The Solana Story · Module 4 · 2022 to 2023 · 35 min
In 2022 a major bridge hack and the failure of FTX, one of Solana’s biggest backers, sent SOL’s price down by around 95 percent from its peak. Many assumed the network was finished.
What you will learn
Describe the Wormhole hack and what a bridge is.
Explain why the FTX failure hit Solana so hard.
Say how the network and its users reacted.
The lessons
Lesson 1: The Wormhole hack
A bridge is a service that lets you move tokens from one blockchain to another. Wormhole connected Solana to Ethereum and other chains. In February 2022 an attacker exploited a flaw in its code and took about $320 million worth of tokens.
The company Jump Crypto, which backed the bridge, put in the missing funds to cover the loss, so users were made whole. That is not guaranteed in a hack, and it is one of the reasons people call bridges one of the riskiest parts of crypto.
The episode also hurt the reputation of Solana’s ecosystem, even though the flaw was in the bridge’s code and not in Solana itself.
Remember: Bridges concentrate a lot of money in one place, which makes them a favourite target.
Lesson 2: FTX and Alameda
The exchange FTX and its sister trading firm Alameda Research had been among the biggest supporters of Solana. They held a large amount of SOL and invested in many Solana projects.
In November 2022 FTX collapsed, as you read in the Bitcoin story. Because so much of its holdings were tied to Solana, the price of SOL dropped sharply, from around $36 in early November to below $10 by the end of the year, and many projects that relied on FTX money shut down.
The lesson is concentration. When a lot of a network’s money, attention or credibility comes from a single backer, its fortunes depend on that backer.
Remember: A project that depends on one big supporter is only as strong as that supporter.
Lesson 3: Staying alive
In the bear market that followed, many people wrote Solana off. But the developers and community kept building. Validators kept running, and projects that survived the FTX collapse had less hype and more substance.
In June 2022 the company behind Solana announced a Solana-focused phone called Saga, which began shipping in spring 2023. It was an attempt to bring Solana to ordinary users through a phone with a built-in crypto wallet.
The network suffered another outage in February 2023, lasting many hours after a software upgrade problem, which was a reminder that the reliability problem had not gone away. It was also, as it turned out, close to the last of the big ones.
Remember: The bear market is where you find out which projects have real builders behind them.
Key dates
When
What happened
Why it matters
February 2022
The Wormhole bridge is hacked for about $320 million
A major bridge failure; the funds were later covered by a backer
June 2022
The Saga phone is announced
An attempt to bring Solana to phone users
November 2022
FTX collapses
SOL falls hard because FTX and Alameda held a lot of it
December 2022
SOL falls below $10, roughly 95 percent below its peak
The low point of the cycle
February 2023
Another network outage, lasting many hours
A reminder that reliability was still a problem
Key terms: bridge, hack, exchange failure, concentration risk, bear market. Open the glossary
Module quiz
4 questions. Tap an answer to see if you are right and why.
1. What is a bridge in crypto?
Bridges hold lots of money in one place, which attracts attackers.
2. About how much was taken in the February 2022 Wormhole hack?
About $320 million; a backer later covered the loss.
3. Why did FTX’s failure hit SOL so hard?
This is concentration risk.
4. Roughly how far did SOL fall from its peak by the end of 2022?
From near $260 to below $10.
Do it yourself
Pick any crypto project you have heard of. Write down who its biggest backers are and what would happen to it if one of them failed. Do the same for something outside crypto, such as a local business that has one big customer.
Not financial advice. This lesson is history and education only. Prices are rounded and shown only to explain how big the swings were.