Solana and FTX Collapse: What Staking Data Reveals
SBF may not have made much of a splash in the world of League of Legends, but he definitely caused a stir in the crypto market. On November 6th, after SBF assured user withdrawals on FTX would remain active, the crypto market cap was sitting at ~$1Tn. By the 9th, the market cap had fallen to $736Bn, and FTX had frozen withdrawals. Reportedly, $8Bn to $10Bn of user funds are missing. Shortly after, the world discovered that SBF’s entities, the exchange, FTX; the hedge fund, Alameda; and SBF’s venture fund, were in a complex, intertwined polycule and most likely fraudulent relationship. The FTX collapse caused harm to many projects, particularly Solana. With Alameda as one of its largest holders, Solana has found itself in a difficult situation.
To better understand the FTX situation's impact on Solana, our team utilized our Staking Rewards API to analyze raw validator data. Solana validators are key participants who keep the network secure and transparent and ensure the network follows protocol rules. Today, Solana has one of the most competitive staking communities in the industry. Competition among leading Solana validators has become a fierce battle. Stay tuned next week for an in-depth look at Solana Validator Wars. For now, let's delve in and see how Solana is holding up amid the FTX crisis.
FTX/Alameda greatly affected Solana’s outsized decline relative to the crypto market.
Up until November 9th, the engaged balance (tokens staked) on Solana remained steady, ranging between 380M to 411M SOL. During the same period, the price of SOL dropped 91% YTD. Solana isn’t alone. The entire crypto market fell in value by almost 65% YTD. For context, we also saw the collapse of Luna; 3AC, Celsius, Hodlnaut, BlockFi filing for bankruptcy, and many more firms and protocols going under, perpetuating and amplifying the 2022 down market.
Crypto has had a rough year, but Solana has underperformed the crypto market by 26% YTD. What gives? And what does FTX/Alameda have to do with this?
Our first clue revolved around the timing of Solana's outsized price plunge relative to the rest of the market, which happened when the FTX/Alameda collapse began. From Nov 6th (arguably a key date as SBF tweeted FTX would be fine) to Nov 9th, a day after FTX confirmed the insolvency news, crypto markets crashed 26% from $1T to a low of $736B. Solana fell 67% from $37.06/SOL to $12.09 in the same period!
During that period, there were no significant Solana issues other than that the alleged major SOL holder, Alameda, was in serious trouble.
During the week of the FTX/Alameda collapse, Solana staking outflows erupted.
A month before the FTX/Alameda collapse, the price of SOL ranged between $30 - $36. Within the same period, engaged balance ranged between 405M to 410M SOL. However, that all changed during the FTX/Alameda collapse. Let’s look at our API data point, engaged balance, during the collapse to see what other clues exist.
29.5M SOL was unstaked in one day on Nov 10th, two days after the FTX/Alameda collapse. The previous month's engaged balance fluctuated only 5M SOL.
Zoomed in on the week of the FTX/Alameda collapse, we see the engaged balance of Solana decline significantly. The first major Solana staking outflows happened on Nov 9th when 2.5M SOL was unstaked. That’s significant given in the previous month, the engaged balance fluctuated 5M SOL from month highs to lows. On Nov 10th, things get crazy as 29.5M SOL unstaked. ,
Unstaking SOL requires a 5-day unbonding, aka waiting period. Whoever unstaked on Nov 9th and 10th must have done so on Nov 4th or 5th at the latest.
With the information we have thus far, it’s premature to confirm FTX/Alameda dumped SOL since it could have just been the market naturally dumping an asset as the whole market was selling. But wait…there’s one more thing. For a delegator to sell their staked SOL, they must first wait for a 5-day unbonding period. That means whoever unstaked 2.5M SOL on Nov 9th, and 29.5M on Nov 10th, had to have unbonded their tokens between Nov 4th to 5th. That would have been incredible foresight and would have required immaculate timing. Although one may conclude that FTX/Alameda were dumping their SOL, given the suspicious timing, one other event creates some uncertainty.
