Solana Volatility Returns After FTX Implosion

It has been a tough week in the crypto market after FTX’s bankruptcy. The DeFi market has faced the heat of the FTX turmoil as most projects and tokens have registered price volatility. Solana is one of the hardest-hit digital assets, down 4% in the past 24 hours. This has been triggered by Sam Bankman-Fried’s business FTX, which has filed for bankruptcy protection.

The price of the Solana SOL token has hit its record low this week of about $12, which surged 26% to as high as $19 on Thursday. After the FTX bankruptcy news on Friday, the prices dropped to around $16. SOL token has recorded a 50% drop in the past seven days.

This additional volatility in the coin has sparked concerns among blockchain developers, executives, and crypto analysts on the long-term future of Solana. The coin has a close connection with Alameda Research, which FTX’s Bankman-Fried founded. Will this follow the same path as Terra Luna?

Crypto.com had already halted deposits and withdrawals of Solana USDC and USDT on Thursday. 

Solana TVL drops 32.4% as FTX turmoil rocks ecosystem

The total value locked TVL on the Solana chain has fallen by 32.4% in the past 24 hours, as news on the FTX collapse has sent waves on the crypto ecosystem. However, Binance BNB has not significantly been affected and has recorded a 2% increase.

According to DefiLlama, Solana’s TVL has dropped to $423.68 million, a far cry from its all-time high on 9th Nov 2021 when it hit $10.17 billion.

Chainlink Labs offers proof-of-reserve service for embattled exchanges

Chainlink Labs offered proof-of-reserve products for embattled exchanges to solve future trust issues in the crypto exchange market. Chainlink Labs asked in a Twitter thread, “Will crypto continue to repeat the mistakes of the traditional black-box financial industry? Or will a better system emerge?”

To answer that question, Chainlink Labs offered its proof-of-reserve product as a useful solution for verifying cross-chain collateral, off-chain bank account balances, centralized exchange asset reserves, and real-world asset reserves, among others.

As an answer to this question, it offered its proof-of-reserve product, which it said is useful “for verifying centralized exchange asset reserves, off-chain bank account balances, cross-chain collateral, real-world asset reserves, and much more.”

What Happened

In response to FTX’s insolvency, asset prices have plummeted significantly from all crypto tokens, fungible and NFTs.

The aggregate market cap for the total cryptocurrencies has dropped by 23% from $1.02 trillion to $786 billion in less than four days. Prices of NFTs on the Etherium prices fell 14%. Solana NFTs were even more affected, with SolanaFloor recording a 68% drop in their aggregate floor value, falling from $424 million to around $135 million.

Blue-chip collections have not been spared. On the Etherium blue-chip collections, MoonBirds fell 51% to $6,800, CryptoPunks dropped 37% to $69,000, while the Bored Ape Yacht Club was off 43% to $60,000. On Solana, y00ts was 70% down to $840, Solana Monkey Business 68% to $2,000, and DeGods floor price dropped 66% to $2,700.

The FTX’s advocacy of the Solana layer-one blockchain is part of the underlying causes of the underperformance of Solana NFT collections. FTX’s fungible token FTT and its Solana-based DEX Serum have fell 89% and 53%, respectively.

Broader Context

FTX has emerged as a leading NFT player, with the exchange making strategic investments in leading NFT projects and launched its own marketplace. FTX Ventures invested in notable NFT projects such as Yuga Labs and participated intensely in the recent series A fundraising round of Doodles.

FTX also partnered with music festivals Tomorrowland and Coachella to issue NFTs offering unique experiences and benefits to concert-goers. Besides, it allied with franchises and notable brands such as Mercedes F1, Dolphin Entertainment, Washington Wizards and Capitols, and Golden State Warriors to support the issuances of their NFT collections. Unfortunately, despite these high-profile partnerships, FTX’s NFT platform is yet to gain traction.

Key Players

Some of the key players in the game that have contributed to the drop in crypto prices are:

  • FTX and FTX US – One of the largest global exchanges by retail clients, trading volumes, and serving institutions.

  • Alameda Research – A hedge fund that conducted market-making and trading activity on the FTX exchange.

  • Sam Bankman-Freid (SBF) – Founder of Alameda Research and FTX.

Decision Points

Currently, we are unsure of the full extent of the contagion and damage arising from FTX’s implosion. Investors are advised to take custody of their digital assets, including NFTs, until the dust settles.

We have entered another risk-off period, like the one that happened in April – June, after Terra Luna plummeted to below $0.01 and Terra UST lost its $1 peg. NFTs are a riskier high beta play, meaning they can magnify your money upside down, compared to crypto assets such as Etherium and Bitcoin. For investors seeking long-term bets, it’s advisable to support other leading layer-one protocols and their NFT ecosystems on Avalanche, Polkadot, Binance smart chain, and Ethereum. With the uncertainty over Solana and Solana-based projects, these alternatives may outperform. Trade smartly.

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