Hello, Michael Hypov here.
In this article, we will consider the investment attractiveness of the Solana blockchain, and more specifically, its home token SOL, and I’ll also answer the question why 8.Finance decided not to be built on Solana.
First, let’s look at the strengths of SOL.
What are some factors that are IN FAVOUR of investing in SOL in the medium to long term?
- High transaction speed and low cost
Solana remains one of the cheapest and fastest decentralized blockchain networks on the market
- Transactions per second (TPS): 29,171
- Time to form one block: 2.34 seconds
- Cost of one transaction (Gas Fee): 0.00025 USD
2. Powerful marketing and high social activity of the community
The Solana community is one of the three most active:
At the same time, the active promotion of the Solana brand takes place not only in the online environment, but also offline:
- A chain of stores under the Solana brand is being built
- Solana Saga smartphone is in development
3. Low price
Solana’s price is down 95% from its highs, leaving a huge room for future growth.
What are deterrents AGAINST investing in SOL in the medium and long term?
- Technical issues with the Solana blockchain
The Solana blockchain has experienced at least 7 outages since 2020; 5 failures have occured in 2022. Spam attacks similar to DDOS attacks, which the founder, Anatoly Yakovenko, himself calls the curse of Solana. The problem lies in the existing bandwidth limitations of the solana blockchain and, at the same time, the very low cost of transactions, which makes it possible to arrange spam attacks on the network and create tens of millions of transactions through bots simultaneously, which overloads the network and disables it.
An example of one of these spam attacks is shown on the chart above.
2. Former FTX CEO Sam Bankman-Fried was Solana’s top ambassador and investor
FTX was the second most important cryptocurrency exchange in the market. It was powered by the Solana blockchain. The bankruptcy of FTX and the departure of Sam is causing great damage to the entire ecosystem. In addition to reputational damage, FTX’s ongoing SEC investigation and bankruptcy process is a significant risk. All affiliated legal entities and investment projects in which Sam participated could be under attack. For example, it has already become known that the funds of users of the FTX exchange were transferred without their knowledge to the Alameda group of companies for investment and trading activities.
Moreover, Sam is an early investor in the Solana blockchain. According to some reports, he has $292 million of “unlocked SOL”, $863 million of “locked SOL” and $41 million of “SOL collateral” in his accounts. As part of the bankruptcy proceedings, these funds are likely to be sold to pay off obligations to debtors. Which will definitely put pressure on the price.
3. SOL trades worse than the market
The chart above shows that the price of SOL is trading worse than the market where the benchmark is Bitcoin. This means that in Solana, there are no internal factors that keep the price from falling, and there are no insiders to buy.
This was confirmed by the rebound of Bitcoin in June 2022 (marked by the red line on the chart above). We can see that the price of SOL does not react to the general market positivity and practically remains at its own levels.
4. Stakeholder exit from SOL
On https://solanacompass.com/validators/, we are seeing an intense outflow of SOL stakeholders from the Solana blockchain. Since the holders staking SOL represent long-term investments — people who invest in the token for the long term, — this dynamic is fundamentally negative.
5. Decreased activity of Solana blockchain developers
According to https://research.binance.com/en/projects/solana, the commit activity in the Solana developer repositories has been greatly reduced over the past few months
Santiment data confirms the downward trend in developer activity.
This fact is also a red flag for buyers amid frequent system crashes and hacker attacks.
6. Solana user hacks
Unfortunately, Solana cannot be called a secure blockchain for users of this network either.
During 2022 alone, two of the largest attacks on Solana users in the history of DeFi were implemented:
- In February 2022, the hacking of the Wormhole bridge on the Solana network resulted in a loss of 320 million USD. Funds were stolen from users of this bridge.
- In August 2022, funds were stolen from 8,000 Solana user wallets.
Moreover, in November 2022, almost simultaneously with the filing for bankruptcy and Sam Bankman-Fried stepping down from the CEO position, it became known about a hacker attack on the FTX exchange and the withdrawal of cryptocurrency assets worth 600 million USD.
In which cryptocurrency these thefts were carried out is not known, but probably a significant part of them is in the SOL token. Bringing these funds to the market is a matter of time, and token sales will put pressure on the price in the long term.
7. Solana Blockchain inflationary tokenomics
Another not insignificant factor of additional pressure on the price of the SOL token is the inflationary nature of the Solana tokenomics.
SOL has no minting limits and will be issued with programmed inflation, which, according to the whitepaper chart, should be around 6% this year.
The chart above shows the dynamics of the increase in the supply of tokens on the market over a period of 15 years. According to https://explorer.solana.com/supply, the current Total Supply is 533,682,239 SOL tokens.
8. Continued vesting of SOL tokens
The last thing I want to pay attention to is the vesting program for participants in investment rounds. As we can see from the vesting schedule, it should be completed this year, and therefore, until the end of 2022, there will be additional pressure on the SOL token due to the release of locked tokens.
Conclusion
Solana is a promising blockchain with attractive technical features, stable tokenomics and an excellent development and marketing team; however, current internal and external market factors are not in favour of buying SOL tokens even in the long term at current price levels.
Arthur Hayes, the founder of BitMex, known for his quite accurate predictions in the past, is talking about a SOL day in the 3 USD region.
If we look at the SOL historical price chart, we can see a breakout of the market-maker levels by 30 USD, which caused a surge in liquidation and an avalanche-like price drop. The next level of SOL price support is a trading channel that was formed in the first months of trading on Binance in the area of 5 to 1 USD, so Hayes’ estimate as a whole looks very realistic.
If we consider SOL as a long-term investment, it can be recommended for purchase only when approaching the announced range, with position averaging up to a minimum of 1 USD. At the same time, it is important to observe the behavior of the price relative to Bitcoin. A green signal to buy will be the start of active purchases by insiders. This will be seen when comparing the price chart of SOL and Bitcoin, where the former will rise even in a falling market.
Returning to the subject of: Why did 8.Finance decide not to be built on Solana?
I am sure that after reading this article, you have already understood the answer. Despite all the technical advantages of Solana, this technology was still too raw and vulnerable to hacker attacks. The Ethereum blockchain and protocols compatible with it, such as the BNB chain, have proven their reliability over time! At the same time, the main competitive advantage of 8.Finance lies in the fact that the business model is not tied to a specific blockchain. We can easily scale and work with projects of any network, and even with businesses that have nothing to do with cryptocurrency.
Want to know more about 8.Finance? Check out Pitch Deck.
Take care of yourself and your money!
Good luck to all,
Michael Hypov
CPO of 8.Finance
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