Solana Rating Update - Solana Network Or Solana Not-Work?
Solana is undoubtedly the public chain most affected by the FTX bankruptcy, both due to the Solana ecosystem itself and FTX as a backer. We also downgraded our rating on Solana to BB from AA on Nov. 7. Now it's the same as Cardano and Ethereum Classic among others, and on the low side of all public chain projects overall.
Underlying Technology & Security
First and foremost, the impact on security: The mass exit of validators this time appears to be more deadly than the three major outages this year. According to Solana Compass, in the 9 Epochs from Nov. 7 to Nov. 26, more than 70 million $SOLs were net outflow from staking. Currently, the amount of staking $SOLs is about $356 million, well below the number at the beginning of November.
Token Performance
In addition, the price of $SOL, which was already suffering from the bear market, has also fallen dramatically. 1 month ago, on October 29, $SOL was trading at around $34, while today it is at $14, a drop of more than 50%. The price of $BTC and $ETH have both dropped by about 20% in the same period.
Ecosystem Development
Then let's take a look at how Solana ecosystem has been affected. Data from DeFiLlama shows that the Total Value Locked (TVL) on Solana fell nearly 70% from $962 million on Nov. 1 to $292 million on Nov. 29. Solana, which was once in the top 3 DeFi blockchains with $10 billion in TVL, now ranks 11th after DeFiChain.
The Solana Foundation, which supports the development of the Solana ecosystem, disclosed its financial status related to FTX bankruptcy on November 10. The foundation states in a blog that it had retained approximately $1 million worth of cash or equivalent assets on the platform before FTX stopped processing customer withdrawals and is currently awaiting the outcome of bankruptcy proceedings. Meanwhile, Solana Foundation also holds approximately 3.24 million shares of FTX Trading LTD common stock, as well as approximately 3.43 million $FTT and approximately 135 million $SRM tokens. $SRM is the native token of Serum, the orderbook DEX of the Solana ecosystem created by SBF in 2020.
As of November 7, Solana Foundation's $FTT was worth about $75.5 million and $SRM was worth nearly $100 million. Today both tokens have experienced a sharp drop in price, with the Solana Foundation currently holding about $4.46 million in $FTT and $34.3 million in $SRM - a 78% drop from the beginning of the month. These funds should have been used to further develop the Solana ecosystem, but are now struggling to sustainably attract developers.
Finally, the impact on Solana developers, who were already inactive in the bear market. Compared to the same period last year, the number of code commits in the Solana ecosystem fell by more than 80%.
The bankruptcy of FTX adds insult to injury - Serum, the underlying orderbook DEX that supports Raydium, 01 Protocol, Mango Markets, and many other DeFi projects in Solana ecosystem, was defunct in FTX hack. That's another story for another time.
Closing Thoughts
In summary, we believe that while Solana has a great history, it is clearly not as developed as many similar projects and Solana still faces many challenges going forward. We are therefore adjusting our rating for Solana to BB - although this is not set in stone. We're well aware that there are still many big brains out there working hard for the Solana ecosystem, and we'll adjust and update accordingly as things progress further.
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Alameda Research