Solana (SOL), the native token of the Solana network, has been struggling to gain traction lately, failing to break above $145 since July 3rd. This lackluster performance coincides with a broader market correction, with the total cryptocurrency market capitalization dropping by 5% within a nine-day period.
However, SOL’s underperformance has been more pronounced compared to its peers. Between July 3rd and 12th, SOL price declined by 7.8%, while competitors like BNB and Ether fared slightly better with a 6.5% dip.
While some traders fear a continuation of SOL’s bearish momentum, on-chain metrics and derivatives data suggest a potential reversal could be brewing, paving the way for a return to prices above $160, last seen in early June.
The decline in demand for SOL can be partially attributed to the underperformance of several Solana-based tokens (SPL tokens) within the ecosystem. When users lose money within these decentralized applications (dApps), less capital circulates on the Solana network, consequently impacting the overall demand for SOL. For instance, between July 3rd and 12th, tokens like DogWifHat (WIF), Helium (HNT), and Jito (JTO) witnessed significant price drops of 24%, 18%, and 18% respectively.
Despite the recent price slump, SOL remains a dominant force within the cryptocurrency landscape. It holds the prestigious position of the fourth-largest cryptocurrency (excluding stablecoins) with a market capitalization exceeding $65 billion. This dwarfs competitors like Toncoin (TON) at $18.4 billion, Tron at $12 billion, and Avalanche at $10.1 billion.
Furthermore, a significant development occurred on July 5th when Solana’s total value locked (TVL) matched that of the BNB Chain for the first time. This metric signifies the amount of cryptocurrency deposited within DeFi protocols on a specific blockchain. While BNB Chain previously held a significant lead in TVL, the gap has narrowed considerably.
Data from DefiLlama reveals that BNB Chain had nearly double Solana’s TVL at the end of 2023. Notably, the $2 billion gap has evaporated, indicating a substantial increase in capital deployment on the Solana network. Solana boasts several prominent DeFi applications contributing to its TVL, including liquid staking platforms like Jito ($1.6 billion), Marinade ($1.1 billion), and Kamino (approaching $1.1 billion).
While Tron holds the second-largest TVL position at $7.6 billion, it’s important to note that a significant portion (72%) stems from a single DeFi application, JustLend. Additionally, analysts express concerns regarding the dominance of wrapped Bitcoin deposits within JustLend (accounting for 94%), raising questions about the platform’s underlying asset reserves. In essence, Solana is emerging as a direct competitor to BNB Chain for the coveted second-place position in terms of TVL.
Solana Network Activity Shows Positive Signs
While not yet a top contender in terms of dApp activity, Solana’s network metrics have shown encouraging signs over the past week, bucking the trend of declining user engagement witnessed by some competitors.
Data indicates that while Ethereum, BNB Chain, and Polygon all experienced a decrease in active users, Solana saw a notable increase of 19% over the past seven days. Similarly, Solana dApps processed a total transaction volume of $703 million during the same period, reflecting a 12% rise compared to the previous week. This stands in stark contrast to Ethereum, the market leader, which witnessed a hefty 37% decline in transaction volume.
Solana’s decentralized exchange (DEX), Raydium, deserves special mention, attracting a staggering 1.71 million active addresses within a seven-day timeframe, representing a substantial 39% increase. In comparison, BNB Chain’s leading dApp, Move Stake, managed only 198,570 active addresses over the same period.
Finally, analyzing SOL’s futures market offers valuable insights. Perpetual contracts, also known as inverse swaps, incorporate a funding rate that resets every eight hours. A negative funding rate typically indicates that short sellers (betting on price declines) are employing higher leverage.
While SOL’s eight-hour funding rate dipped into negative territory between July 5th and 6th, it currently hovers near zero, reflecting a balanced market with equal demand from long (buyers) and short positions.
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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
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