The price of SOL, the native token of the Solana blockchain, has recently seen a decrease after a significant surge, leading investors to reconsider the factors driving the rally. Between October 30 and November 2, SOL’s value rose by 36.6%, but its inability to push past the $44.50 resistance level caused the price to drop by 10%, settling around $40 on November 6. This price correction has sparked discussions among investors about whether the growth of the Solana ecosystem and the level of activity on its network justify its current market capitalization of $16.9 billion.
The recent peak price of $44.50 for SOL on November 2 represented the highest value the token had achieved since August 2022. This price increase coincided with the Solana Breakpoint 2023 conference held in Amsterdam, which appeared to fuel the price momentum. Arthur Hayes, the co-founder of BitMEX, publicly recognized the potential of SOL during this rally, admitting he had invested in the token despite previously dismissing it as “just a meme.”
SOL Price Fluctuations:
SOL experienced a rapid price increase of 36.6% from October 30 to November 2.
The token failed to break the $44.50 resistance level, leading to a subsequent 10% price drop.
The price settled around $40 on November 6, prompting investor speculation on the ecosystem’s value.
Recent Price Peak Context:
The November 2 peak of $44.50 was SOL’s highest value since August 2022.
Coincided with the Solana Breakpoint 2023 conference, suggesting event-driven momentum.
Prominent crypto figure Arthur Hayes invested in SOL, indicating a shift in market sentiment.
Solana’s Ecosystem and Market Valuation:
Investors are questioning if the Solana network’s growth justifies its $16.9 billion market cap.
Discussions are centered on whether the ecosystem and network activity support the high valuation.
Solana Breakpoint 2023 Conference Highlights:
Introduction of Firedancer, a new client for the Solana network.
Aimed at improving network speed, reliability, and reducing validator hardware requirements.
Addresses critiques about Solana’s performance and validator cost barriers.
Impact of Firedancer on Solana’s Network:
Firedancer’s testnet launch is seen as a potential boost to network performance and stability.
May contribute to long-term investor confidence and sustainable SOL valuation.
Enhances Solana’s capability for parallel computing and smart contract execution.
A significant announcement during the Breakpoint conference was the Solana Foundation’s introduction of Firedancer, a new client designed to improve the Solana network’s speed and reliability while also lowering the hardware demands for network validators. This development addresses a long-standing critique of Solana as a layer-1 blockchain, which is known for offering parallel computing capabilities for executing smart contracts. The launch of Firedancer’s testnet could be a step towards enhancing the performance and stability of the Solana blockchain, which may impact the long-term valuation and investor confidence in SOL.
Solana Enhances Data Transparency and Security: Partners with Google Cloud and Advances with Confidential Transactions
The Solana Foundation has been taking significant steps to increase transparency and accessibility of its network data by partnering with Google Cloud BigQuery on October 31. Google Cloud BigQuery is a powerful, serverless data warehouse that allows for the processing of large-scale data analytics. By making Solana’s network data available on this platform, developers and businesses can now access a wealth of historical information and glean analytical insights with ease and security. This could potentially open up new opportunities for data-driven decision-making and development within the Solana ecosystem.
Solana’s Partnership with Google Cloud BigQuery:
On October 31, the Solana Foundation partnered with Google Cloud BigQuery.
Google Cloud BigQuery is a powerful, serverless data warehouse for large-scale analytics.
The partnership makes Solana’s network data widely available for analysis.
Benefits for Developers and Businesses:
Access to a rich historical dataset for insights and analytics.
Enhanced security and ease of access to Solana’s data.
Opportunities for more informed decision-making within the Solana ecosystem.
Technical Advancements in Solana’s Network:
Network validators approved the version 1.16 update of the Solana software in September.
The update introduced confidential transactions for SPL tokens.
Innovations in Transaction Privacy:
Utilization of zero-knowledge proofs for transaction verification.
Allows transactions to be verified without exposing sensitive data.
