Key Summary:
The strong network activity of Solana sharply contrasts with the unlocking plan for the SOL token.
The MEV issue and the decline in memecoin prices pose risks to Solana's growth potential.
The native token of Solana, SOL, fell 10% after encountering strong resistance at $185 on May 23. The current price of $167 is the lowest point in over a week, prompting traders to question the reasons behind the recent decline and whether SOL will retest the support level of $142.
Despite the price drop, SOL holders can still find some comfort in Solana's position as the second-largest network by total value locked (TVL). However, Ethereum's (ETH) dominance remains unshaken, with its extensive second-layer ecosystem continuing to provide low fees and high scalability advantages.
Solana's current TVL of $11 billion has increased by 14% compared to last month, although Ethereum has shown stronger growth momentum. Significant developments within the Solana ecosystem include a 48% increase in Raydium deposits and a 28% increase in Marinade's TVL. However, the growth of other decentralized applications (DApps) like Jupiter, Kamino, and Drift has been more moderate.
Bullish investors remain confident in Solana's market position, primarily due to its efficient integration of Web3 applications with mobile wallets. According to DefiLlama data, Solana's decentralized exchange (DEX) trading volume reached $94.8 billion in the past 30 days, surpassing Ethereum's $64.8 billion in on-chain activity.
SOL bears emphasize the growing DEX activity on Ethereum's second-layer ecosystem, which reached $59.2 billion in the past 30 days. While this trend is undoubtedly significant, it has not translated into higher fee revenue. Ethereum can consolidate data into blobs to reduce costs, while Solana captures more value from on-chain activity.
This contrast is particularly evident in fee data: in the past 30 days, Solana generated $48.7 million in fees, compared to Ethereum's $36.9 million, despite Ethereum having a significantly larger deposit base. Meanwhile, the BNB chain, despite recent growth, only generated $15.1 million in fees, making it easier for projects to artificially inflate trading volume data.
Another key factor affecting investor sentiment is the anticipated unlocking of 3.55 million SOL between June and August, valued at approximately $600 million at current prices. Market analysts point out that most of these tokens were acquired at around $64 from the bankrupt FTX/Alameda assets, which may limit the tokens' upside potential.
Although Solana offers an 8% yield for validators, significantly higher than Ethereum's 3%, its supply is expanding at an annual rate of 5.2%, according to StakingRewards data. Therefore, the net staking return for SOL is lower than the yields many DApps offer for stablecoin deposits.
The high throughput capability of the Solana network comes with a series of trade-offs, particularly concerning the validator incentive mechanisms related to MEV (maximum extractable value). Network validators can increase their earnings by reordering transactions, creating conditions for sandwich attacks and front-running, ultimately harming the interests of ordinary traders. Dan Robinson, an analyst at Paradigm, stated that the MEV issue has become "the biggest challenge" facing Solana.
As several SOL memecoins recently recorded significant weekly declines, market traders began to question the long-term development prospects of memecoins based on Solana. Data shows that Official Trump (TRUMP) fell by 24%, FARTCOIN and POPCAT saw their market caps shrink by 20%, while Pudgy Penguins (PENGU) dropped 17% in the past week. Analysts point out that if DEX activity continues to decline, it will further pressure SOL's market performance.
Despite facing the aforementioned risks, Solana continues to perform strongly in terms of trading volume and total locked value, indicating that there are currently no significant signs of performance decline relative to the broader altcoin market. However, industry experts warn that the scheduled token unlocking plans in the coming months will significantly reduce the likelihood of SOL returning to the $200 price level.
Related: Nigel Farage: Reform UK will accept cryptocurrency donations
This article is for general reference only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in the article are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original article: “Solana Price Drops: Dual Impact of Memecoin Fade and SOL Unlock Concerns”
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