early backer of Solana, with the token even showing up on the much-publicised balance sheet of FTX as it desperately sought investors at the last minute. In fact, Bankman-Fried was Solana’s biggest champion. 

Critics now argue that SOL’s vertical rise during the pandemic was partially caused by Bankman-Fried’s interventions. The distribution of SOL tokens was also notorious for being VC-heavy, meaning whale wallets were likely to have been able to influence its price significantly more than other cryptos. 

In the near two months since FTX’s implosion, Solana has struggled significantly more than other cryptos. 

Investors are fearful that some of Bankman-Fried’s support of SOL came via fraudulent activity, given the revelations around what happened behind closed doors at FTX. Caroline Ellison, Alameda CEO and close confidant of Bankman-Fried, has stated to the SEC that Bankman-Fired deliberately manipulated the FTT token. In this context, what is to say that he did not do the same for SOL?

Regardless, the mere association with the fraudster has been enough to dent Solana’s prospects. 

Projects and capital are leaving Solana

Looking at DeFi, the total value locked (TVL) on the Solana blockchain is now $217 million, compared to over $10 billion in late 2021. 

Perhaps even more concerning is the migration of projects from Solana to rival blockchains. Prominent NFT collections DeGods and y00ts announced last week that they are migrating to Ethereum and Polygon respectively, a hammer blow to the Solana faithful. 

“There’s an argument to be made that (DeGods) has capped out on Solana,” DeGods project leader and y00ts creator, Rohun Vora, said in a Twitter Spaces. “It’s hard to accept, but it’s been tough to grow at the rate we want to grow. If Ethereum is where we have to go to keep growing, it’s what we have to do.”

The slide of Solana has been so stark that even its supposed biggest rival, Ethereum creator Vitalik Buterin, waded in to say some kind words. It speaks volumes about SOL’s fall, as it is hard to even call it a rival of Ethereum any longer, given it is now not even in the top 10 of blockchains in terms of TVL. 

Can it recover?

The question now is whether all these problems are terminal. Can SOL bounce back? Well, the issue here is two-fold. As Vitalik states, “the awful opportunistic money people have been washed out”. This, while damaging SOL significantly as previously discussed, does point towards a short-term problem. 

On the other hand, there are myriad issues which predate the Bankman-Fried saga and still remain problems. Solana’s market-leading TPS and cheap fees are great, but they come with a trade-off against security and stability, something users have felt keenly over the last year with the much-publicised issues. 

Personally, I think Solana has a very difficult road ahead. For the entire altcoin space, the tide has gone out and it is now evident how much these projects were valued based on zero interest rates and the FOMO frenzy of the pandemic. With inflation still high, a tenuous geopolitical climate and many more bearish variables and uncertainty, the macro climate won’t change anytime soon. 

This makes any altcoin a risky bet. But for Solana in particular, which is fighting an additional battle of some of its biggest projects abandoning it, its most famous backer being a fraud and possibly manipulating its price, and a wave of negative sentiment, things are particularly murky. 

I hope the developers keep at it and the underlying potential does eventually get delivered upon. But in this climate, the catalysts for a price rise back to where it was simply are simply not present right now.