Fears that wrapped Bitcoin on Solana may actually be unbacked have left users worried about a potentially catastrophic impact on Solana’s DeFi ecosystem.
In a series of tweets on Wednesday, a pseudonymous wBTC creator, who goes by the username “meow,” flagged the unspoken issue of wrapped Sollet tokens or soBTC.
“The problem? These tokens are issued by FTX (or Alameda, no one really knows),” explained meow in a tweet.
According to meow, these wrapped tokens were launched early in Solana’s DeFi cycle to boost liquidity and are supposed to be backed 1:1 by Bitcoin or Ethereum. With the token’s issuers (FTX and/or Alameda) now insolvent, the danger of soBTC being unbacked is very real.
“This is very problematic, because practically all the major DeFi platforms have soBTC assets as collateral since it has long been accepted as the defacto BTC in the Solana space. If soBTC turns out to have no value, then it could worsen the contagion along more dimensions,” said meow.
A Nansen analysis of known wallets shared with Unchained found that Solana-based lending protocol Solend currently has the largest exposure to soBTC from a DeFi standpoint. Solend has around 437 soBTC worth $7.2 million in its main vault pool.
The Solana DeFi ecosystem is already in dire straits with a sharply-declining SOL token at the heart of it. At the time of writing, SOL had lost over 38% of its value over the previous 24 hours and was trading at $14.94.
The negative price action was largely on account of market-wide panic that the token would soon face nearly $1 billion worth of sell pressure. As epoch 370 approaches on Thursday, 49.6 million SOL tokens worth around $900 million will be unlocked.
An epoch represents the slot of time in which validators lock their stake in the network to earn rewards. The large token unlock means that a majority of validators are unlocking their staked SOL and are free to sell in the open market.
A recent move from Solana’s cloud provider Hetzner to remove the blockchain’s validators after a change in policy, further added to the fears around the amount of SOL being unstaked.
However, the Solana Foundation tweeted that the 28.5 million that was scheduled to be unstaked from the validator delegation program during this epoch has been re-staked.
“tl;dr Solana Foundation Delegation Program had the worst timing imaginable. It’s been rescheduled because A Few Things Happened Recently,” said Austin Federa, Solana Foundation’s head of Communications, in a follow-up tweet.