Investors may have acted as early as Nov 2nd to unbond staked SOL. Despite that, no material amounts of SOL were unstaked until Nov 9th.
On Nov 2nd, CoinDesk published the infamous Alameda balance sheet, which showed that ~40% of Alameda’s $14.6B assets were in FTT, the FTX exchange token. This concerned some investors (in hindsight, rightfully so). However, there weren’t any significant unstaking events on SOL until seven days later.
One could argue that savvy investors could have taken precautionary measures and unbonded in response to seeing Alameda’s significant SOL bags next to billions of dollars of FTT tokens on Alameda’s balance sheet. However, if that were the case, the unstaking would have likely happened as soon as Nov 7th since investors would have unbonded on Nov 2nd, after the balance sheet news.
The engaged balance data shows immaterial changes in Solana staking flows until Nov 9th and 10th, making it unlikely that a significant number of investors took precautionary measures to unbond staked SOL and sell before or right when FTX/Alameda confirmed insolvency.
The price of SOL saw substantial changes during early November. On Nov 2nd SOL was at a high of $32.95 and went on to open on Nov 8th at $29.63 when SBF announced insolvency and a potential acquisition from Binance (which fell through in 1-2 days). On Nov 9th SOL opened at $24.65, and closed at $13.97. Over the next 16 days, a further 24.8M SOL was unbonded and unstaked – bringing the total staking outflow to 56.8M SOL in November, a 13.83% drop since October. What’s interesting to us is the timing of everything. If investors had unbonded SOL tokens earlier, why didn’t they sell on Nov 8th? Why did investors unstake SOL on Nov 9th and 10th, after FTX announced insolvency and before a public announcement of Binance pulling out of the deal? Moreso, who had so much size to unstake that much SOL and had it unbonded ready to unstake? Only a few players fall into that category, and FTX/Alameda is one of them. FTX/Alameda allegedly owned as much as 15% of SOL’s circulating supply.
Did Alameda dump their SOL?
Alameda had $14.6 billion of assets as of June 30, 2022, according to a private document that CoinDesk reviewed. Included in the balance sheet were large amounts of Solana:
$292 million of “unlocked SOL”
$863 million of “locked SOL”
$41 million of “SOL collateral”
How much of this was dumped on the market when the news broke, when FTX announced insolvency when Binance pulled out of the deal? And how much of the staked Alameda SOL was unlocked? To answer this question, we need to figure out which addresses hold Alameda’s SOL - not an easy task for any on-chain sleuth. The current bankruptcy process of FTX/Alameda makes it even more difficult to trace Alameda SOL wallets, as they are more likely to be inactive. Nonetheless, validating Alameda’s SOL addresses is worth spending more time on. Unfortunately, we couldn’t confirm the wallet addresses during this research session. And thus can’t ensure 100% that Alameda was selling its large SOL positions. However, we believe it is very likely.
Which Validators took the biggest hit during the FTX collapse?
SOL was unstaked across multiple validators. The top 10 validators collectively comprised more than half of SOL outflows (30,904,902). Unfortunately, validator addresses are unknown and could belong to several parties. The largest outflow came from an unidentified validator address that unlocked 6.6M SOL over the FTX collapse period. Known validator entities like Kraken, Coinbase Cloud, Figment, and Rockaway also saw significant staking outflows.
As the dust settles from the FTX collapse, the staked value in USD of Solana dropped by ~73.4%. Solana dropped to fourth place on our Staking Rewards rankings.
On the bright side, Solana staking APR is up.
The Solana Staking APR is calculated by dividing the block rewards per annum by the engaged SOL balance. If the engaged balance falls, the APR should rise for both validators and delegators. We saw this relationship in action, as delegator and validator yields rose by ~ 38.46% and 42.70%, respectively.
Solana Validator Wars
We hope you enjoyed our first data-driven post leveraging our API data. We have much more coming! We hope our data efforts help advance PoS protocols and enable investors and validators to achieve their goals. Next week, we’ll dig deeper into Solana validator data and explore the Solana Validator Wars. Here’s a sneak peek.
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