The last year brought the rise of several so-called “Ethereum killers” but the most prominent of these has been Solana, a blockchain that promises to deliver the best of Ethereum but faster and at a fraction of the cost. Solana’s spectacular rise, which has seen it vault into the top ten coins, has come from its spiffy technology and also from a certain celebrity pixie dust sprinkled by the likes of FTX founder Sam Bankman-Fried and others.
But lately, the shine has started to come off Solana as the upstart blockchain has been battered by a series of issues.
The most recent came this week when a hacker exploited a cross-chain bridge called Wormhole, making off with $320 million worth of wrapped Ethereum in the process. A forensic analysis by Paradigm researchers revealed the hack came about due to a flaw in Solana’s interface with Wormhole.
The stolen funds were not exactly chump change, and people blasted Solana for neglecting the security side of Vitalik Buterin’s famous “Blockchain Trilemma.” And they have a point. Solana is in the big leagues now, and hackers should not be able to waltz away with $320 million.
The episode was smoothed thanks to the Chicago investment firm Jump Capital swooping in and donating enough ETH to offset the stolen funds. Jump’s unexpected gesture helped to calm markets after Solana’s SOL token plunged following the hack, but it also served to highlight another issue with the blockchain: the outsize role of venture capitalists’ involvement with the project.
Few blockchains apart from Bitcoin are as decentralized as they claim to be, but Solana’s token allotment is more stacked toward professional investors than most. The Information recently reported how Solana insiders have reaped billions in the last year, while a YouTube video is circulating that shows two billionaire VCs chortling over how much SOL they own (“Solana Billionaire VCs Are Laughing At You”). The upshot of all this is that retail SOL buyers are likely to get hosed when token lock-up periods expire and the professionals dump their bags on the open market.
Solana is hardly the only chain where fat cat investors are making bank at the expense of ordinary crypto believers, but it’s still not a great look.
Meanwhile, Solana is also struggling with congestion on its blockchain. In recent weeks, traders have complained that Solana has become sluggish as the chain gets overloaded with spam and bots. This too is a familiar complaint in the crypto world but in this case is ironic since Solana’s boosters regularly boast about its speed.
Put all this together—the security breach, the VC-heavy token allotment, the congested chain—and it’s hard to view Solana in the same fresh light that made everyone fall in love with it in 2021 (including Decrypt, which named it “Coin of the Year“).
Nonetheless, the news isn’t all negative. For this would-be “Ethereum killer,” all of its recent trials reflect the same growing pains experienced by another famous chain that suffered a disastrous hack, squabbles over governance, and complaints about network congestion. You probably know that chain—it’s called Ethereum.
This is Roberts on Crypto, a weekend column from Decrypt Editor-in-Chief Daniel Roberts and Decrypt Executive Editor Jeff John Roberts. Sign up for the Decrypt Debrief email newsletter to receive it in your inbox every Saturday. And read last weekend’s column: Diem is Dead but Facebook Isn’t Done with Crypto.