Important points:
Despite the launch of Firedancer and increased Solana network trading, SOL’s funding rate shows low bullish confidence after the price fell 46%.
Solana DApp revenue and DEX activity have declined sharply, suggesting that the overall market is exhausted despite the growth of Solana’s ecosystem.
Solana’s native token, SOL (SOL), has been unable to maintain its price above $145 for the past four weeks. Lower network activity due to reduced demand for decentralized applications is negatively impacting SOL’s outlook.
Solana’s TVL is now down more than $10 billion from its September peak, and on-chain metrics are showing signs that user participation is cooling faster than expected.
Solana’s total value on lock (TVL) has been declining since reaching an all-time high of $15 billion in September. As smart contract deposits decrease, the supply of ready-to-sell SOL increases. Meanwhile, revenue from decentralized applications (DApps) on Solana fell to $26 million per week from $37 million two months ago.
Trader appetite for memecoins has also waned since the crypto market flash crash on October 10, an event that exposed serious flaws in leveraged positions and liquidity across small-cap altcoins. Regardless of whether the derivatives market amplified this movement, traders became less familiar with DEX platforms after the $19 billion liquidation event.
Meme coins have been a major driver of SOL, especially after the launch of TRUMP in January, with Solana’s decentralized exchange (DEX) trading volume reaching $313.3 billion in the same month. According to data from DefiLlama, this activity has since declined by 67%, which partially explains the slowdown in revenue trends across Solana DApps.
Still, the decline in demand for blockchain-based applications may reflect a broader market slowdown rather than Solana’s specific weaknesses.
Solana’s network fees have fallen by 21% in the past 30 days, while competing blockchains have suffered even more significant declines. BNB Chain fees have fallen by 67% over the same period, while Ethereum has fallen by 41%, according to Nansen data. Additionally, the number of transactions on Solana increased by 6%, while activity on the BNB chain decreased by 42%.
SOL long leverage demand disappears
SOL perpetual futures can provide a useful measure of trader sentiment because exchanges charge buyers (long) or sellers (short) based on leverage demand. In neutral conditions, funding rates typically range from 6% to 12% per year, and longs pay to maintain their positions considering the cost of capital. Conversely, a negative funding ratio indicates broader bearish sentiment.
SOL’s annual funding rate was 6% as of Friday, indicating weak demand for bullish leverage. Thursday’s unusually negative 11% reading should not be interpreted as a strong demand for bearish positions, as market makers moved quickly to stabilize the imbalance. Still, it may take some time for bulls to rebuild their belief after SOL’s price fell 46% in three months.
Several recent developments in the Solana ecosystem are expected to attract new investor interest, including Friday’s mainnet launch of Firedancer, a new validator client designed to expand processing power. The project took over three years to build under the guidance of Jump Trading, one of the industry’s top market makers. The developer reported that there was a strong response after the validation node resynchronized within two minutes.
Related: JP Morgan selects Solana for Galaxy tokenized bond issuance
Kamino, the second-largest Solana DApp by TVL, also announced new products on Friday, including fixed-rate and fixed-term borrowing, off-chain collateral, private credit, and on-chain Bitcoin-backed institutional lines of credit. Kamino’s annual fees of $69 million and average annual deposit yield of 10% clearly demonstrate the expansion of the ecosystem.
It remains unclear whether SOL can regain the $190 levels last seen two months ago, and improved validation software and DApp product expansion alone are unlikely to restore the confidence needed to support a sustained bullish trend.
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