crypto strategy

FTX implosion crushes Solana NFT ecosystem

What happened

In response to FTX’s insolvency, crypto markets have been in a risk-taking mood, with asset prices dropping precipitously for all crypto tokens, fungible and non-fungible.

The aggregate market capitalization of all cryptocurrencies fell 23% to $786 billion from $1.02 trillion in four days. Nansen’s NFT-500 Index indicates that prices of non-fungible tokens (NFTs) on the popular Ethereum price blockchain fell 14% over the same period. Solana’s NFTs were hit even harder, with SolanaFloor reporting that their overall floor value fell 68% from $424 million to $135 million in the past few days.

Among some of the top Ethereum chip collections, the Bored Ape Yacht Club floor price fell 43% to $60,000, CryptoPunks fell 37% to $69,000, and MoonBirds fell 51% to $6,800. On Solana, the floor price of DeGods fell 66% to $2,700, Solana Monkey Business fell 68% to $2,000, and y00ts fell 70% to $840.

Part of the underperformance of Solana NFT collections is due to FTX’s defense of Solana’s layer 1 blockchain. As the exchange implosion unfolded, the price of the solana token fell 68% to $12. Along with the slide of non-fungible tokens, which represent collections of items such as artwork that may differ from each other, FTX’s fungible exchange token known as FTT and Exchange Serum decentralized (DEX) based on FTX’s Solana are down 89% and 53%, respectively, in the past few days.

The FTX insolvency saga is unfolding, but the picture is starting to clear. It appears the exchange loaned customer deposits to its sister company Alameda Research, which was a hedge fund that made bad discretionary bets with assets. The Alameda collapse triggered FTX’s insolvency, creating a $10 billion hole in the balance sheet and leading FTX to file for bankruptcy protection on Friday, November 11.

Broader context

FTX has become a major player in NFT. The exchange has made strategic investments in leading NFT projects, partnered to support new issuances and launched its own marketplace.

FTX’s $2 billion venture arm, FTX Ventures, has invested in notable NFT projects, including Bored Ape Yacht Club creator Yuga Labs. FTX Ventures also participated in Doodles’ recent fundraising Series A where the pastel profile picture avatar maker raised $54 million at a valuation of $704 million.

Additionally, FTX has been active with primary broadcasts of new NFT collections. FTX has partnered with Coachella and Tomorrowland music festivals to release NFTs that provide unique benefits and experiences for viewers. It has also partnered with notable brands and franchises including the Golden State Warriors, Washington Wizards and Capitals, Dolphin Entertainment and Mercedes F1 to support their collections.

Despite these high profile partnerships, FTX’s NFT platform was never able to gain traction. Interestingly, since FTX’s creditworthiness came into question in recent days, NFT’s volume has surged to $13 million. It is possible that this increase was caused by users circumventing FTX’s suspension of fungible token withdrawals by purchasing NFTs and then withdrawing those assets in order to recoup the value of the exchange.

Key players

FTX – International offshore crypto exchange with its US branch, FTX.US. FTX is one of the world’s largest exchanges by trading volume, serving institutional and retail clients

Alameda Research – Hedge fund that conducted trading and market making activities on the FTX exchange

Sam Bankman-Fried (SBF) – Founder and former CEO of FTX and Alameda Research

key quote

“As an industry leader, FTX’s reputation carries significant weight in the perception of cryptocurrency among retail users and investors. The collapse of FTX has impacted the average consumer who is less embedded in the crypto industry more than any other collapse, since FTX was globally known and trusted.The NFT industry will see an increase in bullying and skepticism among mainstream users in the near term.

The NFT and crypto industry must once again earn back the trust of the world, which, although difficult, will be done through the continued development of NFT with real utility that can solve the problems. Given the growing fear of the perceived financial risk of entering the cryptocurrency and NFT space, solutions that provide revenue streams to creators and businesses will be particularly beneficial in driving the industry out of this. crisis.

  • Gökçe Güven, Founder and CEO of Kalder

Key stat

Denominated in solana cryptocurrency, Solana-based markets Magic Eden, OpenSea and Solanart saw significant increases in NFT trading volume, more than tripling to over 250,000 solana traded daily from around 80,000 a year ago. barely a week. As NFT prices fell, this increase in volume suggests that holders were rushing for exits and unloading their NFTs due to the FTX incident.

Prospects and implications

The fallout can fundamentally alter the value proposition of solana and related projects, especially now that its biggest advocate can no longer sustain the ecosystem.

FTX and Alameda Research have been intrinsically linked to the solana blockchain since the protocol’s inception in 2020. They have been instrumental in helping solana gain traction and visibility. The solana token is also Alameda’s second-largest holding, accounting for around 10% of the crypto’s market capitalization.

The brief threat of a takeover by Binance this week has stoked fears among Solana investors that Binance CEO Changpeng Zhao may dump assets to back its rival blockchain token, BNB, exacerbating the sale of Solana. Ultimately, CZ, as he is known, dropped the potential acquisition, but solana still seems to be hurting from his association with FTX and Alameda.

As evidenced by the sale, some investors have lost faith in solana. This may deter founders and creators from creating new NFT apps and collections on solana, which could delay the development of the solana ecosystem.

Decision Points

We don’t yet know the extent of the damage and the extent of the contagion resulting from the FTX implosion. Investors are encouraged to take custody of their digital assets, including NFTs, by removing them from exchanges and other centralized platforms until the dust settles.

The market has entered a new period of risk aversion and it may take time for confidence to return. NFTs are a riskier high beta game on the rest of the crypto market, meaning they amplify upside and downside returns, relative to major crypto assets such as bitcoin and ether. Thus, investors who are more risk averse may want to avoid buying NFTs until the situation is resolved.

Investors looking to make long-term bets can choose to support other top-tier protocols and their burgeoning NFT ecosystems such as Ethereum, Binance Smart Chain, Polkadot, and Avalanche. Due to the uncertainty surrounding solana and solana-based projects, these alternatives may outperform.

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