Once dubbed an “Ethereum killer” for its low costs and fast transaction speeds, the Solana blockchain has been hit particularly hard by the collapse of centralized exchange FTX and its sister company Alameda Research.
Solana was once heavily backed by former FTX CEO Sam Bankman-Fried, and Alameda Research reportedly held an estimated $1.2 billion in SOL tokens — its second largest position.
Traders sold their solana en masse once the FTX scandal broke, about a week following details of its illiquid balance sheet. SOL has since plummeted 60%, from above $35 to less than $12. SOL now sits at over 95% below its record high set last November.
Beyond markets, the price crash has also shaken the core of its ecosystem believers. Multiple Solana projects including NFT marketplace MagicEden, crypto wallet Phantom and NFT project DeGods have recently shared plans to transition to a multichain world.
It’s a move Solana founder Anatoly Yakovenko says is “bittersweet to watch.”
Still, Solana Labs co-founders Anatoly Yakovenko and Raj Gokal have not lost hope for the blockchain. In fact, the firm has been actively seeking ways to support projects across its ecosystem.
In a recent conversation with Blockworks, Yakovenko and Gokal discuss what’s next for Solana.
Blockworks: How have things been since the FTX implosion?
Gokal: It’s been a rollercoaster of a month. For the Solana ecosystem, having a strong showing of in-person support and cohesion right before the FTX collapse was quite a stark contrast.
I think the most acute examples are the teams that had their treasury, or a portion of their treasury, on FTX, which I think is an issue that exists across the crypto industry. On Solana, we saw a single digit percent of teams with that impact, and the foundation’s role with those teams was just connecting them with investors. We had an outpouring of support from both traditional [venture capitalists] and those that have been on the sidelines looking for an entry point into crypto.
On the bright side, the other piece of the market volatility during that collapse was that the network was performing. We had a lot of liquidations, record volatility, the volumes for DeFi were 6x what they were before the FTX collapse, and there were no outages and no performance degradation.
So there’s just been a lot of bittersweet [emotions]. We’ve moved past a lot of the old issues and now we’re just dealing with this part of the market cycle, which I think is rough for everybody.
Blockworks: There are concerns that Solana’s decentralized exchange Serum was compromised during the apparent FTX hack. Could you explain what happened?
Yakovenko: During the FTX collapse, somebody started withdrawing funds from FTX and people weren’t sure if it was hacked or if they were real transfers. It seemed like FTX itself was being compromised.
Developers knew already that the Serum program was not controlled by a DAO: It was controlled by keys that were custodied at FTX, so there was a fear that those keys were compromised as well.
People just started working on forking the Serum program — by taking the exact same open source code and re-deploying it under a new address with different upgrade authority to different keys — basically controlling how that program can be upgraded by moving all the projects that were using Serum, including market makers, to this thing called Open Book, which was byte for byte the exact same code used on Serum but now under the control of a DAO.
That moment was like a psychological turning point for me, because it really felt like everything was falling apart. But seeing all the developers come together, I was able to be like: “Okay, there are people that know what they’re doing, that actually understand these very sophisticated systems and how to fix it.”
The people that did this weren’t big companies. They were a bunch of hobbyists and small teams. It was really cool to see how quickly real decentralized communities can recover from failure when a centralized actor blows up.
Gokal: It was another bittersweet thing. It was a shame that upgrade keys for Serum may have been compromised and that the protocol had to be forked.
But the fact that it happened independently, with multiple DeFi protocols that use Serum all coming together to quickly coordinate the fork…it’s a sign of maturity for the ecosystem. Every system has to have a major “oh shit” moment, like what Bitcoin had with Mt. Gox, and what Ethereum had with The DAO hack.
We saw the same things happen in those ecosystems…and people really had to ask the hard questions about why they’re building in that ecosystem, why they came in the first place and what they want the future of the ecosystem to be.
I think there’s no other way to produce this outcome.
Blockworks: You mention how this is a time where people come together and build a vision for the future. What does that look like for Solana?
Gokal: I think if you talk to developers, they’ll mostly tell you that we’re just scratching the surface of what can be built using Solana that can’t be built anywhere else.
For example, Teleport was demo-ing a decentralized Uber that actually works, Hivemapper is building a decentralized mapping service and Helium moved over from their own chain. All these projects just couldn’t really exist on any other network.
Blockworks: The price of SOL has tanked significantly since everything that has happened a month ago, what do you think needs to be done within the ecosystem for people to have confidence again?
Yakovenko: We generally don’t talk about Solana’s price. We’re in a clear bear market for crypto…but what we saw year over year, and at BreakPoint, is just the difference between a conference last year and this year…we have twice as many people show up.
The number of smart people entering the space and building and creating products is just growing. I would bet that over the next year, the number of products that are going to launch in crypto is going to be more than all the other years combined.
Blockworks: How do you think the regulatory landscape will change following the recent events?
Yakovenko: I’m generally very bullish on US regulation, eventually setting some right lines about what’s okay to build, what’s not okay to build and how you launch these things. That’s really what’s missing right now.
The big fear and uncertainty for founders is that they don’t know. It’s very expensive to get a very poor answer from lawyers. You can’t have somebody that raises, let’s say, $3 million for their seed round, then having to spend 50% of it on lawyer fees just to launch a product. That’s not sustainable, and it’s causing folks to leave the US because those teams would rather launch their products offshore. I think that needs to be corrected.
But in general, I think the US government moves really slowly, like it did in the 90s. But eventually they passed legislation that enabled all these companies that you see today to have created massive amounts of value for the world. And I’m pretty certain that’s going to happen in crypto, too.
Blockworks: Any additional thoughts or comments?
Yakovenko: Stripe recently announced its integration with Solana, and I know many of these companies see crypto as an integral part of their future. These are big companies with millions of users. And that’s just going to keep happening.
More and more people are going to understand self custody and learn what that means — they’re gonna know what it means to actually use cryptography. That powerful tool is gonna keep growing, just like the internet did.
That’s the future we’re building for. This is a blip, it sucks, but in the end — four or five years later — barely anyone is going to remember it.
This interview has been edited for clarity and brevity.