Solana TVL declines, but SOL price reacts negatively?

Solana Networks native Solana (SOL) rallied 16.4% between September 18 and September 20, but the $152 resistance level proved more threatening than expected, leading to a 6% retracement to the current $143 level.

Investors now suspect the cause of SOL's price weakness and a possible retest of the recent $120 support from Solana Network Deposit.

The decline in SOL rates followed the US Federal Reserve's interest rate hike.

SOL's recent gains follow a broader altcoin market rally, up 11% since September 18, following a decision by the US Federal Reserve to cut interest rates. This shift to more accommodative monetary policy fueled a rally in the S&P 500 stock index, which hit an all-time high on September 19.

However, SOL's price gains appear to be driven by macroeconomic factors rather than specific changes in the Solana ecosystem. Analyzing SOL's performance, the drop to $143 outpaced the broader altcoin market's correction. Investors' quick reaction can be attributed in part to the outflow from the Solana network as measured by Total Value Locked (TVL). However, other indicators show strong activity, which may contradict these flows.

Solana's decentralized applications (DApps) TVL decreased by 8.5%, from SOL 36.9 million on September 18 to SOL 33.8 on September 21. These withdrawals affect key platforms, including Jito (a staking solution), Kamino (a lending and leveraging platform), and Jupiter (decentralized exchange). Notably, this marks a reversal after a strong inflow in August.

Despite this, Solana's downside appears to be less than that of other blockchains. For example, Ethereum (ETH) TVL is down 5% in ETH terms, while Avalanche (AVAX) deposits are at a six-week low in AVAX terms. In addition, Solana's decentralized foreign exchange rate increased by 19 percent in the seven days to Sept. 23, Defilama said.

Positive trends in Solana Network DEX volumes include a 20% increase in Orca, a 28% increase in Raydium, and a 16% increase in Phoenix. Meanwhile, Ethereum's most active DEX, Curve Finance, remained flat at $868 million in trading volume in seven days, and Tron Sun saw a 12 percent decline, falling to $415 million over the same period.

Solana's measurements on the chain show a strong growth in activity

However, since many decentralized applications (DApps) do not require large deposits, evaluating network activity based on deposits and size may not provide the full picture. This includes areas such as aggregators, virtual token (NFT) marketplaces, social apps, gambling platforms and web3 infrastructure. As a result, analysts often track active addresses as an indicator of user engagement.

Related: Crypto-native Travel Agency Launches Solana-Based Tokens and Rewards

According to Defillama data, Solana led the market in 7-day active addresses. However, the 8 percent growth in this measure is second only to Ethereum, the leader in Total Value Locked (TVL). Solana's lower fees provide an advantage in terms of transaction costs, but result in a relative inflation rate to cover the costs and investments incurred by the insurers.

For context, Solana's 7-day fee revenue reached $3.04 million, compared to $15.6 million for Ethereum and $9.72 million for Tron during the same period, according to Defillama. Therefore, despite the recent 8.5% decline in TVL, the growth of DEX volumes and active addresses suggests that Solana investors should not be overly concerned. Data on the chain does not indicate an imminent correction to $120.

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.