In addition to having plunged the entire cryptocurrency market, the FTX platform affair above all caused enormous collateral damage, in particular for the Solana (SOL) which fell by nearly 55% in two days. We explain the risks that currently weigh on Solana.
Solana down 55% in 2 days
The case that affects FTX and Alameda Research, the two companies of Sam Bankman-Fried, will have finally dragged the cryptocurrency market into a huge fall. As Bitcoin (BTC) retreats almost 10% in the space of 24 hours, other assets are more affected that others.
This is particularly the case of the Solana (SOL). After printing a 20% drop on Tuesday, November 8, passing from $29 to $23, the asset continued its descent into hell on Wednesday 9 November. The price of SOL quickly fell below $15that is another drop of 40% this Wednesday.
Fall of the course of Solana (SOL)
But then, why is the SOL falling more than the rest of the market? Quite simply because the Solana ecosystem is historically linked to Sam Bankman-Fried. Indeed, his companies have invested a lot of capital in the SOL and in various projects based on this blockchain.
As a reminder, FTX and Alameda invested in Solana in 2019, from its launch, through a series of over-the-counter transactions. The average entry price for the two entities was about ten centsmaking them the majority holders of SOL.
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What are the risks for Solana?
First of all, it should be noted that the market was facing a huge winding wall if the price of SOL were to fall below 20 dollars. Most notably, a whale had taken out a loan on Solend worth $40 millionby depositing approximately 2 million SOL as collateral.
As provided in the rules of the decentralized protocol, first 20% of the position was liquidated. This represents approximately $10 million which were sold immediately on the market, and there are still more than 30 million dollars ready to be liquidated.
However, this kind of problem happens regularly in decentralized finance (DeFi) when the market is in a sharp decline. The real problem lies elsewhere. This Thursday, at approximately 9 a.m. (this corresponds to Solana’s epoch 370), nearly 51 million SOL will be released and ready to sell on the market.
Movement of SOL staked on the Solana blockchain
Concretely, these tokens represent $900 million at the time of writing these lines. They mainly represent 13% of the total quantity in circulation. As you can imagine, the SOL tokens face a threat on an unprecedented scale which could drag it down sharply.
These are tokens that were initially locked on the Solana blockchain by validators and whose withdrawal request has just been made. Even if nothing has been confirmed, there is a good chance that some of them belongs to Alameda Research.
We will pass on significant risks to the operation of the Solana blockchain, with only 1.8 million SOL tokens in stake. As a reminder, Solana operates under a Proof-Of-Stake type consensus and therefore requires a certain amount of validators to operate.
In short, as the saying goes, ” you can’t catch a falling knife “. In other words, be very careful. Especially since a scenario of market manipulation orchestrated by Alameda (to drive up the price of SOL before selling their assets) could very well be possible.
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Sources: Solend, Solana Compass
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