- Solana faces challenges with declining onchain activity, weak derivatives demand, and inflationary pressures, causing its price to lag behind Bitcoin and other altcoins.
- Solana’s staking yields are offset by high inflation, while reduced trading volumes and ETF uncertainty weigh on its short-term recovery.
Solana (SOL) has been struggling. On February 25, its price dropped to $131.90, marking its lowest point in five months. This sharp decline triggered over $129 million in liquidated long positions. Despite a brief recovery to $140, SOL is still down 17% since February 22, while the broader altcoin market has only lost 10%.
Declining Onchain Activity
One major issue for Solana is its falling onchain activity. Decentralized exchange (DEX) volumes on the Solana network have dropped 30% in just seven days. This marks the lowest trading activity since October 2024.
Some of the biggest declines in DEX activity include:
- Meteora: Down 48%
- Raydium: Down 28%
- Pump.fun (memecoin launchpad): Down 35%
While Solana’s trading volumes have slumped, Ethereum’s DEX activity surged 40% in the same period. Other blockchain networks, like Pendle (+76%) and SUI (+15%), also saw growth.
Solana Challenges Extend Beyond Memecoins
Some analysts blame the end of the memecoin hype for SOL’s price drop. However, the decline is broader, affecting staking, DeFi, NFT lending, and Web3 applications.
Key projects suffering losses include:
- Jito: Active addresses down 49%
- Fragmetic: Users down 30%
- Save: Users down 28%
Another issue is the cost of running a validator on Solana, which can exceed $72,000 per year. Validators must also pay about 1 SOL per day for “voting costs.” This high expense puts pressure on Solana’s economic model.
Inflation and Staking Yield Concerns
Solana’s native staking yield is 9.5%, but this doesn’t tell the full story. Over 16.1 million SOL is set to be unlocked between February and May 2024, leading to an annualized inflation rate of 10%.
With this inflation, stakers could see negative real returns, making Solana staking less attractive compared to other opportunities in the crypto space.
Weak Derivatives Demand and ETF Uncertainty
Another bearish signal is the declining demand for SOL futures. Leveraged long positions have dropped to their lowest levels in over a year.
Futures data also shows SOL is in backwardation, meaning short positions (bets against SOL) are increasing. Open interest in SOL futures fell by 8.5%, from 31.6 million SOL to 28.9 million SOL in just one day.
Adding to the uncertainty, hopes for a Solana spot ETF in the U.S. have weakened. Regulatory concerns, combined with issues like the Bybit hack and OKX’s settlement with the U.S. Department of Justice, have dampened investor confidence.
Solana Recovery Could Be Slow
With falling onchain activity, inflationary pressures, weak derivatives demand, and ETF uncertainty, Solana may take longer to regain momentum. While the broader crypto market might recover, SOL could continue to underperform in the short term.
