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Cryptocurrency Solana Collapses in FTX Scandal

TheStreet logo TheStreet 11/13/2022 Luc Olinga
© Provided by TheStreet

The token is the first big victim of the abrupt implosion of Sam Bankman-Fried's FTX cryptocurrency exchange.

Solana, considered, until recently, to be one of the cryptocurrencies with a promising future, is in the process of completely collapsing.

The token lost 61.6% of its value in the last seven days, according to data firm CoinGecko. Solana (SOL) prices are now down 95% from their all-time high of November 6, 2021. SOL is currently trading around $14.12 from $259.96 in November 2021.

SOL's collapse is due to the November 8 implosion of cryptocurrency exchange FTX, which filed for Chapter 11 bankruptcy three days later due to a cash crunch.

As a result, since November 8, the price of SOL has declined by 51.5%, which translates into a loss in market value of $5.5 billion.

The FTX debacle and Solana's setback have affected the entire cryptocurrency market, which lost 17.6%, or $188.4 billion, since November 7. 

Bitcoin, the most popular cryptocurrency, is down 22.4% in one week. Ether, the second cryptocurrency by market value, has fallen 24.4% over the past seven days.

SOL is a token issued by the SOLANA Blockchain. SOLANA makes it possible to develop decentralized finance or DeFi projects that offer financial services such as loans, mortgages, financial products, etc.

Ties to Sam Bankman-Fried

The cryptocurrency is tied to an on-chain crypto exchange called project Serum, created by FTX founder Sam Bankman-Fried, who resigned on November 11, following the bankruptcy of his empire. Serum is a liquidity hub.

Serum is one of the foundations of the SOLANA DeFi infrastructure, as it is the protocol and ecosystem that brings high speed and low transaction cost to SOLANA DeFi. It implements a on-chain central limit order book and matching engine, allowing to share liquidity and to offer powerful trading features to institutional and retail investors.

Serum is asset agnostic. It provides developers with full control and flexibility to build trading applications that leverage Serum's liquidity and ecosystem benefits. 

The ultimate vision behind Serum is "to drive the global mass adoption of DeFi" as is stated in its website, "reaching 1 billion users and $10T of on-chain value".

It has processed over $32 billion in volume this year, according to data site Nomics. 

But now that the opprobrium has been cast on FTX, anything related to the exchange and its founder has been contaminated. The revelation that withdrawals of money, amounting to hundreds of millions of dollars in cryptocurrency, were illicitly made on FTX after its bankruptcy filing, brought Serum and Solana into disrepute by association. Investors wonder whether the protocol may be affected as well.

"Investigating abnormalities with wallet movements related to consolidation of ftx balances across exchanges - unclear facts as other movements not clear. Will share more info as soon as we have it," confirmed on Twitter Ryne Miller, who is the general counsel of FTX US, the American subsidiary of FTX.

He added that the company was doing everything to protect the remaining assets and limit the damage.

"Among other things, we are in the process of removing trading and withdrawal functionality and moving as many digital assets as can be identified to a new cold wallet custodian. As widely reported, unauthorized access to certain assets has occurred."

Based on social media chatter, developers are now looking to create a version of Serum which is independent of FTX and Bankman-Fried.

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