In a backward move for the Solana ecosystem, stablecoin issuer Tether is set to swap 1 billion USDT on Solana for ERC20 tokens for use on Ethereum.
After the news, the price of SOL fell roughly 0.03%, with the Total Value Locked on Solana’s DeFi protocols down 10.95% to $297.73 million, according to DeFiLlama.
According to Tether, the swap will take place with the help of a third party. Before the swap, Solana held $1.8 billion worth of USDT, Ethereum $28 billion, and Tron about $34 billion. Tether’s stablecoin is available on Avalanche, Tezos, Algorand, Near, Polygon, Omni, EOS, Liquid, Statemint, SLP, and Statemine.
With the latest swap, Solana will now hold about $1.7 billion USDT.
USDT swaps explained
On-chain swaps are used to move USDT from one blockchain to another. The exchanges’ customers can deposit their Tether on a blockchain like Tron and withdraw the funds on another blockchain like Ethereum.
Sometimes an exchange requires USDT to be moved from one chain to another to spread out their USDT holdings evenly. The exchange moves the USDT from the source blockchain into a Tether treasury wallet, from which it will be transferred to the other chain.
USDT and SOL links with FTX ecosystem
On Nov. 17, 2022, Tether clarified that Alameda Research, the quant trading firm with close links to collapsed exchange FTX, held USDT. Alameda paid Tether an equivalent USD amount for the USDT. Tether keeps the USD for buying liquid collateral like U.S. Treasuries. The only way for Alameda to liquidate their USDT is through Tether’s redemption process. Alameda does not hold Tether’s reserves on its balance sheet.
However, Solana had close links to FTX, and the SOL token has taken a beating since FTX announced its liquidity problems on Nov. 6, 2022.
The token has fallen roughly 65% from around $37.30 that day to $13.18 at press time. The total value locked in the Solana DeFi ecosystem has fallen 97% since its peak of about $10.11 billion in Nov. 2021. Several DeFi protocols on Solana also had exposure to FTX.
Solana NFT marketplace MagicEden recently stopped support for Project Serum, a decentralized exchange created by former FTX CEO Sam Bankman-Fried. At press time, the SRM token is trading at $0.25.
The Solana Foundation later revealed in a Nov. 10, 2022, blog post that it had $1 million in cash or cash equivalents locked up in an FTX account when the exchange froze withdrawals. It also holds 3.2 million FTX Trading common stock shares, 3.43 million FTT tokens, and $134.54 million in SRM tokens. At press time, the FTT token is trading at a paltry $1.43, which means that much of the Foundation’s holdings have been wiped out.
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