Solana (SOL) was often celebrated as the “altcoin of the year” in 2021. But recent events cast doubt on whether the so-called Ethereum killer is really as attractive as often assumed.
Solana (SOL) wrote an extraordinary success story in 2021: from price levels around 2 US dollars, Solana pumped again and again to new highs, the all-time high is now listed at 260 US dollars from November 2021. We first reported in detail on the altcoin in April 2021, which was preparing to shake up the crypto industry. But now that Solana has established itself in the top 10 most capitalized cryptocurrencies, critical voices are mounting. There are three findings about Solana in recent weeks that are doing deeper damage to its positive image:
1. the Wormhole Hack: in one of the largest crypto hacks of all time, attackers were able to steal the equivalent of $320 million in wrapped Ethereum (ETH). What is now becoming clear: The hackers were able to invade a complex DeFi business because there was a bug in the Solana interface to Project Wormhole. Details about the hack can be found here. The financial damage was compensated by the US investment company Jump Crypto – but this step leads to the second point of criticism against Solana:
2. SOL Whales dominate the scene: it had been known for quite some time that Solana had major investors, including FTX founder Sam Bankman-Fried as a prominent advocate. But at the end of 2021, a detailed analysis by the online magazine “The Information” showed that the SOL Whales were probably not taking any risks at all and would at least have the opportunity to influence prices. A YouTube video with the meaningful title “How the Solana Billionaires are laughing at you” also fits into this picture. In short, Solana cannot deliver on the promise of decentralization and may not even want to.
3. network failures at Solana: SOL and the associated ecosystem scored high in the evaluation by claiming that they had virtually created a better Ethereum (ETH). Solana had solved the problems of high transaction fees and lack of network capacity. But by September 2021, a network outage at Solana caused a scare. In January 2022, the nightmare repeated itself. Our overview of Ethereum killers also showed: Solana is far from the capacities advertised in practice.
Bottom line: problems at Solana are reminiscent of Ethereum
The irony in the whole Solana story is recognized by anyone who has been around the crypto scene for a while. After all, Ethereum also experienced an unforgettable hack. The DAO hack of 2016 even led to the spin-off of Ethereum Classic (ETC) and showed in all clarity how sensitive the topics of self-governance and decentralization are for cryptocurrencies. The difficulties with network capacity also accompany Ethereum. Investors got the feeling with ETH over the years that they are self-critically working on weak points. In the best case scenario, this dynamic is also lining up at Solana. Otherwise, SOL threatens to become the plaything of Whales.