Solana's SOL Sees 5% Increase Amidst New Proposal and Stagnant Network Activity
Summary:
On May 27, Solana's token, SOL, saw a 5% increase, taking its values from $161 to $171. The increase was influenced by a new proposal, SIMD-0096, aimed at boosting proceeds for validators instead of burning tokens. However, despite the surge, Solana's network usage remains static. This stagnancy, along with concerns over the inflationary impact of the new proposal, makes it unlikely for SOL to quickly regain its former high of $188.90.
On May 27, Solana's indigenous token, SOL (SOL), rose by 5%, shifting its trading value from $161 on May 26 to $171. This increase rejuvenated investor spirits, particularly since SOL was trading at $188.90 a few days ago, on May 21. One of the key factors propelling the surge in SOL's value is a new proposal intended to boost proceeds for validators, rather than burning tokens, with the network activity remaining constant.
In an epoch-making move on May 27, Solana's validators adopted the SIMD-0096 proposal, triggering the termination of the 50% burn rate on high-priority transactions and reducing it to zero. Consequently, from the epoch 621 on, all transaction costs will be redirected to block creators. This realignment is designed to encourage validators to prioritize network security and efficiency over indulging in transaction reordering or refusal strategies for arbitrage.
Maximal extractable value (MEV) represents the earnings derived by block creators from deciding the transaction processing order on the blockchain. With each block accommodating only a limited number of transactions, validators have the liberty to select the pending transactions for inclusion, often at the cost of average users who may face less favorable execution prices in Decentralized Finance (DeFi) applications.
Despite that, the SIMD-0096 proposition might bring adverse effects on the Solana Network by making SOL more inflationary, warns Laine, a validator of Solana staking. While taking into account the annual issuance increase of 4.6%, Laine suggests that the absence of priority charges in May 2023 implies that the effective inflation rate would bounce back to around 9.9% annually.
According to some market observers, the recent SOL price adjustment is a response to a fall triggered by the approval of an Ethereum (ETH) exchange-traded fund (ETF) in the US. The US SEC's authorization on May 23 launched ETH to reach $3,975 on May 27, barely short of its apex of $4,090 in 2024.
Citing the approval of Ether's ETF as a "once in a lifetime bull catalyst," investor and analyst 'gumshoe' notes that traders became negative about SOL. He argues that the market has shown undue concern with the Ether ETF judgment, notwithstanding SOL's year-to-date profits of 69% that almost mirror Ether’s 72% gains in the same period.
Data from DappRadar reveal a trivial 5% increase in Solana's Decentralized Applications (DApps) volumes over the previous week, a performance greatly shadowed by Ethereum’s 52% surge. Over the same period, the BNB Chain registered a 22% increase, further emphasizing Solana's relative lagging behind.
In terms of user activity, Solana's downturn in unique active addresses by 6% over the past week is comparatively similar to Ethereum's 4% drop. However, rivals such as BNB Chain (BNB) and Polygon (MATIC) have witnessed increases in active users by 25% or more. Raydium, Solana's second-largest decentralized exchange, saw a slump of 16% in users this week, while its NFT market Magic Eden witnessed a 22% fall in users.
The extent to which SOL's recent drop to $161 was attributable to speculation surrounding Ether's ETF approval remains ambiguous, as also does the time frame for these tools to commence trading in the US.
Given the stagnant orbit-chain activity coupled with significant disapproval over inflationary changes due to the termination of the burn mechanism, it seems unlikely that SOL will swiftly recover its former top of $188.90.
This piece carries no investment advice or recommendations. Every investment and trading step bears risk. Hence, readers are advised to undertake their own research before making a decision.
Published At
5/28/2024 12:24:10 AM
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