Improves privacy and security, potentially attracting privacy-focused users.
Enhancing Solana’s Appeal:
The innovations are part of Solana’s commitment to improving its blockchain infrastructure.
Aim to make Solana more competitive and attractive to a broader user base.
Encourage the development of more private and secure applications on the network.
In terms of technical progress, the Solana Foundation has been actively updating and improving its blockchain network. In September, the network validators gave the green light to version 1.16 of the Solana software. This update was notable for introducing confidential transactions for SPL tokens, which are the standard token type on the Solana network. It achieved this through the use of zero-knowledge proofs, a cutting-edge cryptographic method that allows for transaction verification without revealing any underlying sensitive information. This innovation could enhance the privacy and security features of the Solana blockchain, making it more appealing for users seeking anonymity.
Challenges in Solana’s Horizon: Lido Finance Exits and On-Chain Activity Scrutiny Amid Price Surge
Despite these advancements, Solana has faced some setbacks. Notably, Lido Finance, a decentralized liquid staking protocol, announced on October 17 that it would discontinue its service on the Solana network. The decision was driven by financial challenges and the network’s low fees, which did not align with the protocol’s sustainability requirements. A vote by the Lido community confirmed the closure of the service on Solana, which could be seen as a negative indicator for the network’s decentralized finance (DeFi) ecosystem.
Setbacks for Solana:
Lido Finance announced the discontinuation of its Solana service on October 17.
Financial sustainability issues cited due to the network’s low fee structure.
Impact on Solana’s DeFi Ecosystem:
Lido’s exit could indicate broader challenges within Solana’s DeFi ecosystem.
The decision followed a community vote, underscoring community governance in action.
Reflection on Network Usage:
Questions arise about the correlation between Solana’s actual usage and the SOL price surge.
The utility of decentralized applications (DApps) and on-chain activity as metrics of success.
On-Chain Metrics Analysis:
A closer look at Solana’s on-chain data is necessary to evaluate the health of the ecosystem.
Comparisons with competitors’ growth and usage can provide market position context.
Market Valuation Considerations:
Assessment needed to determine if SOL’s market cap is justified by network activity.
Exploration of whether recent price movements are based on solid progress or speculative forces.
Amidst these developments and challenges, the core issue is whether the actual usage of the Solana blockchain, reflected by on-chain activity and the performance of decentralized applications (DApps), truly supports the recent surge in SOL’s price. Analyzing Solana’s on-chain metrics and comparing its ecosystem growth with that of its competitors could shed light on whether the token’s market valuation is grounded in tangible progress or if it is being influenced by other market dynamics or speculative interest.
Solana’s reduced total value locked and activity pose considerable risks
In September, a key performance indicator for the Solana network — its Total Value Locked (TVL) — began to show signs of weakness. TVL represents the sum of assets deposited in a blockchain’s smart contracts and is often used as a measure of the health and security of a decentralized finance (DeFi) ecosystem. On November 5, Solana’s TVL dropped to its lowest point in over two years.
Signs of Weakness in Solana’s TVL:
In September, Solana’s Total Value Locked (TVL) started to exhibit signs of decline.
TVL is critical for assessing the health and security of DeFi ecosystems.
Historical Low in TVL:
On November 5, the network’s TVL reached its lowest level in over two years.
Comparison with Other Blockchains:
Solana’s 30-day TVL decrease was a significant 30%, involving the withdrawal of 9.83 million SOL.
In contrast, Ethereum’s TVL in Ether saw a minor decrease of 2% in the same period.
BNB Chain reported an 8% reduction in its TVL measured in BNB, indicating a less severe decline than Solana.
Contextual Impact on Solana:
The magnitude of Solana’s TVL reduction suggests potential concerns about the strength of its DeFi sector.
The sharp decrease stands out against the backdrop of more stable TVLs in other major blockchain networks.
