Does Decentralized Finance Resist FTX Disruption?
As a preamble, I would like to clarify the term “Total Value Locked (TVL)”, which will be mentioned several times in this article.
Total Value Locked (TVL) = Total value (in dollars) of assets deposited and locked (for a certain period of time) in DeFi protocols through smart contracts. An increase in TVL is synonymous with an increase in liquidity and popularity of protocols. Conversely, a decrease in TVL implies a deterioration in liquidity and lower returns on the products offered.
DeFi is no exception to the rule of fear
TVL on DeFi platforms has fallen by more than 20% since November 1, from $83 billion to $65 billion. Knowing that a CoinDesk media report was published on November 2nd stating that FTX may be insolvent. In other words, the speculation surrounding the dark activities of Sam Bankman-Fried began on this date. The next ten days brought FTX to bankruptcy.
TVL in decentralized finance from November 1
Ethereum, the leading blockchain by TVL, fell 20% from $51 billion on November 1 to $41 billion on November 13. Binance Smart Chain’s TVL also fell by 14% to $7.3 billion. Tron’s TVL decreased by 25.05% from $6.1 billion to $4.6 billion. In the same trend, Avalanche, Polygon and Arbitrum saw their TVLs decrease by 25%, 8% and 10% respectively. In other words, globally decentralized finance has suffered the wrath of the cryptosphere. But one blockchain suffered more than others.
Solana: worst student
Solana Blockchain lost the largest TVL. It went from $1.65 billion to $585 million two days after the bankruptcy, resulting in a 64% drop in the dollar.
TVL: Top 10 protocols
But its decline continued to accelerate, proving users’ lack of confidence in the protocol. It was further halved between November 11 and today, the day FTX filed for bankruptcy. While TVL peaked at over 10 billion in November 2021, today it is down 97.25% at around $285 million.. This indicates a significant departure of users and their funds.
Total Value Closed in Solana
Among the top DeFi protocols on Solana, lending platform Solend has lost 92% of its TVL over the past two weeks, and the protocol now has about $23 million locked up on November 1, up from $280 million. .
Solend Protocol TVL
One of the main DeFi protocols, Marinade Finance, lost 66% of its TVL and now has $80 million, becoming the leading DeFi protocol on Solana. Decentralized protocols Raydium, Serum, and Orca have lost 58%, 99%, and 33% of their TVL over the past two weeks, respectively.
The collapse of Serum was a major sign of user distrust as Solana was the cornerstone of DeFi infrastructure. In fact, it is the central limit order book of the blockchain trading ecosystem. This is a more efficient alternative to the “auto market maker” setup that dominates DeFi protocols. With the help of big market makers like Jump and Alameda, it managed more than $32 billion this year.
It should be noted that Alameda is a trading company owned by the former head of FTX Sam Bankman-Fried. Of course, Serum takes the collateral damage from Alameda and FTX drops.
In turn, Solana’s native cryptocurrency SOL was one of the main assets that took a serious hit after FTX. It has lost 63% of its value since November 1. After trading around $260 a year ago, it is now down 95% at around $11 a unit.
Trading volume on the Solana blockchain is managed exclusively by Magic Edgen, an NFT trading platform.
Volume according to the protocol on Solana
Over the past year, Solana has raised funds from the FTX stock exchange and former CEO Sam Bankman-Fried’s trading firm Alameda Research.
Alameda Research was an early investor in Solana and contributed to its private token sale (ICO) in 2021, when the blockchain raised $300 million from various private investors. This funding round was led by investment fund Andreessen Horowitz.
Since then, Bankman-Fried companies have continued to work with the Solana blockchain. In March 2022, FTX partnered with investment company CoinShares to provide an exchange-traded product (ETP) based on Solana. This new product shared Solana’s staking rewards with investors. FTX was also a major investor in SOL cryptocurrency. Its balance sheet includes SOL worth more than $1.1 billion.
In fact, FTX, Alameda, and Sam Bankman-Fried’s large financial contribution to Solana’s various protocols understandably scared users. As evidenced by the outflow of funds in recent days and the collapse of SOL’s progress. In addition, prior to this catastrophic episode, Solana experienced many failures in its network, discovering many technical failures. Meanwhile, developers continue to build decentralized applications (Dapps) on the blockchain, and users rely on its technology to trade on Magic Eden, an NFT marketplace. On the other hand, it takes time to restore users’ trust and prove that they can thrive without FTX infusion.
From a more global perspective, the collapse of FTX affected the entire cryptosphere. No sector was spared. Not so the digital currency of the Bitcoin network, its fundamentals have remained unchanged despite this episode of crisis. It will naturally take time for trust to re-establish itself throughout the cryptocurrency ecosystem. On the other hand, we do not yet know how far the shock wave of the FTX explosion will spread.