Solana has been a cryptocurrency blockbuster this year, but its token has gone into free fall, following another bout of technical difficulties in its network.
The Solana (ticker: SOL) token was down more than 11% on Friday to $135 before recovering a bit to $143. It has been sliding for days and is off more than 30% from its all-time high of $215 reached on Sept 9.
The token’s core blockchain network suffered a 17-hour outage on Tuesday as it became overloaded with a spike in activity, which spiked to 400,000 transactions per second, or TPS, crashing the system. The spike arose partly due to a flood of transactions for a new social-networking protocol on the network, called Grape. That caused the network to freeze and created a backlog of transaction processing.
The Solana Foundation, which oversees the network, got it back running on Wednesday, and promised a “post-mortem on the outage in the coming weeks.” But it still appears to be congested as it works through the backlog. Solana said it had experienced a “denial of service” for several Solana.com-related domains, according to a Twitter
post on Thursday, though it said the blockchain itself was running.
“They had resource exhaustion,” says Anthony Georgiades, a crypto investor with Innovating Capital. The network essentially ran out of memory to handle transactions, forcing some network operators offline. “It raises some red flags.”
Solana has been on a tear this year as applications or protocols on its network surged. It has become a thriving hub for non-fungible tokens, or NFTs. NFTs are digital files like JPEGs or video clips that live on a blockchain, where they are authenticated by a network of computers and their ownership can be tracked and verified. Solana recently processed the sale of a Degenerate Ape NFT—digital images of apes—that sold for $1.1 million.
Solana now has its own NFT marketplace, called Solanart, and an artist storefront called Metaplex. FTX, an exchange launched by crypto-entrepreneur Sam Bankman-Fried, is also backing Solana, and recently announced plans to launch an NFT marketplace that will be interoperable between the Ethereum and Solana networks.
High-frequency trading firms are building applications on top of Solana, aiming to capture global-financial data feeds at faster speeds. They also aim to trade tokenized securities on its network.
The surging interest in the network has made Solana a top-performing crypto this year. Before the recent pullback, it had gained more than 14,000% from around $1.50 to $215 at its peak. Just a few weeks ago, it traded around $40.
The price reflects hopes that Solana’s underlying blockchain could turn into the next Ethereum–now the dominant network for decentralized-finance apps, tokens, and platforms, including MakerDao, Chainlink, Uniswap, SushiSwap, and Aave.
Solana’s backers see it eventually challenging Ethereum as a platform for decentralized-finance, or DeFi, and all sorts of apps running on blockchain technology. The Solana network claims to process 65,000 transactions per second at an average cost of just $0.00025 per transaction, making it much faster and cheaper than Ethereum.
The token’s tumble may reflect some profit-taking, but the network’s crash also highlights its growing pains as it scales up. And Ethereum isn’t sitting still–a 2.0 version of the network is in the works, aiming to boost volume to 100,000 transactions per second, from under 100 now.
Georgdias—who has invested in the SOL token and is developing another blockchain network, called Pastel, for digital collectibles—says he isn’t deterred by Solana’s recent troubles.
“It’s still not a rock-solid foundation like Ethereum,” he says. “But people forget this is still a start-up and it’s early innings.”
Nearly $30 billion worth of transactions have been processed on Solana, he notes. He expects the dollar figures and transaction volume to continue growing as more applications develop on Solana and it integrates with other blockchains.
“The growth of apps on SOL has been explosive,” he says. If it continues, the token is likely to recover, though the network may have to prove its reliability to make it into the big leagues.
Corrections & amplifications:
Anthony Georgiades is with Innovating Capital. An earlier version of this article misidentified the firm as Innovation Capital.