What’s happening on the rapidly falling Solana?

With the collapse of FTX, Solana (SOL), as a "genuine project", is also experiencing its darkest moment. As of the time of writing, SOL is temporarily reported at $14.24, a 24-hour drop of 22.09%, and a weekly drop of as much as 53.8%. What's more frightening is that a large number of SOL are in the stage of staking unlocking and are about to return to the market.

Under such circumstances, the situation of the DeFi system on the Solana chain is naturally not optimistic.

Total locked value: continued to decline

DeFi Llama data shows that as of the time of writing, the total value of assets locked on the Solana chain is approximately $436 million, a 24-hour decline of 30.39%, even greater than the decline of SOL itself. The data from the peak of $10.17 billion has shrunk by more than 95%.

In terms of specific projects, the top projects in terms of locked-up amounts are also facing shrinkages of varying degrees. Among them, the staking protocol Lido has the largest shrinkage in a single day, and the lending protocol Solend has the largest shrinkage in seven days.

Oracle: Intermittent downtime

With the rapid decline of Solana, some major oracle services on the Solana chain, such as Pyth, have begun to experience intermittent downtime, making it impossible for some on-chain activities such as transactions and lending to be performed normally.

In response, Pyth said that the recent market fluctuations did cause many price feeds on Solana to not be updated in a timely manner, because it was difficult for publishers to obtain data in a timely manner. Pyth's price feed risk control requirement is that if a price feed product has less than 3 publishers publishing data within 10 seconds, the price feed will be set to offline status.

DEX: Liquidity Shrinks

As mentioned earlier, many DeFi projects, including DEX, are facing a rapid shrinkage of TVL. This is due to both the decline in assets and the outflow of a large amount of liquidity.

For DEX, this means that users’ exchange slippage will inevitably increase. For the entire ecosystem, if the situation continues to deteriorate, it may affect other projects that rely on DEX liquidity pools. For example, it may cause lending agreements to be unable to fully liquidate, thereby breeding bad debts.

Perhaps in order to appease the community's emotions, as of the time of writing, some major DEXs on the Solana chain, such as Raydium and Orca, have stated that they will continue to operate normally.

Borrowing: Bad debts have already occurred

Under extreme market conditions, due to network congestion, some lending protocols on Solana have already incurred bad debts.

Leading lending protocol Solend has previously tweeted to admit that some positions have not been liquidated in a timely manner, and community users have discovered that just one whale address (3oSE9CtGMQeAdtkm2U3ENhEpkFMfvrckJMA8QwVsuRbE) currently has over $6 million in bad debts on Solend.

Data shows that the address currently has about 616,000 SOL (worth about 8.6888 million US dollars) on Solend, but has borrowed 14.726 million US dollars in USDC, and the balance of the address is only 1.52 SOL.

To prevent further expansion of risks, Solend has currently disabled all lending services.

Potential big risk: soBTC

If the above situation can still be understood as an old story under extreme market conditions (this has also happened in other ecosystems such as Ethereum under extreme market conditions), soBTC (the main BTC packaged asset in the Solana ecosystem) is a problem on another level entirely.

According to meow, a community developer who has participated in the deployment of wBTC, soBTC is the biggest potential problem facing the entire Solana. The reason for this is that the issuance mechanism of soBTC is different from some other packaged cross-chain assets issued based on public smart contracts. It is independently issued by FTX (or Alameda), and FTX has not disclosed the official issuance process.

soBTC is currently used in almost all mainstream DeFi protocols in the Solana ecosystem, and has long been regarded by the Solana community as real BTC. All this may not be a problem when FTX is operating normally, but with the collapse of FTX, no one knows whether the supporting asset (BTC) that should exist 1:1 behind soBTC still exists. If the answer is "no", no one can guess what the consequences will be...

Whether it is price drops, shrinkage or liquidation, these are all natural results of DeFi rules, but the draining of supporting assets is another matter entirely, and no one wants to see such an outrageous event happen.