Solana's SOL Token Rallies 22% Despite Ongoing FTX Liquidation: Signs of Robust Growth in Ecosystem
Summary:
Solana's native token (SOL) witnessed a 22% surge on November 10, reaching a $54 milestone, despite ongoing liquidation by the bankrupt exchange FTX. With the increase in demand for SOL's price linked to bankruptcy proceedings, the liquidation fears have turned into hope for investors. SOL's weekly growth of 39% has spiked its futures open interest to $745 million. Meanwhile, the Solana ecosystem is also showing signs of solid growth, currently ranking as the fourth-largest blockchain in the decentralized finance total value locked (TVL).
On November 10, Solana's native token (SOL) soared by an impressive 22%, hitting the $54 milestone for the first time since May 2022. Impressively, this rally happened despite the ongoing liquidation of SOL tokens by the bankrupt exchange FTX. The Delaware Bankruptcy Court sanctioned the sale of FTX's insolvent assets, including 55.75 million SOL, back in September 2023.
The rise in SOL's price is seen as a positive sign by many investors, as some of the tokens involved in the bankruptcy procedures are either vested or locked. A weekly cap of $100 million has been put in place as part of the FTX liquidation strategy. Essentially, initial fears over an asset sell-off have shifted to hopeful optimism, as investors take note of the limited impact of the sales. Over the last fortnight, FTX has been selling between 250k-700k $SOL daily while prices have either been rising or plateauing.
Independent trader and analyst 'Bluntz' noted the toughness demonstrated by SOL during the upheavals of the FTX bankruptcy. He suggested the SOL price could rise dramatically once the current seller has exhausted their stock. SOL's robust weekly gains of 39% have propelled its futures open interest to $745 million, marking its highest level since November 2021 when SOL reached its record-breaking high of $260.
A positive futures funding rate suggests more leverage is demanded by longs (buyers), while a negative rate is associated with shorts (sellers) requiring additional leverage. SOL's funding rate signifies a weekly 0.5% expense for leverage longs, which is not unreasonably high considering the current bullish trend. This is a significant leap from levels seen three weeks prior when leverage shorts were footing the bill.
Yet, while one could argue SOL's rally has been primarily influenced by the derivatives market, growth signs are clear regarding deposits and the utilization of decentralized applications (DApps) within the Solana system.
Apart from derivatives, the Solana ecosystem has displayed robust growth. Solana's total value locked (TVL), which quantifies the sum deposited into its smart contracts, has halted its slide after six straight weeks.
At present, Solana ranks as the fourth-largest blockchain in decentralized finance (DeFi) TVL and has seen active addresses increase by 28%. Interestingly, this activity boom has come at a time when competitors are seeing decreases. For instance, market front-runner Ethereum has experienced a 22% slump in DeFi active users.
While SOL token bulls are rewarded by heightened network activity and higher TVL, Solana's current market capitalization of $22.8 billion now out values the $7.8 billion of Polygon by almost three times, despite both networks having similar DeFi TVL. This has led investors to ponder the durability of SOL's bull run above $54.
Additionally, Solana protocol's 30-day fees amount to $1.9 million, compared to Polygon's $1.6 million, according to DeFILama. However, these figures are dwarfed by BNB Chain's $9.1 million, sparking questions about the valuation following SOL's recent rally.
At the moment there doesn't appear to be a clear reason to bet against the trend, as there is no excessive leverage demand seen in SOL derivatives contracts. Nevertheless, the fundamentals point to limited space for further upside.
This text is for informational purposes only and is not intended as legal or investment advice. The opinions given here are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
Published At
11/10/2023 9:23:17 PM
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