Solana Spells Trouble as Over 54 Million SOL Get Unlocked

Update Nov 10, 8:50 UTC: The Solana Foundation recently issued a statement affirming that the plan to unstake was postponed and around 28.5 million SOL tokens were been re-staked.

Solana’s price could tank after validators unlock over 54 million SOL at the end of Epoch 370 on Nov. 10, 2022, at 8:30 a.m. UTC. This unlocking, worth about $806 million at press time, represents about 15% of SOL’s circulating supply. 

The significance of a Solana epoch

The number of tokens that validators will unlock, called the deactivating stake, has risen by about 4 million SOL in the last few hours.

An epoch is a group of 432,000 slots for which a validator schedule of Solana’s consensus algorithm is defined. A slot is similar to a transaction block on a blockchain like Bitcoin or Ethereum. Allowing for variation in the time to process transactions, epochs last two or three days.

When transitioning from one epoch to the next, validators can unlock SOL, and new stakers can stake SOL. Staked tokens are delegated to validators responsible for securing the network. Stakers earn rewards based on the size of their stakes and Solana’s inflation rate, which declines as transaction volume increases. Validators also earn rewards at the epoch crossover.

At press time, stakers are looking to lock up almost 1.9 million SOL ($27 million) for the next epoch.

Double-whammy for Solana

Solana’s price is down about 39% in the last 24 hours, currently trading at $14.08.

Its decline could be sparked by fears that the imminent unlocking will see large volumes of SOL dumped on the market. Recently, the play-to-earn game Axie Infinity unlocked 22 million of its AXS governance token according to a vesting schedule, sparking a price decline as holders feared selling pressure. A vesting schedule delays access to the locked tokens for a period.

But, as Axie Infinity CEO Aleksander Larsen pointed out, recipients of unlocked tokens may not add them to the circulating supply. Instead, they may choose to lock them up again or keep the unlocked tokens in their wallets.

The SOL price drop could also reflect a broader selloff experienced by other cryptos as markets process the news of FTX’s impending liquidation.

On Nov. 8, 2022, crypto exchange Binance signed a non-binding agreement to purchase rival FTX after the latter experienced a liquidity crunch. At press time, it appears that the deal is unlikely to go through. 

The collapse of FTX has shaken investor confidence, plunging the crypto markets deep into bear territory. Bitcoin has fallen to a two-year low of $16,953, contributing to a crypto market cap decline of 15.4% to $875 billion.

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