Key takeaways:
SOL funding rates indicate a lack of bullish conviction following a 46% price decrease, even with Firedancer’s launch and increasing Solana network activity.
Solana DApp revenues and DEX engagement have significantly declined, pointing to broader market fatigue despite Solana’s ecosystem development.
Solana’s native token, SOL (SOL), has struggled to maintain prices above $145 for the past month. A drop in network activity amid lower demand for decentralized applications has adversely affected SOL’s outlook.
With Solana’s total value locked (TVL) now over $10 billion lower than its September peak, on-chain metrics suggest that user engagement is declining more rapidly than anticipated.
The total value locked (TVL) on Solana has been decreasing since it reached an all-time high of $15 billion in September. The falling deposits for smart contracts are increasing the readily available SOL supply for sale. Meanwhile, weekly revenues from Solana’s decentralized applications (DApps) have fallen to $26 million, down from $37 million two months ago.
Trader interest in memecoins has also diminished since the cryptocurrency market flash crash on October 10, which revealed significant vulnerabilities in leveraged positions and the liquidity of smaller altcoins. Regardless of whether derivatives markets contributed to the event, traders became wary of DEX platforms following the $19 billion liquidation incident.
Memecoins were a significant factor for SOL, especially since the launch of Official Trump (TRUMP) in January, which boosted decentralized exchange (DEX) volumes on Solana to $313.3 billion that month. According to DefiLlama data, this activity has since decreased by 67%, partly explaining the decline in revenue trends across Solana DApps.
Nonetheless, the diminished demand for blockchain applications may indicate a broader market slowdown rather than a specific issue with Solana.
Solana network fees have decreased by 21% in the past month, yet competing blockchains have experienced larger declines. Fees on the BNB Chain fell by 67%, while Ethereum saw a 41% drop during the same timeframe, based on Nansen data. Additionally, Solana’s transaction volume rose by 6%, while activity on the BNB Chain dropped by 42%.
SOL long leverage demand vanishes
SOL perpetual futures can serve as an indicator of traders’ sentiment, as exchanges impose costs on either buyers (longs) or sellers (shorts) based on leverage interest. Under neutral conditions, the funding rate typically lies between 6% and 12% annually, with longs paying to maintain their positions given the cost of capital. In contrast, a negative funding rate signals wider bearish sentiment.
On Friday, SOL’s annualized funding rate stood at 6%, indicating weak demand for bullish leverage. The unusual 11% negative reading on Thursday should not be seen as a strong desire for bearish positions, as market makers acted swiftly to address imbalances. Nevertheless, it may take time for bulls to regain confidence after SOL’s 46% price drop over the last three months.
Recent developments within the Solana ecosystem are anticipated to renew investor interest, including the mainnet launch of Firedancer, a new validator client aimed at increasing processing capacity. The project was in development for over three years under the guidance of Jump Trading, one of the industry’s leading market makers. Developers reported a positive response 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 unveiled new offerings on Friday, including fixed-rate and fixed-term loans, off-chain collateral, private credit, and an on-chain Bitcoin-backed institutional credit line. Kamino’s $69 million in annualized fees, along with an average 10% annualized yield on deposits, highlight the ecosystem’s growth.
Whether SOL can reclaim the $190 mark last seen two months ago remains uncertain, and it is improbable that advancements in validation software or expanded DApp offerings alone will restore the confidence required to support a sustained bullish trend.
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