Key Takeaways:
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SOL funding rates signal low bullish confidence following a 46% price drop despite the launch of Firedancer and rising Solana network transactions.
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Solana’s DApp sales and DEX activity have declined sharply, indicating overall market fatigue whilst the Solana ecosystem grows.
Solana’s native token, SOL (SOL), has failed to keep up its price above $145 over the past 4 weeks. A decline in network activity resulting from lower demand for decentralized applications has negatively impacted SOL's prospects.
With Solana's TVL down by greater than $10 billion since its peak in September, on-chain metrics suggest user engagement is declining faster than expected.
Solana TVL (left) vs. 7-day DApp revenue (right), USD. Source: DefiLlama
Solana's total locked value (TVL) has been declining since reaching its all-time high of $15 billion in September. Declining smart contract deposits increase the immediately available SOL supply on the market. Meanwhile, revenue from decentralized applications (DApps) on Solana fell to $26 million per week, in comparison with $37 million two months earlier.
Traders' appetite for memecoins has also waned because the cryptocurrency market's flash crash on October 10, an event that exposed critical deficiencies in leveraged positions and overall liquidity of smaller altcoins. Regardless of whether derivatives markets added to the move, traders became less comfortable with DEX platforms following the $19 billion liquidation.
Memecoin market cap, USD. Source: TradingView
Memecoins have been a key driver for SOL, especially after Trump's (TRUMP) official launch in January, which boosted decentralized exchange (DEX) volume on Solana to $313.3 billion that month. According to DefiLlama data, this activity has since fallen by 67%, which partially explains the weaker sales trends for Solana DApps.
Still, the lower demand for blockchain-based applications might be resulting from a general market slowdown reasonably than any specific Solana weakness.
Blockchains sorted by 30 day network fees. Source: Nansen
Fees on the Solana network have fallen 21% over the past 30 days, but declines have been steeper on competing blockchains. According to Nansen data, fees on the BNB chain fell by 67%, while Ethereum saw a 41% decline over the identical period. Additionally, the variety of transactions on Solana increased by 6%, while activity on the BNB chain decreased by 42%.
The demand for SOL long leverage is disappearing
SOL perpetual futures generally is a useful indicator of trader sentiment because exchanges charge fees to either buyers (longs) or sellers (shorts) depending on leverage demand. Under neutral conditions, the funding rate is often between 6% and 12% per 12 months, with long positions paying to maintain their positions open resulting from the fee of capital. Conversely, a negative financing rate signals a general pessimistic mood.
SOL Perpetual Futures 8 Hour Funding Rate. Source: CoinGlass
SOL’s annualized funding rate was 6% on Friday, indicating weak demand for bullish leverage. Thursday's unusual negative reading of 11% shouldn’t be interpreted as strong demand for bearish positions as market makers reacted quickly to stabilize the imbalances. Still, it could take a while for bulls to regain their conviction following SOL's 46% price decline over three months.
Several recent developments within the Solana ecosystem are expected to spark renewed investor interest, including Friday's mainnet launch of Firedancer, a brand new validator client designed to expand processing capability. The project took greater than three years to construct under the leadership of Jump Trading, one in all the industry's leading market makers. The developers reported a powerful response after the validator node resynchronized in lower than two minutes.
Kamino, TVL's second-largest Solana DApp, also announced latest products on Friday, including fixed and term loans, off-chain collateral, personal loans, and an on-chain Bitcoin-backed institutional credit line. Kamino's $69 million in annual fees and 10% average annual deposit return are a transparent indication of the ecosystem's expansion.
Whether SOL can recapture the $190 level last reached two months ago stays uncertain, and it’s unlikely that improved validation software or expanded DApp offerings alone will restore the arrogance needed to support a sustainable uptrend.
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