Condition

  • SOL and other major FTX assets have clearly underperformed the market as people are concerned that FTX liquidation may begin on Wednesday.

In anticipation of a preliminary hearing on Wednesday where liquidators may be allowed to begin selling FTX and Alameda’s assets, major FTX and Alameda holdings such as Solana and Polygon (MATIC) have seen a sharp sell-off. Over the past 30 days, SOL, APT, MATIC, and other major FTX holdings have fallen 20-30%, while the broader market has retreated 11%.

Solana has become a leader in the price decline of major assets since mid-August and has therefore attracted the majority of sellers’ attention.

Derivatives markets for Solana and other FTX assets have seen a significant increase in open interest compared to spot markets, especially in the short market, which has driven funding rates close to year lows.

fact

  • FTX liquidators hold approximately $1.3 billion in liquid crypto assets (excluding stablecoins).

  • The largest holdings are SOL, BTC, ETH, APT, DOGE, TRX, and MATIC, but their impact on the market varies when adjusted for weekly trading volume.

  • Only about 1% of BTC and ETH’s weekly trading volume will be liquidated, while DOGE, TRX, and MATIC may have 6-12% of their trading volume liquidated.

Based on the March update, and using prices on the petition date (November 11, 2022), FTX and FTX.US (excluding Alameda) have a combined $2.3 billion in assets. However, only a small portion is instantly liquid top-market assets. FTX accounts for the majority of the $2.3 billion gap (FTX.US has only $191 million in confirmed assets), but a large portion of the assets are stablecoins, low-cap assets, or completely illiquid assets (category B below).

After adjusting for today’s prices and removing illiquid and stablecoin assets, FTX and Alameda have nearly $1.3 billion in confirmed assets with liquid markets, with the majority held in SOL, BTC, ETH, and APT.

In practice, though, it’s not the absolute value of the token that matters, but its relative value to active trading volume. For example, the $353 million in BTC held between FTX and Alameda represents about 1% of weekly trading volume, meaning the market can absorb most of the sell flow.

On the other hand, assets like DOGE, TRX, and MATIC are far less liquid than Bitcoin, so $20 million to $30 million of each held by liquidators has a much greater potential impact on the market, accounting for 6% to 12% of weekly trading volume.

While SOL and APT have significant dollar figures and relative market volume impact, these assets are held by Alameda and venture capital firms and consist primarily of vested tokens that are not immediately liquidable on the open market.

in detail

  • With only $9.2M of SOL unlocked each month, this significantly reduces the liquidation impact, bringing it more in line with the manageable liquidation impacts of BTC and ETH.

  • Traders were actively shorting, and the SOL vesting schedule and OTC sales methodology may have resulted in a lower-than-expected market impact.

Based on Kroll's confirmed assets, FTX liquidators hold approximately 42 million SOL tokens. However, while it is not clear what the liquidity composition of these tokens is, FTX previously purchased up to 58 million SOL tokens from the foundation, which have different vesting schedules.

Assuming that most of Alameda’s SOL tokens are in large vesting batches, its impact on the market is much smaller than it might appear at first glance. 645k SOL tokens vest each month, which equates to $9.2M and 1.2% of weekly volume. So rather than $720M (81% of weekly volume) flowing into the market this week, its liquidity impact is more in line with BTC and ETH, which each will have slightly more than 1% of weekly liquidations by FTX liquidators. The largest unlock is still a few years away in 2025, when $133M will be unlocked in a single day. Additionally, all vested tokens are likely to be sold over the counter, which has less direct impact on open market pricing.

Given that the exchange market reacted positively to the initial news of large SOL liquidations and squeezed into short positions with high OI and funding rate payments (positions that are expensive to hold), it stands to reason that when FTX liquidations were milder than initially expected, traders were forced to close shorts (buy SOL), and thus SOL prices remained flat, if not rising, in the short term.