Solana is facing its 'crucible moment' after the FTX blowup sent it down 50% last week

The price of the Solana token, SOL , took a nosedive this past week as it was thrust into the maelstrom that resulted in the collapse of the FTX exchange. Investors say it feels like a make-or-break moment for the Solana network, but they're optimistic it'll pull through. At the pinnacle of the FTX drama last week – which resulted in the crypto exchange filing for Chapter 11 bankruptcy protection on Friday – SOL dropped about 70% over two days. It was one of the hardest-hit cryptocurrencies during the week, ending down 53.5%. "Every community has to have a crucible moment," said Avichal Garg, a managing partner at venture capital firm Electric Capital. "There's a moment where either it's going to work or it's going to die — for Bitcoin that was either the Mt. Gox hack or it was the 2017 Bitcoin Cash fork... for Ethereum that was the ICO bubble. This is that moment for Solana." Garg said he thinks the community will pull through, but that that may not have been the case just a few months ago. Solana, the 12th largest crypto token by market cap, according to CoinGecko, became the darling of the crypto world last year. Market participants fell in love with it as it sold investors a vision of something like Ethereum, but better – faster and cheaper. A lot of the love came due to FTX and its now fallen leader, Sam Bankman-Fried. Last week, the price of SOL collapsed as revelations about the solvency of FTX and its sister company Alameda Research came to light. "FTX really helped construct this ecosystem, they put a lot of money and resources behind it and helped the flywheel get going," Garg said. More pain to come It may not be over for the Solana sell-off. Investors and engineers of Solana-based protocols have talked about liquidations troubles on the blockchain, which could put those with funds locked on Solana at high risk in the foreseeable future. The Solana network itself currently has $401.22 million locked in DeFi — that is, decentralized finan ce — protocols, compared to about $1 billion on Nov. 6, according to DeFiLlama. Also, the FTX story is ongoing, and market participants have much more to learn about just how much financial contagion will spread. Garg said the market has yet to see second- and third-order effects take place. "What we're starting to hear, unfortunately, is some companies that had a very substantial portion of their assets sitting inside FTX... they can't get that back and so it materially impacts their runway or materially impacts their business," he said. "As soon as you admit to your customer that that's happened, you might have your own bank run." On the bright side, whatever amount of Solana tokens was locked on the FTX exchange can't be sold now. "All the tokens [FTX] has on the books — because they're now officially in bankruptcy proceedings they can't touch, so initially it looks really bad but in a bizarre way, it might be really beneficial because now those tokens are all locked out, and they can't be sold," Garg said. "Effectively supply has been taken out of the market." Strength in community Investors who became attracted to Solana at the height of the 2021 crypto rally may be exiting the digital currency space after this crash. However, those close to the Solana community have been strongly encouraged by growth trends in its developer base. David Nage, portfolio manager at Arca, called it "one of the strongest" in the world. "They have done a very good job compared to other layer 1s out there in terms of their ability to manifest interest with the developer community," Nage said of Solana. Solana's most recent hackathon, in September, had 750 project submissions , compared to 60 project submissions in its first hackathon in 2020. Nage also highlighted the nascency of Solana and so many other promising projects. Many investors, observers and media have been watching the rise and success of Solana as if it were a finished product, he said, when really it's "effec tively in beta." "A lot of these layer-one blockchain and layer-two infrastructure pieces have rushed to the market when they haven't necessarily been finalized," he said. "We need to as an investor community think about duration. How long have these things been around and when do we think they can manifest to actual productivity and things that could be important as an investment for long term?"