A Solana-based crypto asset tied to the price of bitcoin temporarily collapsed in value Friday after CoinDesk reported that FTX US – the only venue left to exchange it for real bitcoin – had frozen withdrawals.
Sollet Bitcoin (soBTC), a so-called “wrapped” asset supposedly backed 1-to-1 with bitcoin, plummeted $10,000 at around 2:00 p.m. ET, according to decentralized finance protocol Raydium. It had already spent much of the day trading below its bitcoin peg on the news that FTX had filed for bankruptcy protection.
The wrapped asset later recovered much of its value after FTX US inexplicably reversed course and reopened withdrawals, allowing traders to once again exit their positions. FTX US communicated neither move to the public.
That soBTC would follow FTX into the proverbial “Goblintown” would surprise few in Solana’s decentralized finance (DeFi) circles, many of whom had long speculated that FTX and Alameda held the bitcoin that backed it.
Indeed, so intertwined was the bitcoin derivative and Sam Bankman-Fried’s trading empire that exchange employees were pinged on every withdrawal in the company Slack, a person said.
FTX was the only place traders could redeem their Solana-based bitcoin for real bitcoin. Shuttering withdrawals Friday, FTX effectively stranded everyone who still held the 16,000-odd soBTC still in circulation at press time Friday.
According to developers at blockchain indexer SolanaFM, 90% of soBTC is on wallets controlled by FTX or Alameda, meaning the coin’s traders had meager holdings of soBTC going into the crash.
Part of that could be due to DeFi projects preparing for the worst. Crypto lending protocols Solend and Hubble and decentralized exchange Mango Markets took steps to limit their and their users’ exposure in the final hours Friday.
“All sollet wrapped assets like soBTC are backed by FTX so nobody knows the collateralization status of those assets,” said Ben Chow, co-founder of DeFi protocol Jupiter Aggregator.
The community’s collective belief in FTX and Alameda was nonetheless enough to turn the early entrant to Solana ecosystem into critical collateral across the chain’s DeFi landscape, people told CoinDesk. It was the Solana-based stand-in for the best-known and most valuable crypto asset; as long as it remained pegged – and FTX honored redemptions – soBTC was as good as digital gold.
“The whole of Solana DeFi that has BTC as collateral has issues,” one person who requested pseudonymity told CoinDesk.
UPDATE (Nov. 11, 2022, 21:35 UTC): Adds context.
UPDATE (Nov. 11, 2022, 22:42 UTC): Adds information about reopened withdrawals.
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