Web3 Watch – 19 Feb 24

Solana Outages: Historical $SOL Price Action Behaviour

• This month, Solana encountered a network outage, and was down for 5 hours due to a bug that caused validators to stall on a certain block . The third longest outage in its history also marks the 12th time that Solana has gone down. In response, the Solana team deployed a fix with a new release of validator software.
• How has this affected the price of $SOL, and what usually happens when this happens? Let’s have a look a timeline of major Solana downtimes and degradations

Chart 1: Major Solana downtimes, degradations, and solutions (Source: Messari, via Flipside, Solana Status and Coindesk)

Looking back at a few historical examples, here is how $SOL’s price action has typically reacted, whenever a Solana outage occurs:

• Regardless of market conditions, whenever Solana experiences an outage, the price action of $SOL typically tends to have:
  • A knee-jerk reflex pullback ranging from 3-10%
  • A rebound back to par, usually within a span of a few hours
  • A price move downwards 2 weeks later (-14 to 75%)

• A potential trade that could be made during such occurrences, based on historical examples would be to short Solana for a potential gain of 10-25%. (2 weeks from date of outage or rebound, barring any extraordinary occurrences).

Underwhelming Airdrops: $JUP, $STRK, $TALIS

Following the massive and literally free profits from the $JTO airdrop, much hype has been surrounding airdrops that followed such as $JUP (Solana DEX), $STRK (ZK L2), and $TALIS (NFT marketplace on Injective), amongst others. However, following their release or the announcement of allocations and eligibility, many in the community have expressed frustration on illegibility or how insignificant their allocations were.

What was the difference between a ‘successful’ airdrop such as $JTO, as compared to the rest, and what can you do to increase the chances of receiving a more profitable airdrop? We share some thoughts:

• Assess the number of users that dilute the airdrop allocation: As we’ve mentioned in a previous edition of Web3 Watch , there were very little users of Jito to begin with, hence the small number of users were distributed a ‘bigger slice of the pie’ that was set aside to be airdropped.
  • This is in contrast to $JUP, $STRK, and $TALIS, that secured a lot of attention and mindshare within the community, thus attracting more users and diluting the ‘slice of the pie’ of airdrops across farmers
• DYOR: Find projects that are (i) under the radar and not saturated with users, (ii) while having conviction that the project will attract attention and gain success, post-airdrop
• Study the token allocation chart and token unlock schedule – assess if they are designed in a healthy manner
• Be the best: Find a way to farm the protocol and be amongst the top performers

Market impact of repayments from fallen institutions

FTX:

• Has recovered over $7b in assets to repay customers in full
• Unfortunately, customers are complaining that they are being shortchanged, due to repayments based on November 2022 prices (eg. BTC at $16k back then, versus ~$50k today)
  • If FTX repayments are in coin, sell-pressure is almost certainly alleviated, as customers are in the red based on November 2022 prices

Celsius

• Repayment of up to to $3b in liquid crypto, fiat, and Ionic Digital stocks has already commenced , to Celsius creditors, as Celsius has successfully exited bankruptcy
• This approved plan has received resounding support from 98% of Celsius’ account holders
• Apart from fiat and Ionic Digital stocks, Celsius “stated that it would distribute BTC or ETH to creditors” . This would imply potential sell-pressure of majors, in contrast to the case of FTX repayments mentioned above.

Reminder: Dencun Upgrade expected on 13 March

• The Dencun Upgrade is expected to be activated around 13 March, 8:55am EST.
• As mentioned in a previous Web3 Watch , the direct impact of the Dencun upgrade would be cheaper L2 costs, thus facilitating interest, inflow of capital and potential activity on ETH L2s that could potentially spark an L2 summer.
  • The Dencun Upgrade resolves complaints from Solana fans (who are potentially and inferentially L1 cynics due to high ETH gas fees)
• Furthermore, the recent deal between Robinhood and Metamask widens access to crypto , by (i) allowing Metamask users to purchase crypto through Robinhood, and (ii) allowing Robinhood users to fund and transfer crypto to their Metamask wallet. This could have positive externalities to the crypto ecosystem, especially EVM-based blockchains.

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.