Traders show strong interest in Solana, but the decline in memecoin prices and the unlocking of SOL tokens limit the upside for altcoins.
Key Points:
The strong network activity of Solana stands in stark contrast to the token unlock plans for SOL.
The MEV issue and the price decline of memecoins pose risks to Solana's growth potential.
Solana's native token SOL has dropped 10% after plummeting from $185 on May 23. The current $167 level is the lowest in over a week, leading traders to question the reasons behind the recent decline and whether SOL will return to the support level of $142.
Despite the price decline, SOL holders can find some comfort in Solana's status as the second-ranked network by total locked value (TVL). Nevertheless, Ethereum's dominance remains unchallenged, thanks to its extensive Layer-2 ecosystem offering low fees and high scalability.
Solana's current TVL is $11 billion, up 14% from last month, although Ethereum's growth is stronger. Notable developments in Solana include a 48% increase in Raydium's deposits and a 28% increase in Marinade's TVL. However, growth for other decentralized applications (DApps) like Jupiter, Kamino, and Drift has been more moderate.
Solana's trading volume and fees surpass Ethereum.
Bulls still believe in Solana's strong position, thanks to its effective integration of Web3 applications with mobile wallets. According to data from DefiLlama, in the past 30 days, Solana's decentralized exchange (DEX) trading volume reached $94.8 billion, surpassing Ethereum's $64.8 billion on-chain trading volume.
Bears of SOL emphasize the growing activity in the Ethereum Layer-2 ecosystem's DEX, which reached $59.2 billion in the past 30 days. While this trend is certainly significant, it has not translated into higher fees. Ethereum supports rollups that consolidate data into blobs, reducing costs, while Solana derives more value from on-chain activity.
This contrast is evident in the fee data: despite Ethereum's deposit base being significantly larger, Solana generated $48.7 million in fees over 30 days, while Ethereum's fees were $36.9 million. Meanwhile, despite a recent uptick, the BNB Chain's fees were only $15.1 million, lagging behind Solana, making it easier for projects to artificially inflate trading volumes.
Another factor impacting investor sentiment is the expected unlocking of 3.55 million SOL between June and August, valued at about $600 million at current prices. Analysts point out that most of these tokens were acquired from the bankrupt FTX/Alameda assets at around $64, which may limit the token's upside potential.
Despite Solana offering validators an 8% yield, significantly higher than ETH's 3%, its annualized supply growth rate is only 5.2% according to StakingRewards. Therefore, the net staking yield for SOL is lower than the stablecoin deposit yields offered by many DApps.
SOL is affected by the decrease in MEV and memecoin interest.
The high throughput of the Solana network also comes with some trade-offs, particularly regarding validator incentives related to MEV (Maximum Extractable Value). Validators can increase profits by reordering transactions, which opens the door to 'sandwich attacks' and 'front-running' behavior, harming regular traders. Paradigm researcher Dan Robinson considers MEV to be Solana's 'biggest problem.'
After several Solana-based memecoins experienced significant weekly declines, traders began to question their long-term viability. Over the past seven days, Official Trump (TRUMP) dropped 24%, FARTCOIN and POPCAT fell 20%, and Pudgy Penguins (PENGU) decreased by 17%. The ongoing decline in DEX activity will further dampen SOL's performance.
Despite these risks, Solana's strong performance in trading volume and total deposits indicates that there are currently no signs of underperformance relative to the broader altcoin market. However, the planned token unlocks in the coming months will significantly reduce the likelihood of SOL recovering to $200.
