Traders are very interested in Solana, but memecoin prices are falling and SOL token unlocks have hampered the altcoin's price rally.
Key points to remember:
Solana's strong network activity contrasts with SOL's token unlock schedule.
MEV issues and falling memecoin prices pose risks to Solana's growth potential.
Solana's native token, $SOL , fell 10% after a sharp drop to $185 on May 23. The current $167 is the lowest in over a week, prompting traders to question the reasons behind the recent drop and whether SOL can return to its $142 support level.
Despite the price drop, SOL holders can take some comfort in the fact that Solana is the second largest network in terms of total value locked (TVL). However, Ethereum's dominance remains unchallenged, supported by its vast layer-2 ecosystem offering low fees and high scalability.
Solana's current TVL is $11 billion, up 14% from last month, although Ethereum has grown even more strongly. Notable developments on Solana include a 48% increase in deposits from Raydium and a 28% increase in TVL from Marinade. However, there have been more modest gains on other decentralized applications (DApps) such as Jupiter, Kamino and Drift.
Solana's volume and fees surpass Ethereum
Bulls remain confident that Solana's position is secure, thanks to the efficient integration of Web3 applications with mobile wallets. In the past 30 days, trading volume on Solana's decentralized exchanges (DEXs) has reached $94.8 billion, surpassing Ethereum's $64.8 billion in onchain activity, according to data from DefiLlama.
SOL shorts highlight increasing DEX activity on Ethereum's layer-2 ecosystem, reaching $59.2 billion in the past 30 days. While this trend is certainly significant, it doesn't translate into higher fees. Ethereum allows rollups to consolidate data into blobs, which reduces costs, while Solana extracts more value from on-chain activity.
This contrast is evident in fee data: In over 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, BNB Chain, despite a recent surge, still lags with just $15.1 million in fees, making it easy for projects to artificially inflate volume metrics.
Another factor affecting investor sentiment is the expected unlock of 3.55 million SOL between June and August, worth approximately $600 million at current prices. Analysts note that most of these tokens were acquired from bankrupt real estate company FTX/Alameda for around $64, potentially limiting the token's ability to rise in price.
While Solana offers an 8% return for validators, well above Ether's 3%, its supply expands at an annual rate of 5.2%, according to StakingRewards. As a result, SOL's net staking yield is lower than that offered by many DApps when depositing stablecoins.
SOL is being affected by MEV and reduced interest in memecoins
The high throughput of the Solana network comes with trade-offs, particularly regarding validator incentives related to MEV (maximum extractable value). Validators can increase their earnings by rearranging transactions, which opens the door for sandwich attacks and front-running activities that harm ordinary traders. According to Dan Robinson, a researcher at Paradigm, MEV is Solana's "biggest problem".
Traders are also questioning the long-term viability of Solana-based memecoins after several weekly declines. Official Trump (TRUMP) fell 24%, while FARTCOIN and POPCAT lost 20% and Pudgy Penguins (PENGU) fell 17% in the past seven days. Continued declines in DEX activity would put further pressure on SOL's performance.
Despite these risks, Solana's strong performance in both trading volume and total deposits shows no immediate signs of underperformance compared to the broader altcoin market. However, the scheduled token unlocks in the coming months significantly reduce the likelihood of SOL regaining $200.
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