They called it the 'Ethereum killer,' a blockchain that was supposed to revolutionize cryptocurrency with lower transaction costs and higher speeds...Instead, the year-and-a-half-old project fell victim to a chaotic and uncertain alliance between two of the
industry's biggest players - Binance Holdings Ltd. and FTX.com.
The native token of Solana (SOL) fell 97% ($8) from its historical high of $260 in November 2021. Similar drops were observed for FTT (native token of bankrupt crypto exchange FTX) and LUNA (native token of Terraform Labs, which suffered a crash). According to Coinmarketcap, Solana's market cap hit a low of $6 billion. DefiLlama data shows the total value locked (TVL) in Solana-based DeFi dropped from over $10 billion to around $247 million.
Significant losses in games built on Solana
In addition to the native token, games built on Solana have also suffered significant losses. According to CoinGecko, among the top games in the ecosystem is Aurory, a turn-based RPG, whose in-game token price has dropped by nearly 99%.
The gaming space on Solana remains relatively small compared to other blockchain games. Data collected by analytics firm DappRadar showed that the best game on the TapFantasy blockchain had only 3,500 unique active wallet addresses interacting with it in the last 24 hours. For comparison, the most popular crypto game, Alien Worlds, had 500,000 active players.
Star Atlas, a space-based strategy game on Solana, has lost over 99%. Others, considered among the most popular platforms in the ecosystem, such as Panzerdogs and Mini Royale: Nations from Faraway Studios, have not yet launched their own tokens. FTX previously led Faraway's $21 million funding round.
Reasons for the decline
Solana blockchain was supported by Alameda Research, a crypto trading company (market maker) led by Sam Bankman-Fried, who also led FTX.
The CEO of FTX was the main sponsor of Solana and promised to invest $100 million in gaming projects on its blockchain a year ago as part of a consortium of venture capital companies.
His crypto empire began to unravel on November 6, 2022, when the value of FTX's own token (FTT) dropped. It was later revealed that FTX had around $9 billion in obligations with only $900 million in liquid assets to cover them. This bankruptcy led to a panicked outflow of capital from the Solana blockchain, as its close ties to the exchange were well known.
In addition to FTX's collapse, Solana also suffered significant losses due to operational failures that plagued the protocol throughout the year.
In January 2022, a wave of disruptions and 18-hour service outages sparked anger among disappointed traders who watched their portfolios plummet without the ability to sell tokens.
In June, there was another software failure that lasted more than 4 hours. The situation was repeated in October, when the Mainnet Beta cluster went down. It took several hours to restart it.
What will happen to Solana next?
The combination of the aforementioned negative events that occurred on the protocol has transformed into a discussion: "Can Solana survive this crypto winter?" To answer this question, let's analyze the current situation on the blockchain.
As of December 2022, the Solana protocol has 2306 validators with a total stake of around 370 million SOL.
Validators are distributed across more than 35 geographical locations worldwide and over 138 unique data processing centers.
In aggregate, the Nakamoto coefficient for the Solana blockchain is at 28, which is considered an average value for the industry.
While the high Nakamoto coefficient and growing set of validators are beneficial for the network, they are not enough to guarantee the absence of centralization risks.
Although approximately 42% of Solana validators and 38% of the total stake are located in the United States and Germany, they are distributed across more than 35 geographic regions. Other locations make up just under 30% of the total stake but consist of more than 25 different countries.
Geographic concentration is typical for layer 1 networks and is a problem that Solana aims to address. Many validators in one location can threaten the network's functionality due to geopolitical risks, laws, and natural disasters.