The origins of Solana: How Alameda and FTX took SOL into the abyss

Author: Jeff Albus, Blockworks; Translator: Baishui, Golden Finance

The first part of this article can be clicked 《The Origin of Solana: How to Turn Ideas into Reality? 》

In 2021, Solana's ecosystem seemed unstoppable as it expanded at an astonishing rate. Funds poured into DeFi projects such as Serum, Raydium, and Mango Markets. NFT markets such as Magic Eden began to compete with Ethereum competitors such as OpenSea, and the network's transaction volume hit an all-time high. But behind this rapid rise is a precarious dependency: Alameda Research and FTX.

Both companies were founded by the now-jailed Sam Bankman-Fried (SBF), one of Solana’s earliest and most influential backers. Alameda participated in multiple funding rounds, acquiring a large number of SOL tokens. FTX hosted the Solana hackathon and played a key role in the launch and maintenance of Serum, a decentralized exchange and one of Solana’s flagship applications.

Initially, being deeply entangled with FTX was an indisputable advantage. Bankman-Fried, who was seen as a visionary at the time, became one of Solana’s most outspoken supporters, frequently touting its superiority over Ethereum. The partnership helped Solana attract liquidity, developers, and institutional credibility. However, it also meant that Solana’s fate was closely tied to FTX’s success.

In November 2022, everything unraveled almost overnight. Reports emerged that FTX had an $8 billion hole in its balance sheet, ostensibly caused by reckless financial behavior by Alameda and its founder, SBF. Panic spread quickly. FTX customers rushed to withdraw their funds, triggering a liquidity crisis that the exchange could not withstand. Within days, both FTX and Alameda collapsed, taking billions of dollars in customer funds with them and razing Sam Bankman-Fried’s empire to the ground.

The disaster was catastrophic for the entire crypto industry, but no blockchain suffered more than Solana. Investors, fearing that the collapse would spread further, sold their holdings. The price of SOL fell sharply from its all-time high of nearly $250 a year ago. While the bear market was largely responsible for this drop, the collapse of FTX caused its price to fall further to around $9.77.

DeFi activity on the network dried up immediately. Serum, which relied on FTX to operate, collapsed, leaving traders to look around for alternatives. The wider Web3 community had already cast doubt on Solana’s stability due to its past network outages, now dubbing it “Sam’s chain,” a blockchain that flew too close to the sun and is now destined to fade into obscurity. Still, the crash didn’t last as long as some expected. Solana rebounded to above $20-24 in the following weeks, though its price remained in a prolonged period of sideways stagnation for much of the following year.

The psychological blow was likely worse than the financial damage. Developers building projects on Solana questioned whether the network would survive. VCs once eager to fund the Solana startup retreated, turning their attention to the promise of Ethereum and L2. But even as the walls closed, Solana’s loyal core community steadfastly refused to yield. A small but loyal group of creators, validators, and users, convinced that the technology itself is sound, insisted on continuing to build and promote it. But was their faith alone enough?

Next in the Solana series: The Comeback. How Solana overcame the odds, rose from the ashes, and reclaimed its place as a Web3 powerhouse.