This decline was particularly stark when compared to other major blockchain networks. Solana’s DApp deposits saw a substantial 30% reduction over a 30-day period, with 9.83 million SOL being withdrawn. For context, during the same timeframe, Ethereum’s TVL measured in Ether decreased by just 2%, and the BNB Chain experienced an 8% decrease when measured in BNB.
Solana’s User Engagement Stalls: Low Uptake for DEX and Games Compared to Rivals
Additionally, despite Solana’s low transaction fees and ongoing development, especially in the aftermath of the FTX-Alameda Research debacle, this has not translated into a significant increase in active users. For instance, Raydium, the largest decentralized exchange (DEX) on Solana, had only 17,380 active addresses in the last 30 days. Moreover, the most popular game on Solana, Star Atlas, reported 12,420 unique addresses in the same period.
User Activity on Solana:
Despite low fees and development efforts post-FTX-Alameda incident, Solana has not seen a significant uptick in active users.
Raydium, Solana’s biggest DEX, recorded only 17,380 active addresses over the past month.
Star Atlas, a leading game on Solana, reported 12,420 unique player addresses in the same timeframe.
Comparative User Activity:
BNB Chain’s PancakeSwap saw a substantial 513,060 active addresses in the last 30 days.
Stargate, a game on BNB Chain, had a notable user base of 106,400.
Avalanche’s DEX Trader Joe attracted 54,130 active addresses, while its game Galxe had 32,040 unique users.
DApp Transaction Volume Concerns:
Solana’s DApps registered a transaction volume of $609 million over the last 30 days, per DappRadar data.
This figure is substantially less than BNB Chain’s $11 billion and Polygon’s $5.3 billion, indicating lower usage levels.
Even Avalanche, with a volume of $727 million, surpassed Solana’s transactional activity.
When contrasting these figures with those of other blockchains, the disparity becomes evident. The BNB Chain-based DEX PancakeSwap had a notable 513,060 active addresses in the last 30 days, and its game Stargate boasted 106,400 users. Similarly, the Avalanche-based DEX Trader Joe attracted 54,130 active addresses, and its top game, Galxe, had 32,040 unique addresses.
Beyond user activity, the transaction volume on Solana’s DApps also raises concerns. Over the last 30 days, Solana’s DApp volume amounted to $609 million, according to DappRadar. This volume is significantly lower when compared to BNB Chain’s $11 billion, Polygon’s $5.3 billion, and even Avalanche’s $727 million.
Centralization Concerns Cast Shadow on Solana Network Amid Validator Centralization Debate
The Solana blockchain network has come under scrutiny for issues related to the centralization of its validators. Validators are crucial nodes on the network that verify transactions and create new blocks. A social media user, known as StakeWithPride on a platform referred to as X (formerly known as Twitter), raised concerns about the entry barriers for becoming a validator on the Solana network. Specifically, the requirement to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations could potentially limit the pool of those who can operate as validators, potentially centralizing control to a smaller group who can meet these requirements.
Further emphasizing concerns about centralization, another user by the handle Arixon.eth highlighted a significant detail about the network’s validators: out of a total of 1,997 validators, 1,818 have received delegations from either the Solana Foundation or Alameda Research. Delegations are akin to votes of confidence or support from these entities, allowing those validators to participate in the network’s consensus mechanism. The fact that nearly 90% of validators are connected to these two organizations suggests a centralized influence over the network’s governance and operations.
These points of contention come at a time when Solana is also dealing with other challenges, such as a decreased Total Value Locked (TVL) — the amount of capital deposited in the network’s smart contracts — and a lack of significant growth in active users. TVL is a metric often used to gauge the health and activity level of a DeFi ecosystem. A low TVL and limited active users can reflect a less vibrant network, which may dampen investor and user confidence.
Collectively, these issues present substantial hurdles for Solana. As it competes within the broader, highly competitive blockchain environment, it must address these centralization concerns and stimulate ecosystem growth and user activity to maintain its relevance and appeal to both developers and users in the space.
