SOL struggles to reclaim $145, but Solana network fundamentals remain solid
The native token of the Solana network, SOL, has been unable to close above $145 since July 3. This lackluster performance can be partially explained by decreased investor interest in cryptocurrencies, which caused the sector’s aggregate market capitalization to drop by 5% in nine days. Despite this, SOL underperformed its competitors between July 3 and July 12, trading down 7.8%, while BNB and Ether declined 6.5% over the same period.
Traders now fear that SOL’s bearish momentum will continue, even if the broader cryptocurrency market recovers some of its losses. However, Solana’s onchain metrics and SOL’s derivatives indicate that a reversal may be underway, paving the way for a bull run above $160, last seen over five weeks ago.
Solana TVL Matches BNB Chain
Some Solana SPL tokens drastically underperformed, contributing to the reduced demand for SOL. When participants in the Solana ecosystem lose money, less money circulates in its decentralized applications, negatively impacting the demand for SOL. Notable declines between July 3 and July 12 include a 24% drop in Dogwifhat (WIF), an 18% loss in Helium (HNT), and an 18% correction in Jito (JTO).
Despite these challenges, SOL remains the fourth largest cryptocurrency, excluding stablecoins, with a market capitalization of $65 billion. For comparison, Toncoin (TON) holds $18.4 billion, Tron stands at $12 billion, and Avalanche at $10.1 billion. Furthermore, on July 5, the total value locked (TVL) in Solana matched that of the BNB Chain for the first time ever, and the gap has remained minimal since.
Solana’s TVL Growth and Market Position
According to DefiLlama data, by the end of 2023, BNB Chain had more than twice Solana’s total value locked (TVL). The $2 billion gap favoring BNB Chain has now disappeared, indicating that traders are deploying significantly more capital on the Solana network. Solana’s highlights include liquid staking Jito, holding $1.6 billion in deposits, followed by Marinade with $1.1 billion, and Kamino, also nearing $1.1 billion in TVL.
Tron holds the second position in TVL terms with $7.6 billion, but 72% of that comes from a single decentralized finance (DeFi) application, JustLend. Analysts have strong concerns since 94% of its deposits come from a wrapped version of Bitcoin, which lacks solid evidence of reserves. In essence, Solana competes directly with BNB Chain for the second place in deposits.
Solana Network Activity and DApp Growth
Solana network activity has grown in terms of users and volumes. While Solana is not yet a top contender in decentralized applications (DApps) activity, its metrics have improved over the past seven days, even as most competitors faced declines.
Data indicates that while Ethereum, BNB Chain, and Polygon experienced a decline in active users, Solana saw a 19% increase over the past seven days. Similarly, Solana DApps volumes reached $703 million during the same period, marking a 12% increase compared to the previous week. Meanwhile, Ethereum, the market leader, faced a 37% decline in volumes.
Solana’s decentralized exchange Raydium recorded an impressive 1.71 million active addresses in seven days, a 39% increase. In comparison, BNB Chain’s leading DApp, Move Stake, had 198,570 active addresses over the same period.
Analyzing SOL’s Futures Markets
Lastly, it’s important to examine SOL’s futures markets. Perpetual contracts, also known as inverse swaps, have an embedded rate that recalculates every eight hours. A negative rate suggests that shorts (sellers) are using higher leverage.
Notably, the eight-hour funding rate for SOL turned negative between July 5 and July 6. However, the rate is now near zero, indicating balanced demand between longs (buyers) and shorts. While it is impossible to predict what might drive SOL investors to regain confidence and push the price back to $160, both on-chain and derivatives metrics currently show no signs of stress.
