As the days go by, the number of FTX's victims continues to rise.

Yesterday, it was the lending company Genesis, despite being recapitalized a week ago, that took a knee and said it had frozen its operations. But so far, the problems have only affected companies and not ... blockchains.

However, the situation could perhaps change in the coming days or weeks, because the 30-year-old former billionaire (he lost everything) had also invested in several projects like Solana, which he actively supported. "Solana is one of the main victims" of the fall of FTX, explained a few days ago Stefan Rust, founder of the company Laguna Labs, which develops projects in the DeFi.

Crazy growth

The Solana blockchain and its associated token (the SOL) have been among the big stars of recent years. In 2021, its price rose from $1 to $259, an increase of 25,800% 🚀.

This surge has made Solana a credible alternative to Ethereum, a protocol that is also used to develop decentralized applications, such as NFTs or banks without intermediaries.

But since the fall of FTX, SOL is going through a real storm. Its price has collapsed by a little over 60% to less than... $15. A huge drop that has not been seen for other cryptos like Bitcoin (-20%) and Ethereum (-23%).

This loss of confidence in the markets can be explained by the particularly close ties between Solana and Sam Bankman-Fried's empire ("SBF"). FTX and Alameda Research, SBF's investment fund, were among "Solana's main supporters and financiers," recalls Stanislas Barthélémi, crypto expert for the auditing firm KPMG.

"Everyone focused on FTX's cryptocurrency, FTT, because it was the number one position in Alameda's portfolio, but we shouldn't forget that SOL was number two," he insists.

According to the Solana Foundation, which manages the interests of this ecosystem, Alameda currently holds 50 million SOL tokens ($700 million), equivalent to 14% of Solana's capitalization.

Conversely, the foundation was also very close to FTX as it holds the equivalent of $1 million on FTX (which are blocked), 3.24 million FTX shares (which are now worthless 😯), as well as tokens whose value has plunged in recent days.

The real issue for Solana is the 50 million SOL tokens still held by Alameda Research, which are expected to be sold fairly quickly in a US bankruptcy proceeding. With such volumes, the token price could plunge further. By how much? It's hard to know.

The entire Solana ecosystem is shaking

Meanwhile, SOL is not the only crypto involved.

"SBF was involved in many of the Solana projects it financed," says a person familiar with the ecosystem. "He was almost the second brain in some projects," he says.

This is the case for the decentralized exchange platform Serum, whose SRM token had been massively purchased by FTX. SBF had used this token, whose valuation has continued to fall, to inflate FTX's balance sheet; the company explained that it held $2.2 billion worth of SRM, when in fact its total capitalization was worth less than... $300 million. Today it is less than $100 million.

SRM's share price has fallen 66% since the beginning of November, and last weekend's "hack" of FTX further exacerbated that decline because SBF's company had access to Serum's infrastructure.

"Serum's update key was not controlled by Serum, but by a private key connected to FTX," Mango Max, a Solana developer, worried in a tweet.

"At this time, no one can confirm who controls this key and its holder has the power to update Serum, possibly by deploying malicious code," he added.

To prevent this, Serum's designers were forced to "fork" its protocol, i.e. to migrate it to another system. "Between Solana, Serum and the drop in prices, this produces an explosive cocktail for the entire ecosystem," insists Stanislas Barthélémi.

Another problem identified was that the synthetic versions of bitcoin and ether circulating on the Solana blockchain have lost their anchor with the underlying assets. SoBTC now trades for only $1300, while one bitcoin is currently worth $17,000.

The soETH trades for $200 while an ether is worth $1200... The reason for this discrepancy? These special tokens are issued by FTX. In bankruptcy, the exchange platform is naturally no longer able to ensure that it holds the corresponding bitcoins and ethers.

"Almost all decentralized finance platforms in the Solana ecosystem have soBTC as collateral for loans because they have long been accepted as the equivalent of bitcoin in the Solana space," analyzes Meow, an (anonymous) founder of Jupiter, an app that belongs to the Solana universe. A cascade of liquidations is therefore to be feared and these have already begun.

The total value tied up (TVL) in SOL in Solana's decentralized finance applications has fallen by 30% since the beginning of November. If we measure the drop in dollars, we are talking about a 70% drop and Solana is now only the 12th blockchain on this activity with $300 million of TVL, far behind Ethereum ($25 billion).

"The case of Solend, the equivalent of Aave on Solana, is significant because we can no longer do anything on it due to the dizzying fall of the SOL," notes Stanislas Barthélémi.

FTX, the "central bank" of Solana

The relationship between Solana and SBF went so far that most of the large projects developed on Solana received financing from FTX and Alameda. With one important detail: the projects were encouraged to store their cash on... FTX ☠️.

Although the situation is not yet clear, it is likely that many projects will no longer have access to their funds.

Solana co-founder Anatoly Yakovenko tweeted that development company Solana Labs had no assets on FTX and enough financial breathing room for about 30 months. Another co-founder, Raj Gokal, meanwhile, said it was a "watershed" moment for the ecosystem, adding, "What doesn't kill us, makes us stronger."

"Nevertheless, we have to ask ourselves whether the ecosystem projects really have the funds they claim to have," questions one person familiar with the matter.

In the background, the collapse of the Solana ecosystem and its token SOL represent a threat to the very security of the protocol. Since it relies on proof-of-stake (a technique that involves immobilizing cryptos in software), its robustness is inextricably dependent on the price of the token. The cheaper the SOL trades, the cheaper it is to mobilize a large number of them to take control of its blockchain.

"Solana is clearly caught in a negative spiral, but does that mean the project will disappear? No, because blockchains never die completely," says Stanislas Barthélémi. But we still need to know in which state Solana will continue to live.