SOL Sees Decline as Total Value Locked Dips and Memecoin Activity Declines

Key Insights:

SOL funding rates indicate a lack of bullish sentiment following a 46% drop in price, notwithstanding the launch of Firedancer and an uptick in Solana network transactions.
Revenue from Solana’s decentralized applications (DApps) and DEX activity has seen a sharp decline, suggesting a market-wide fatigue despite the growth of Solana’s ecosystem.

Solana’s native token, SOL, has struggled to maintain prices above $145 over the past month. A decrease in network usage alongside waning interest in decentralized applications has set a gloomy outlook for SOL.

With the total value locked (TVL) decreasing by over $10 billion since its peak in September, indicators show that user engagement is deteriorating quicker than anticipated.

Solana TVL vs. Weekly DApp Revenues
Solana TVL (left) vs. 7-day DApp revenues (right), in USD. Source: DefiLlama

The TVL on Solana has experienced a continuous decline since achieving an all-time high of $15 billion in September. A drop in smart contract deposits further increases the available SOL supply for sale. The weekly revenues from DApps on Solana fell to $26 million, down from $37 million two months earlier.

Interest in memecoins has also lessened since the cryptocurrency market crash on October 10, revealing vulnerabilities in leveraged positions and overall liquidity of smaller altcoins. Despite possible amplification of market moves through derivatives, traders are increasingly wary of DEX platforms after a significant $19 billion liquidation event.

Memecoin Market Capitalization
Memecoin market capitalization, in USD. Source: TradingView

Memecoins have significantly influenced SOL, particularly after the launch of Official Trump in January, which surged decentralized exchange volumes to $313.3 billion that month. However, as per data from DefiLlama, this activity has subsequently decreased by 67%, which partially explains the declining revenue trends across Solana DApps.

Still, the diminishing interest in blockchain-based applications hints at a broader market slowdown rather than indicating a specific weakness within Solana itself.

Blockchain Network Fees
Blockchains ranked by 30-day network fees. Source: Nansen

Solana’s network fees dropped by 21% over the last month; however, rival chains like BNB experienced even more drastic reductions, decreasing by 67%, while Ethereum saw a 41% decrease in the same timeframe. Furthermore, although Solana saw a 6% increase in transactions, BNB Chain’s activity faced a 42% drop.

Decline in Long-Leverage Demand for SOL

SOL perpetual futures serve as a useful measure of trader sentiment, with exchanges charging buyers (longs) or sellers (shorts) based on leverage demand. Under neutral conditions, the funding rate usually fluctuates between 6% and 12% annually, with longs incurring costs to maintain positions. A negative funding rate signals a broader bearish trend.

SOL Perpetual Futures Funding Rate
SOL perpetual futures 8-hour funding rate. Source: CoinGlass

On Friday, SOL’s annualized funding rate settled at 6%, reflecting weak demand for bullish leverage. A peculiar reading of 11% negative on Thursday should not be mistaken for a strong inclination towards bearish positions, as market makers promptly took action to correct imbalances. Nonetheless, it may require time for bulls to regain confidence after a 46% price decline over three months.

Recent advancements within the Solana ecosystem are anticipated to reignite investor interest, particularly with the launch of Firedancer, a new validator client aimed at enhancing processing capacity. This project, taking over three years to develop, was overseen by Jump Trading, a leading market maker in the industry. Developers have noted a positive reception following the validator’s swift re-sync, occurring in under two minutes.

Kamino, recognized as the second-largest Solana DApp by TVL, introduced new offerings including fixed-rate and fixed-term borrowing, off-chain collateral, private credit, and an on-chain Bitcoin-backed institutional line of credit. With $69 million in annualized fees and an average yield of 10% on deposits, this reflects substantial growth within the ecosystem.

Whether SOL can rebound to the $190 mark observed two months prior remains uncertain, and it is improbable that mere technical enhancements or expanded DApp features will be sufficient to restore confidence necessary for a sustainable bullish movement.