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Solana’s Uphill Battle: Can the Native Token Regain Its Bullish Momentum?

Introduction

Solana’s native token, SOL, has been struggling to regain its footing after plummeting to a low of $125 on February 28. Despite a 17% surge, it encountered strong resistance near the $180 mark, leaving many traders concerned about its ability to regain its bullish momentum. This article will explore the key factors contributing to SOL’s underperformance and what it needs to do to regain its footing.

Memecoin Bubble Burst

The sharp decline in SOL’s value is largely attributed to the memecoin market crash. However, on-chain activity has also declined across various sectors, including liquid staking, tokenized assets, yield aggregators, synthetic perpetuals, NFT marketplaces, and artificial intelligence infrastructure.

Decreased Blockchain Activity

Solana network fees have dropped by 73% compared to four weeks ago, according to DefiLlama data. This decrease in activity is a clear indication of reduced interest in SOL. The surge in activity was largely driven by memecoin token launches and decentralized exchange (DEX) trading, but the result of SOL’s fading momentum remains the same.

Decline in Active Addresses

The number of active addresses interacting with Jito, Solana’s largest liquid staking decentralized application, has fallen by 56% over the past 30 days, according to DappRadar data. Similarly, the NFT marketplace Magic Eden saw a 38% decrease in active addresses, while Save (formerly Solend), which offers collateralized lending, experienced a 42% drop in users over the same period.

Comparison with Ethereum

In comparison, the number of active addresses on Base, the Ethereum layer-2 blockchain, declined by just 2% over the same period. Even Ethereum’s base layer outperformed Solana, with the number of addresses engaging with DApps dropping by 17% over 30 days. This suggests that attributing SOL’s underperformance to the memecoin bubble burst is less plausible, as other networks did not experience a similar outcome.

Limiting Factors

Several factors are limiting SOL’s upside potential:

Lack of Leverage Demand

The funding rate on SOL perpetual futures has been negative for the past three days, meaning shorts (sellers) are paying to keep their positions open. The current negative 0.01% 8-hour funding rate translates to a mere 0.9% cost per month. However, the lack of interest from leveraged buyers following a 52% drop from its all-time high is not a positive sign for traders’ sentiment.

MEV Bots and Low Leverage Demand

The narrative surrounding Solana is misleading, as reportedly 95% of the network’s fees came from just 1.3% of users, mainly driven by Wintermute, a market-making firm, and maximum extractable value (MEV) bots. Critics argue that the narrative is misleading, and that the potential for increased activity on the Solana network is less of a concern.

Conclusion

In conclusion, Solana’s native token, SOL, faces numerous challenges in regaining its bullish momentum. To overcome these challenges, the network needs to address on-chain activity, leverage demand, MEV bots, and investment from Trump’s project. Until these issues are resolved, SOL is unlikely to regain its footing above the $180 mark.

Q: What are the main factors contributing to Solana’s underperformance?
A: Memecoin bubble burst, decreased blockchain activity, decline in active addresses, and limiting factors such as lack of leverage demand, MEV bots, and low leverage demand.

Q: Is the memecoin bubble burst the sole reason for Solana’s underperformance?
A: No, other networks, such as Ethereum’s layer-2 blockchain, did not experience a similar outcome, suggesting that attributing SOL’s underperformance solely to the memecoin bubble burst is less plausible.

Q: What is the current state of Solana’s network fees?
A: Solana network fees have dropped by 73% compared to four weeks ago, according to DefiLlama data.

Q: How has the number of active addresses on Solana changed?
A: The number of active addresses interacting with Jito, Solana’s largest liquid staking decentralized application, has fallen by 56% over the past 30 days, while the number of active addresses on Base, the Ethereum layer-2 blockchain, declined by just 2% over the same period.