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Solana’s SOL Token Faces Short-Term Setback, but Network Activity and DeFi Growth Hold Long-Term Promise

Solana’s native token, SOL, faced a 9% decline on January 18, dropping to a low of $91.40.

This marked the continuation of a trend where SOL struggled to breach the $100 level for the past 15 days.

However, this setback shouldn’t cause excessive concern, given the overall cryptocurrency market’s inability to maintain levels above $1.6 trillion throughout 2024.

Despite this recent dip, SOL boasted an impressive 84% gain in December, although investors are beginning to express concerns about the lack of sustained positive price momentum.

The December 2023 rally of SOL was driven by FOMO (fear of missing out), triggered by the surge in Solana SPL token airdrops, including Jito (JTO), BONK, and Dogwifhat (WIF).

This phenomenon led to increased demand for the Solana Saga Phone as some projects offered exclusive benefits to these users.

However, the tide has turned recently, with BONK experiencing a 15% correction between January 17 and 18, and JTO declining by 19% during the same period.

Another contributing factor to SOL’s correction was the excessive optimism surrounding airdrop expectations.

Some launches were delayed, and others provided only temporary boosts to its decentralized applications (DApps), fizzling out after the airdrop snapshots.

Analysts and influencers created lists of promising opportunities, but few tokens reached substantial valuations and trading volumes.

Optimism regarding SOL’s token performance is partly fueled by the growth of deposits within the Solana Network’s decentralized finance (DeFi) sector.

The Total Value Locked (TVL) in SOL tokens peaked at 15.4 million on December 19, 2023, marking a 60% increase compared to the previous month.

Although it has stabilized around 14 million, growth has been notable in Jito and Marinade Finance liquid staking solutions, as well as Kamino, Orca, and Solend DeFi applications, which have all surpassed $150 million in deposits.

Despite its recent decline in transactions and active DApps users, Solana’s network activity has been on the rise in terms of overall transactions and volumes, albeit still trailing competitors like BNB Smart Chain and Polygon.

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Solana did witness an 8.5% decline in transactions over the last seven days. However, it leads in the absolute number of transactions at 72.3 million, partially due to its lower costs.

Solana’s unique architecture, which relies on heavy-processing validation, has attracted criticism but also provided opportunities for DApps requiring extensive bandwidth, including token launches, NFT collections, games, and social networks.

Notably, Solana became the third-largest network in NFT marketplace volumes, with NFT transactions reaching $270.5 million, trailing Ethereum by just 20%.

The current state of Solana’s network activity doesn’t indicate an imminent sharp price correction for SOL, thanks to its resilience in terms of DApps volumes and TVL.

However, there is downward pressure on SOL’s demand due to excessive expectations related to airdrops and SPL token performance.

SOL’s market capitalization currently stands at $40.6 billion, with a price of $94, still 50% lower than its peak in November 2021.

There is potential for an upside if the network continues to attract interest from projects that value its stability amid high network processing demand, especially as many competitors grapple with surging transaction fees or prolonged instability.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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