Why crashes, hacker attacks and negative news background do not lead to a significant drop in cryptocurrency

“The most underrated token right now.” Why Solana's price is resistant to bad news

05.08.2022

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5 min

It's been a tough week for investors in the Solana project. On the night of August 2 to 3, about 8 000 wallets were hacked as a result of a leak of Slope wallet users' seed phrases. It seemed that such an incident could provoke panic sales of SOL token, but the rate of the coin reacted only with a short-term drop, after which the price of the asset returned to the values before the hack was discovered. As of August 5, SOL is trading at $40,25 and ranks 9th on the list of cryptocurrencies in terms of market capitalization.

To block the transactions initiated by the hacker, a group of white hackers launched a spam attack on his wallets. As a result, several servers that pass network traffic were affected, and some users could not use their wallets or blockchain explorers. The network disruptions and the flow of negative news also barely affected the price of the SOL token.

Solana blockchain-based projects can't boast of that. In late July, DeFi-protocol Nirvana Finance suffered an instant loan exploit that resulted in $3,5 million being withdrawn by attackers. In the aftermath, the NIRV project's stablecoin lost parity against the US dollar, plummeting more than 90%. The associated ANA token also fell from $8,6 to $1,66. Earlier, the Crema Finance project was hacked in a similar way.

“At first, SOL reacted to the hack reports by a 10% drop, but since nothing was known about the reasons for the attack and the source of the vulnerability, the coin did not continue to fall,” ENCRY Foundation co-founder Roman Nekrasov commented on the situation. Later it became known that the reason of the hack was a vulnerability in a third-party application which was a mobile wallet Slope that stored seed phrases of users on a centralized server. According to the expert, despite the fact that the Solana team is not responsible for this vulnerability, the situation makes one wonder why project teams do not sufficiently check related infrastructure services for security, because hacking a wallet and stealing a certain coin inevitably shadows the entire Solana project as a whole.

Solana positions itself as a faster alternative to the Ethereum blockchain, also offering the possibility to use smart contracts on which decentralized applications (dApps) or non-fungible tokens (NFTs) can run. In 2021, the SOL token gained a foothold in the top ten cryptocurrencies by market capitalization, with its price reaching an all-time high (ATH) of $260. At the same time, the network has repeatedly experienced technical failures and outages, leading members of the cryptocurrency community to wonder about the reliability, stability, and security of the Solana blockchain.

In our article, we tell you everything you need to know about Solana

Among the main differences between Solana and Ethereum and other blockchains, Nekrasov highlights Solana's use of Proof-of-History as opposed to bitcoin or Ethereum running on Proof-of-Work (PoW). Solana is less resource-intensive, blockchain memory consumption is lower, the network is easier to scale, and transaction fees are very low. “Actually, from the point of view of the idea and architectural plan Solana looks more relevant than Ethereum in the PoW version, but this is where the main advantages end,” the expert notes.

In his opinion, the Solana project is more centralized and does not have as many years of trial and error as Ethereum, which has already established itself as a reliable blockchain system for building decentralized financial applications (DeFi). The scalability issues with ETH will soon be resolved when The Merge upgrade takes place in September, after which the network will switch to a Proof-of-Stake (PoS) transaction confirmation algorithm. Nekrasov also recalls that Solana has also experienced blockchain outages, while Ethereum has not, at least not in the last 5 years.

It is likely that the popularity and demand for the SOL token are not least due to the list of investors of companies building the Solana infrastructure. “Solana remains an aggressive market player in terms of marketing and activities in the cryptocurrency world, backers of the project are strong,” comments Nikita Vassev, founder of TerraCrypto, noting that questions about the technical implementation and network shutdown do exist and keep coming up, but, according to the expert, this does not prevent investors who do not get into technical issues.

One of the most prominent members of the list is undoubtedly the head of the FTX exchange Sam Bankman-Fried. In a recent interview with Fortune magazine, Bankman-Fried says that despite the glitches, he sees potential for growth in Solana. “I think it had a lot of bad PR over a short period of time — I think it sort of deserved that, to be clear: Technologically, it had a lot of sh*t to work through,” the FTX head told the publication's reporters. At the same time, he believes that at least two-thirds of them have already been overcome, and the remaining third will also be solved.

Of course, one can hardly speak of Bankman-Fried's impartiality, given that he invests in the Solana ecosystem both directly and through his companies. Alameda Research, which he founded, participated in a $314 million Solana Labs investment round in June 2021. He is also working on Serum, a decentralized exchange powered by Solana's blockchain. In an interview, Bankman-Fried calls SOL “the most underrated token right now,” while specifying that his opinion should not be considered as investment advice.

According to Roman Nekrasov, blockchain projects focused on dApps and DeFi have very good prospects and a promising future. “But it is hard to say which of these blockchains will turn out to be the horse to bet on,” the expert concludes, specifying that it is worth keeping ETH, SOL, ADA coins and other project tokens offering solutions in these areas in the portfolio.

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