Solana prices will correct as the reasons for the recent SOL rally are in question.
Solana SOL (SOL) experienced a significant price increase of 36.6% between October 30 and November 2. However, it failed to breach the $44.50 mark, followed by a 10% correction to $40 on November 6. This move threw many off. Investors are wondering whether the growing ecosystem and network activity will support Solana's current $16.9 billion market capitalization.
On November 2, SOL hit a high of $44.50, the highest since August 2022, coinciding with the Solana Breakpoint 2023 international conference in Amsterdam. The price spike during this period prompted BitMEX co-founder Arthur Hayes to invest in SOL, admitting that it was “again” even though he called it “just a warning”.
During the Breakpoint conference, the Solana Foundation announced the launch of the Firedancer testnet, a long-criticized layer-1 blockchain that provides parallel computing for smart contracts to increase speed and reliability and reduce hardware requirements for verifiers.
Additionally, on October 31, the Solana Foundation announced the availability of network data on Google Cloud Big Query, a serverless data storage solution with built-in machine learning and artificial intelligence. This allows developers and companies to access archive data and analytics insights transparently and securely.
On the development front, Solana Foundation has maintained a consistent level of activity. This includes the approval by validators of the v.1.16 update in September, which introduced confidential transactions for SPL tokens on the Solana network using zero-knowledge proofs.
However, despite the coin's price performance, not all news was positive for Solana. For example, on October 17, decentralized liquidity staking protocol Lido Finance announced its decision to stop operating on the network, citing unsustainable liquidity and low fees, which prompted a community vote to shut down the service.
The central pressing question is whether on-chain activity and metrics related to decentralized applications (DApps) will support SOL price increases. So Solana's on-chain data and ecosystem development should be analyzed to see how it compares to its competitors.
Solana's total value is locked and its movement involves many risks
Solana's primary DApp metric began showing weakness in September, when the network's Total Value Locked (TVL), a measure of the amount invested in smart contracts, hit a more than two-year low on November 5.
Notably, Solana DApp deposits have seen a 30% drop of 9.83 million SOL in 30 days. For comparison, Ethereum TVL in Ether (ETH) fell by 2% during the same period, while BNB Chain saw an 8% decline in BNB (BNB) terms.
In addition, Solana's low fees and continued growth after the failure of FTX-Alameda Research did not necessarily translate into more active users. Solana's largest decentralized exchange (DEX), Radium, recorded only 17,380 active addresses in the last 30 days. Similarly, Solana's most widely used Star Atlas game had 12,420 unique addresses during the same period.
In contrast, BNB Chain-based DEX PancakeSwap claimed 513,060 active addresses in the past 30 days, and Stargate Game had 106,400 users. Meanwhile, Avalanche-based DEX Trader Joe collected 54,130 active addresses, and leading game Gaxe had 32,040 unique addresses.
Perhaps more concerning is that Solana's DApp volume has reached $609 million in the past 30 days, according to Dapradar. This number is not insignificant compared to BNB Chain's $11 billion, Polygon's $5.3 billion and Avalanche's $727 million.
In addition to these issues, there has been criticism of Know Your Customer and Anti-Money Laundering being a network checker, as described by user StakeWithPride on X (formerly Twitter).
Related: Work in Multichain? And SOL increases by 80% in one month – finance redefined
To add to the concerns, X user Ericsson.eth revealed that 1,818 out of 1,997 verifiers received Solana Foundation or Alameda delegates, accounting for 90% of all verifiers.
2/ I wrote a script to get the exact numbers and here is what I got:
Since 1997, verifiers have received 1,818 delegations from the base and Alameda.
They represented a total of 106M SOL, 73M from the base and 33M from Alameda. pic.twitter.com/Il3eyabeZ8
— arixon.eth (@arixoth) October 3, 2023
These participants represented 106 million SOL from these two entities, raising questions about centralization and dissatisfaction among SOL tokenholders regarding validators and development subsidies, as well as the relatively small DApp user base relative to other networks. Finally, Solana's move against the chain contradicts recent price increases and does not support further price increases.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
