Solana's native token, SOL (SOL), dropped to $131.90 on Feb. 25, marking its lowest point in five months. The unexpected correction triggered more than $129 million in leveraged long SOL futures positions. Despite briefly recovering to the $140 level, SOL is down 17% since Feb. 22, while the broader altcoin market has declined by 10%.
SOL/USD (blue) vs. altcoin market cap (magenta). Source: TradingView / CointelegraphSeveral factors, including reduced onchain activity, derivatives metrics, and equivalent inflation, suggest that SOL may continue to underperform in the short term. Decentralized exchange (DEX) volumes on the Solana network have dropped by 30% over the past seven days, reaching their lowest level since October 2024.
Top blockchains ranked by 7-day DEX volumes, USD. Source: DefiLlamaMeteora was the worst performer, down 48% compared to the previous week, followed by Raydium with a 28% decline in activity. The Pump.fun memecoin launchpad also saw a 35% drop in onchain volume. In contrast, DEX volumes on Ethereum increased by 40% week-over-week, according to DefiLlama data.
Pendle experienced a 76% rise in onchain volumes during the same period. The recently launched Hyperliquid chain, focused on perpetual futures trading, recorded a 25% volume increase. Similarly, volumes on SUI, a layer-1 blockchain focused on scalability, rose by 15%. Meanwhile, DEX activity on the BNB Chain dropped by 40% compared to the previous week.
SOL correction was not driven by memecoin decline
Some analysts attribute SOL's negative performance to the burst of the memecoin launch bubble. However, the decline in activity on Solana's decentralized applications (DApps) also affected areas like liquid staking, yield strategies, gambling, NFT lending, and Web3 infrastructure. Notable examples include Jito, which saw a 49% drop in unique active addresses, while Fragmetic saw 30% fewer users, and Save was down by 28%.
The scalability of the Solana network relies on economic incentives for its validators, as the cost of running a validator can exceed $72,000 per year, according to the JPOOL liquid staking calculator. In addition to server expenses, there is a “voting cost” of approximately 1 SOL per day, which significantly impacts profitability, even when factoring in maximal extractable value (MEV).
Currently, SOL native staking offers a 9.5% yield, according to StakingRewards. However, when adjusted for equivalent inflation, the net gains are much lower. Over 16.1 million SOL tokens are set to be unlocked between February and May 2024, representing a 10% annualized inflation rate. This effectively creates a negative return for SOL staking during this period.
Derivatives demand slumps as spot Solana ETF odds waver
Demand for leveraged long positions (buy) on SOL futures has dropped to its lowest levels in over 12 months, according to derivatives markets data.
SOL 2-month futures annualized premium vs. spot market. Source: Laevitas.ch
Monthly futures contracts generally trade at a 5% to 10% premium compared to spot markets to account for the longer settlement period. However, SOL futures entered backwardation on Feb. 24, indicating that demand for short positions (sell) has significantly increased.
The total open interest on SOL futures fell by 8.5%, dropping from 31.6 million SOL on Feb. 24 to 28.9 million SOL on Feb. 25, according to CoinGlass data. This shift may reflect traders’ reduced expectations for the imminent approval of a spot Solana exchange-traded fund (ETF) in the United States, especially considering the negative effects of the Bybit exchange hack and OKX’s settlement with the US Department of Justice.
SOL is likely to take longer to regain bullish momentum due to the decline in onchain activity, inflationary pressure, weak demand for leveraged long positions, and reduced likelihood of a Solana ETF approval.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
