The value of Solana (SOL) increased significantly by 36.6% between October 30 and November 2. However, SOL failed to break above the $44.50 mark, resulting in a 10% drop to $40 on November 6. The move disappointed many investors. Consider whether ecosystem growth and network activity support Solana’s current market cap of $16.9 billion.
Solana peaked at $44.50 on November 2, its highest level since August 2022, coinciding with the Solana Breakpoint 2023 global conference in Amsterdam. The price hype during this period even prompted BitMEX co-founder Arthur Hayes to admit to being a “degen” and invest in SOL, despite calling the token “just a meme.”
During the Breakpoint conference, the Solana Foundation launched the Firedancer testnet, a new client designed to increase speed, reliability and reduce the hardware requirements of validators, solving the long-standing problem of providing parallel computing for smart contracts. Criticisms of Layer Blockchain.
In addition, on October 31, the Solana Foundation announced that its network data set is available on Google Cloud Big query, a serverless data warehousing solution with built-in machine learning and artificial intelligence. This enables developers and companies to transparently and securely access archival data and analytical insights.
On the development front, the Solana Foundation maintains a consistent level of activity.This includes the v.1.16 update approved by validators in September, which introduce Confidential transactions of SPL tokens on the Solana network using zero-knowledge (ZK) proofs.
However, despite the good price performance of the Solana token, not all news is positive for Solana. For example, on October 17, the decentralized liquidity staking protocol Lido Finance announced its decision to cease operations on the network, citing unsustainable financial conditions and low fees, which led the community to vote to terminate the service.
The core question that remains is whether on-chain activity and metrics related to decentralized applications (DApps) support SOL price increases. Therefore, we should analyze how Solana’s on-chain data and ecosystem growth compare to its competitors.
The total value locked and reduced activity in Solana poses considerable risk
Solana’s main DApp metric started to show weakness in September, as the network’s total value locked (TVL), which measures the amount of money deposited in its smart contracts, reached its lowest level in more than two years on November 5.
It is worth noting that Solana’s DApp deposits decreased by 30% in 30 days to 9.83 million SOL. In comparison, Ethereum’s TVL in ETH fell by 2% during the same period, while BNB Chain’s TVL in BNB fell by 8%.
Additionally, Solana’s low fees and continued growth following the collapse of FTX-Alameda Research don’t necessarily translate into a large number of active users. Solana’s largest decentralized exchange (DEX), Raydium, recorded only 17,380 active addresses in the past 30 days. Likewise, Solana’s most widely used game, Star Atlas, had 12,420 unique addresses during the same period.
By comparison, BNB Chain’s DEX PancakeSwap has 513,060 active addresses in the past 30 days, and its Stargate game has 106,400 users. Meanwhile, Avalanche’s DEX Trader Joe gained 54,130 active addresses, and its leading game Galxe had 32,040 unique addresses.
Perhaps more worryingly, according to DappRadar, Solana’s DApp transaction volume reached $609 million in the past 30 days. This number pales in comparison to BNB Chain’s $11 billion, Polygon’s $5.3 billion, and Avalanche’s $727 million in DApp transaction volume.
In addition to these issues, criticism has arisen regarding the know-your-customer (KYC) and anti-money laundering (AML) requirements required to become a network validator, as highlight Contributed by user StakeWithPride on the social network.
Related: The inner workings of multiple chains? SOL surges 80% in one month – Finance Redefine
What is even more worrying is that X social network user arixoneth revealed that out of 1,997 validators, 1,818 have accepted the commission from the Solana Foundation or Alameda, accounting for nearly 90% of all validators.
2/ I wrote a script to get the exact number and this is what I got:
1,818 of the 1,997 validators hosted delegations from the Foundation and Alameda.
They have commissioned a total of 106 million SOL, 73 million of which comes from the foundation and 33 million from Alameda. pic.twitter.com/Il3eyabeZ8
—arixon.eth (@arixoneth) October 3, 2023
These participants actually delegated 106 million SOL from the two entities, raising questions among SOL token holders about centralization and dissatisfaction, both regarding validator and development subsidies and relative comparisons to other networks. Small DApp user base. Ultimately, Solana’s on-chain activity contradicts the recent price surge and does not support further price increases.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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