Over the past week, Solana’s native token SOL (SOL) suffered a notable 21% drop, hitting its lowest point in almost six weeks. This decline resulted in approximately $113 million worth of leveraged long SOL futures contracts being liquidated since April 11. This large-scale liquidation indicates that investors may have held overly positive expectations after SOL’s impressive 61% price increase in March.
The discovery of this situation prompts queries regarding possible adjustments and the strength of the $130 support.
Solana ecosystem growth and Coinbase integration
Market analysts have pointed out that Solana’s current market value of $60 billion seems overvalued in light of Avalanche’s ($13 billion) and Tron’s ($10 billion) lower market caps. This represents a fourfold and sixfold difference, respectively. Yet, some defenders justify the price gap due to Solana’s rapidly growing ecosystem, where numerous projects are launching their own tokens.
Starting on April 16, Coinbase revealed that its digital wallet has been seamlessly connected to the Solana decentralized exchange (DEX) network. This connection enables users to trade over 50,000 Solana SPL tokens by simply entering the contract address within the “swap” feature. By doing so, Coinbase lowers the hurdles for users looking to engage with the Solana ecosystem.
From April 12 to April 17, the open interest in SOL futures contracts dropped by nearly half, down to $1.5 billion. This decrease indicates a weaker appetite for taking on leverage in SOL futures trading. To better understand why this decline occurred, it’s worth examining the SOL futures funding rate.
The SOL perpetual futures funding rate acts as a barometer for market sentiment. A positive rate signifies that more traders are seeking to buy leveraged long contracts, while a negative rate implies that traders prefer short positions, betting on a price drop.
Since April 12, the funding rate for SOL futures has been insignificant, indicating an approximately equal number of long and short positions. This finding is somewhat comforting, considering that SOL’s price has decreased by 33% over the past 16 days, with a potential dip below $136 imminent since March 6.
Recent network congestion did not halt Solana DApps activity
Recently, the Solana network faced significant problems with network congestion, causing as many as 75% of transactions to fail according to CryptoMoon’s reports. In reaction to these bottlenecks, developers released an update intended to ease the strain. As a result, some projects have chosen to delay their token launches until these network difficulties are fully addressed.
An additional strain on SOL‘s results came from issues in various key initiatives, including MarginFi. On April 10, Edgar Pavlovsky, the CEO of MarginFi, stepped down, resulting in $190 million worth of withdrawals. The situation became more complex as other Solana-project developers accused MarginFi of not providing users with their due credits. This incident highlights the instability and complications present within the Solana community.
In the world of decentralized finance on the Solana blockchain, a significant decline was observed in various SPL tokens. For instance, Jito (JTO) experienced a decrease of 29% since April 12, while Raydium (RAY) and Jupiter (JUP) registered drops of 24% and 27%, respectively. Moreover, popular Solana memecoins such as Dogwifhat (WIF) saw a sharp decline of 32% within just six days. Regardless of any underlying causes, this downturn affected these tokens noticeably.
The number of decentralized apps (DApps) being used on Solana is believed by analysts to influence the price of SOL. This is because the increased use of these apps drives up demand for SOL in two ways: through payment of network fees, and from individuals participating in airdrops for SPL tokens.
Over the past week, DappRadar’s latest figures reveal a substantial surge in transaction volume for Solana’s Decentralized Applications (DApps), reaching $1.3 billion, marking a 60% increase. In contrast, Ethereum recorded a 20% rise in activity, and BNB Chain experienced a 13% uptick. Notably, despite these advancements, Solana’s active user base remained steady at approximately 2 million users. Meanwhile, Ethereum saw a decline of 4% in the number of active addresses.
With a consistent need for borrowing in futures markets and strong trading volume on the network, it’s unlikely that Solana (SOL) will trail behind the overall altcoin market. Nevertheless, persistent network congestion might put pressure on SOL’s high valuation relative to other digital tokens, raising questions about its long-term sustainability.
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2024-04-18 04:37