Solana Loses $1 Billion in USDT to Ethereum in Tether Chain Swap

Stablecoin issuer Tether today announced a $1 billion chain swap to convert USDT it had on the Solana blockchain to the Ethereum blockchain. 

The announcement comes as Solana, which just weeks ago ranked within the top 5 biggest cryptocurrencies by market cap, faces difficulties following the collapse of crypto exchange FTX. Solana now ranks 16th by market cap and is down 25.4% in the last seven days. It is currently trading hands for $13.33, down 95% from its all-time high of $256.

A chain swap is the process of moving cryptocurrencies from one blockchain to another. Tether has done this in the past when demand to use its stablecoins shifts from one blockchain to another. For example, in mid-2020, Tether twice swapped $1 billion in USDT from Tron to Ethereum, within the span of two months.

Like Tron and other smart-contract blockchains, Solana—traded as SOL—is an Ethereum competitor. Every major cryptocurrency—such as Bitcoin and Ethereum—have experienced sell-offs following the FTX debacle, but Solana has been hit particularly hard. 

FTX, once one of the biggest exchanges, has deep ties to Solana: the company has invested heavily in several Solana-related crypto projects and was instrumental in developing Solana’s primary decentralized exchange and DeFi liquidity provider, Serum. 

Following an alleged hack to the FTX exchange on November 12, at a time when withdrawals had been disabled, Serum was essentially taken offline. Solana DeFi developers cut off access to Serum, fearing that the project’s private keys, which were also housed within FTX, had been compromised.

The non-profit Solana Foundation, which helps grow the Solana blockchain, also admitted it had $1 million in cash or equivalent assets stuck on FTX. 

Yesterday, Binance, the world’s biggest digital asset exchange, announced it had temporarily suspended deposits of Tether (USDT) and major stablecoin USD Coin (USDC) that run on Solana’s blockchain. Last week, Crypto.com likewise announced it would disable support for USDC and USDT on Solana.

Stablecoins are heavily used by crypto traders. Unlike major cryptocurrencies like Bitcoin or Ethereum, they aren’t volatile because they are pegged to real world assets—like U.S. dollars or euros—and help those who buy and sell digital assets do so quickly, without the need to access fiat currencies. As such, stablecoins are instrumental tools in the world of DeFi. 

Tether is the world’s biggest stablecoin issuer and one can use its digital dollar (and euro or yen) tokens on a number of blockchains, such as Ethereum, Tron, or Polygon. 

FTX lost billions of dollars of investors’ cash in one of the most highly publicized crypto stories of the year when its exchange and related entities imploded this month. FTX was using money from the exchange to make bets through Alameda Research, a trading firm founded by the exchange’s CEO Sam Bankman-Fried.

Following a back run on FTX last week, the company was forced to admit it did not hold one-to-one reserves of customer assets, which culminated in a freezing of withdrawals and subsequent bankruptcy filing.