SOL Suffers Hefty Drop Amid Network Congestion and Market Uncertainties
Summary:
Solana's native cryptocurrency, SOL, suffered a 19.8% drop over ten days, hitting its lowest in three weeks on April 10. Amid network congestion, reduced interest in Solana SPL Tokens, and excessive leverage in derivatives markets, SOL underperformed in comparison to its competitors. This downward trend aligns with an uptick of transaction failures and poor performance of SOL's SPL Tokens. Despite high transaction volume, Solana collected less transaction fees than its competitors, raising concerns about the network's sustainability. Solana's derivatives market also presents a risk of cascading liquidations, further lowering optimism for SOL's price revival.
On April 10, Solana's own cryptocurrency, SOL, plummeted to a three-week low of $162.40 - a 19.8% fall over a span of ten days. This downward trend accompanied the announcement of the U.S. Consumer Price Index inflation, which exceeded expectations at 3.5% year-on-year for the month of March. SOL’s price was negatively influenced by several factors, such as the network's struggle with heightened transaction demands, waning interest in Solana SPL tokens, and rampant over-leveraging in derivatives markets.
Contrary to the general trend in the cryptocurrency market, SOL found its footing again at the $168 support level on April 10. However, when compared to other leading coins on a weekly basis, SOL underperformed drastically. For example, it trailed behind primary competitors BNB and Ethereum by 16% and 14%, respectively, last week. This highlights that SOL’s bearish momentum is independent of the overall cryptocurrency market trend.
Some argue that the recent price fluctuations of SOL are not the result of recent factors but an insatiable appetite driven by the memecoin mania and successive Solana Spl Token airdrops that is ultimately unsustainable. This perspective posits that the price adjustment that occurred on April 10 is part of a more extended negative trend, as evidenced by the unsuccessful attempt to breach the $200 mark on March 31.
Andre Cronje, the creator of the Fantom network, perceives Solana's network congestion as a reflection of the growing demand for block space. He argues that recent transaction failures are not signs of technical deficiency but a testament to the network's success. In response to these network struggles, Solana Labs has announced a provisional bug fix, due for April 15.
On April 9, Solana validators approved a proposal to decrease the delay of consensus votes, an effort which Solana Labs believes could deter incentives for finalizing block delays by granting varying credits to the fastest acting validators. A software improvement expected in the coming weeks is set to apply this solution.
While Solana's congestion issues may be interpreted positively by some, the considerable amount of transaction failures parallel the downturn in the performance of its SPL ecosystem's tokens. Notably, in the decentralized finance area (DeFi), Jupiter (JUP) fell by 23% this month, while both Raydium (RAY) and Jito (JTO) saw declines of 14.5% and 15.5%, respectively. Over the course of ten days, Solana's most popular memecoins, including Dogwifhat (WIF), also experienced a 20% decrease.
Despite an increase in network activity, transaction costs on Solana remain low. This counterintuitive outcome raises questions regarding the network’s sustainability, particularly considering the rather high setup and upkeep expenses for validators relative to other chains.
When measuring weekly transaction volume, Solana surpasses its competitors, having processed 39.5 million transactions in the past week—more than double that of Polygon's 12.9 million. Yet, in terms of transaction fee revenue, Solana collected a mere $16.9 million, significantly less than Uniswap's $30 million or Ethereum's $68 million, potentially indicating better return investments for tokenholders in other projects.
Adding to this, Solana's derivatives market grapples with a potential cascade of liquidations, with a recent surge in futures open interest by 32%. The actual value of matched positions between longs and shorts reached a SOL total of 17 million, equating to $2.86 billion. While not necessarily pointing to an overuse of leverage by bulls, it does illuminate a risk should SOL's price further decline.
Considering Solana's on-chain data alongside its derivatives market performance, hopes for a positive SOL token price surprise are dwindling, at least till the network's congestion issues have been fully resolved.
This news piece is purely informational and should not be viewed as legal or investment advice. The opinions expressed here are the author’s alone and they do not necessarily represent Cointelegraph's views and opinions.
Published At
4/11/2024 3:33:10 AM
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