The central theses
- Solana made a series of big announcements at Breakpoint this weekend, but SOL didn’t respond.
- Solana faced many challenges during the crypto winter, including sustained outages and a drop in DeFi activity.
- While Solana has struggled to overcome and face up to competition, it remains one of crypto’s strongest and most promising ecosystems.
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Solana is one of several Layer 1 networks that have suffered from the ongoing crypto winter. But sunny skies may return, writes Chris Williams.
Solana makes a splash at the breakpoint
It was a big weekend for Solana as the Layer 1 network hosted the 2022 edition of its Breakpoint conference. As for SOL? Not as much.
The thousands of Solana fans who flocked to Lisbon for the Layer 1 blockchain flagship event were treated to several big announcements during the conference. Probably the biggest came on Saturday at Google Cloud uncovered that it operated a Solana validator and would begin indexing Solana data through its BigQuery product in early 2023. Google Cloud will also make Solana available through its Blockchain Node Engine to help users run their own nodes in the cloud. According to CoinGecko data, SOL immediately surged above $38 in double digits when the announcement was made, but the momentum didn’t last. It has since cooled by 5.5% and is trading around $34 today.
In a different approach to other blockchains like Ethereum, the various engineers working in the Solana ecosystem have focused on developing products for the mass market. An example of such a product is the Saga phone, which is said to be the world’s first Web3-enabled smartphone. Solana announced at Breakpoint that it would ship the product to developers as early as next month.
USDC Issuer Circle also appeared on Breakpoint and announced that they would be making their Euro Coin offering available on Solana in the first half of 2023. Euro Coin is already live on Ethereum. Circle also announced that its upcoming cross-chain protocol would support Solana.
Arguably GameFi’s most anticipated title, the developers of Star Atlas have shared an early demo for the game at Breakpoint. Solana’s high-speed capabilities (it claims to process 65,000 transactions per second) could make it a prime contender for the Web3 gaming space, but with no leading titles to play today, it’s unclear how much progress teams have made – and whether Solana will become a hub for the niche. Games typically take years to develop, so Solana’s GameFi ecosystem might take some time to kick off.
The State of Solana DeFi
Like much of the crypto space, Solana has had a difficult year, not least in its DeFi ecosystem.
Solana surpassed the $10 billion total locked up as SOL approached $260 in November 2021, around the time of Breakpoint’s first issuance.
However, Solana DeFi has taken a hit this year thanks to plunging market prices, liquidity fleeing to other networks, and brutal token unlock schemes diluting the value of some of the ecosystem’s stars of 2021. According to Defi Llama data today, the total value of capital tied up in Solana is around $968 million, which is slightly less than Avalanche’s $1.31 billion and a fraction of Ethereum’s $32.29 billion. Unless the numbers change drastically in the future, Solana may find it thriving in other areas. However, it is also worth noting that the total locked value in SOL considerations has remained more stable this year, down about 54% from its peak in June 2022 to about 31.3 million SOL.
Notably, Solana is now behind the Ethereum Layer 2 Network Arbitrum in terms of overall score and just slightly ahead of Optimism. If Layer 2 continues to grow at its current pace, Solana might find that it’s not just competing for liquidity with other Layer 1 networks.
Both the Mango Markets and Solend exploits were possible due to the low liquidity on their platforms, making it easier for whales to manipulate their markets to borrow outsize. While the Solana protocols find solutions to such problems, the network’s DeFi ecosystem could continue to encounter problems as long as liquidity is low.
While Solana DeFi has been down, by far the biggest criticism of the network is its repeated outages. Solana has suffered from multiple hours of downtime over the past two years, most notably in September 2021 when it was down for 18 hours. Solana has been hit by four major outages in 2022, with the most recent outage over the past month due to a misconfigured node.
Though outages are an ongoing problem for the network, Solana Labs CEO Anatoly Yakovenko said an upcoming upgrade will prevent such incidents in the future. If Solana can overcome the issue as promised, the network should be in a much better position for the next crypto market boom.
Take advantage of high speeds and low costs
While Solana DeFi may be in crisis, the network’s NFT ecosystem is not.
With the second-largest NFT ecosystem behind Ethereum, Solana has built a fast-growing community of so-called “JPEG enthusiasts.” This year, collections like DeGods and y00ts have taken the NFT scene by storm, trading for thousands of dollars in the secondary market despite adverse market conditions.
Solana has also attracted many big names from the digital art world. At the breakpoint, Metaplex announced that it would launch “immersive 3D NFTs” from Beeple on Solana, taking over a notable branch of Ethereum. pplpleasr, another leading artist in the NFT space, has also previously launched Solana NFTs. While much of the mainstream attention has been focused on Ethereum via non-fungible digital collectibles, NFT natives have seen activity picking up on its strongest competitor network. The next NFT bull cycle could look different than the last one after Solana’s NFT community and infrastructure picked up so much pace throughout the bear market.
Solana also seems to be aware of its place in the GameFi world due to its fast and inexpensive capabilities. Breakpoint devoted a full day to the lively sector, with Star Atlas and other teams showing off their latest advances to a packed hall of wannabe Web3 players.
What does the future hold for Solana?
While the network faces challenges, it is clear that many positive developments emanate from the network. The various announcements made at Breakpoint prove that talented companies, artists and projects are showing keen interest in the Solana network despite the difficulties it has faced.
It is also worth noting that Solana and SOL are not the only victims of the crypto winter. While SOL is down about 86.9% from its peak after outperforming in 2021, many other Layer 1 networks have suffered similar losses. DeFi has also hit across the board, with Ethereum coming out the strongest. In the past, Ethereum’s competitors – sometimes referred to as “Ethereum killers” – have seen a drop in activity and their tokens in bear markets, but none of them have seen as many positive developments over the past few months as Solana.
Perhaps the biggest hurdle for the network is its competition. New Layer 1 networks Aptos and Sui, both developed by former Meta employees, have been compared to Solana for their promise of high speeds, and both projects have raised nine-figure war chests this year. Aptos, which claims to be able to process 100,000 transactions per second via its Move programming language, was launched with a token airdrop last month and anticipation for its growth is high. Sui is also believed to be preparing an airdrop of her own. Capital is merciless in crypto; If these projects succeed in catching industry attention, they could outperform Solana in the next market rally.
Like other leaders in the so-called “alternative Layer 1” space, Solana will soon face competition in the form of Layer 2 networks. The rapid growth of Arbitrum and Optimism this year has proven that liquidity will flow into Layer 2 if Ethereum is successful, and many other Layer 2 projects have yet to get started in earnest.
Still, Solana has one of crypto’s most active and fastest growing ecosystems with several promising developments on the horizon. Despite its problems, it’s clear that the network isn’t going away anytime soon. As for SOL, that’s not unusual for crypto bear markets, even if the utility token isn’t moving today – positive as the news cycle looks. However, once sentiment turns bullish, there is good reason to believe that SOL could benefit.
Disclosure: At the time of writing, the author of this article owned ETH and several other cryptocurrencies.