Key takeaways:
SOL funding rates indicate diminished bullish confidence following a 46% price decline, even with Firedancer’s launch and increased Solana network transactions.
Solana DApp revenues and DEX activity have notably declined, indicating broader market exhaustion despite the growth of Solana’s ecosystem.
Solana’s native token, SOL (SOL), has struggled to maintain prices above $145 over the last month. Reduced demand for decentralized applications has negatively affected SOL’s prospects amid a decline in network activity.
With Solana’s total value locked (TVL) down more than $10 billion since its peak in September, on-chain metrics indicate that user participation is slowing more quickly than anticipated.
The total value locked (TVL) on Solana has been decreasing since reaching its all-time high of $15 billion in September. A decline in smart contract deposits has led to an increase in the available SOL supply for sale. Meanwhile, revenues from Solana DApps have fallen to $26 million per week, down from $37 million two months ago.
Traders’ interest in memecoins has also decreased since the cryptocurrency market flash crash on Oct. 10, which revealed significant vulnerabilities in leveraged positions and the liquidity of smaller altcoins. Regardless of whether derivatives markets exacerbated the situation, traders are now more cautious with DEX platforms following the $19 billion liquidation event.
Memecoins have been a significant driver for SOL, especially after the Official Trump (TRUMP) launch in January, which pushed DEX volumes on Solana to $313.3 billion that month. According to DefiLlama data, this activity has since dropped by 67%, contributing to the declining revenue trends across Solana DApps.
Nonetheless, the diminishing demand for blockchain-based applications may indicate a broader market slowdown rather than a specific shortcoming in Solana.
Solana network fees have decreased by 21% over the last 30 days, whereas competing blockchains have experienced even steeper declines. Fees on the BNB Chain fell by 67%, while Ethereum saw a 41% drop during the same period, according to Nansen data. Additionally, the number of transactions on Solana increased by 6%, while BNB Chain activity dropped by 42%.
SOL long leverage demand vanishes
SOL perpetual futures serve as a handy indicator of trader sentiment, as exchanges charge either buyers (longs) or sellers (shorts) based on leverage demand. Under neutral conditions, the funding rate typically hovers between 6% and 12% annually, with longs paying to maintain their positions due to capital costs. Conversely, a negative funding rate signals widespread bearish sentiment.
SOL’s annualized funding rate was at 6% on Friday, indicating weak demand for bullish leverage. The unusual 11% negative reading on Thursday shouldn’t be seen as strong demand for bearish positions, as market makers quickly moved to rectify imbalances. Still, it may take some time for bullish sentiment to recover following SOL’s 46% price drop over the last three months.
Several recent developments within the Solana ecosystem are expected to reignite investor interest, including Friday’s mainnet launch of Firedancer, a new validator client aimed at enhancing processing capacity. The project, overseen by Jump Trading, took more than three years to develop. Developers reported strong feedback after the validator node re-synced in under two minutes.
Related: J.P. Morgan taps Solana for Galaxy’s tokenized corporate bond issuance
Kamino, the second-largest Solana DApp by TVL, also announced new products on Friday, including fixed-rate and fixed-term borrowing, offchain collateral, private credit, and an onchain Bitcoin-backed institutional credit line. Kamino’s $69 million in annualized fees and an average annualized yield of 10% on deposits indicate the ongoing expansion of the ecosystem.
Whether SOL can regain the $190 level last seen two months ago remains uncertain, as improved validation software or a broader DApp offering may not be sufficient to restore the confidence needed for a sustainable bullish trend.
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