What’s Behind the Recently Renewed Interest in Solana?

17 Nov What’s Behind the Recently Renewed Interest in Solana?

Solana, the Web3 chain known for its high-speed and scalability, is witnessing a remarkable resurgence in interest, marked by a significant uptick in its Total Value Locked (TVL) and active user base. Despite previous setbacks linked to the FTX exchange bankruptcy and ongoing market volatility, Solana’s recent performance indicates a significant turnaround.

Solana Price Action Explodes While TVL Surges

Today we will be taking a look at the factors driving this renewed interest, the challenges it faces in regaining investor trust, and its ongoing battle to establish itself as a formidable competitor in Web3. Can Solana live up to its reputation as an “Ethereum Killer”?

Solana has recently been experiencing a significant revival of interest after a period of decline, particularly in its Total Value Locked (TVL). This key metric, which reflects the total value of assets deposited in its smart contracts, has reversed its downward trajectory, showcasing positive momentum over the last six weeks. 

This resurgence is further evidenced by a notable 10% increase in deposits across Solana’s Decentralised Applications (DApps) within a mere three-day span (as of November 10th). Its current TVL stands at $589.75 million, which is still way off its peak of over $10 billion in 2021 and even levels just  prior to the collapse of FTX, but is double the TVL at the start of the year. This upward trend is a promising sign of recovery for the Solana ecosystem.

Importantly, this growth in TVL is not just driven by a handful of large holders but is also reflected in the broader user base, with a 28% increase in active addresses on the platform. This growth has elevated Solana to the fourth-largest blockchain in terms of DeFi TVL, a stark contrast to the declining user activity on competing blockchains like Ethereum, which saw a 22% decrease in DeFi active users.

The heightened network activity and rising TVL have been advantageous for SOL token investors. However, Solana’s current market capitalization of $26.4 billion raises questions about the sustainability of this growth, particularly in comparison to other networks like Polygon. 

While Solana’s 30-day accumulated fees as of November 10, ($1.9 million) outpace those of Polygon ($1.6 million), they fall short of the BNB Chain’s fees ( $9.1 million), fueling debate over SOL’s valuation following its recent rally.

Solana Must Regain Investor Trust in the Wake of FTX Fallout

The uptick in SOL’s price notably coincides with Solana’s annual conference and has been sustained despite the uncertainty surrounding the FTX Group’s stake of SOL tokens (which are part of the FTX bankruptcy proceeds).

Despite facing challenges from the market downturn and the fallout of FTX’s collapse, Solana has maintained robust development momentum, attracting interest from major corporations such as Shopify and Visa. These companies are actively exploring and building on the Solana platform, underscoring its potential as a versatile blockchain solution. Solana’s market performance has been remarkable, with a 176.76% increase over the past 30 days and more than a 353.89% rise annually, trading around $60.

However, for Solana to reclaim and possibly surpass its all-time high of $260 from 2021, two major hurdles need to be overcome. Firstly, it must rebuild investor confidence, which was significantly eroded due to its association with FTX and Sam Bankman-Fried (SBF). Secondly, regulatory uncertainties, especially from the SEC, which previously hinted at Solana potentially being an unregistered security, add to the platform’s challenges. These factors contribute to a heightened level of uncertainty compared to its rivals.

Despite these obstacles, Solana continues to attract institutional interest. According to CoinShares, Solana has experienced net inflows from institutional investors for 28 out of the first 32 weeks of the year, even outperforming Ethereum in this regard. However, Solana’s ambitious goal of challenging Ethereum’s dominance has yet to materialise. This is evident in areas like the NFT market, where Ethereum significantly outperforms Solana in monthly sales volume.

What Does the Future Hold for Solana?

Solana’s ambition to position itself as a formidable rival to Ethereum hinges on its ability to enhance its technological offerings and user experience. While Solana has been lauded for its high transaction speeds and efficiency, it needs to further develop its ecosystem to support a wider range of applications, especially in areas where it currently lags behind Ethereum, such as the NFT marketplace. The platform needs to prove that it can not only match but also exceed the capabilities of established blockchains in terms of scalability, security, and the diversity of DApps.

Solana’s appeal to institutional investors, evidenced by consistent net inflows, is a positive sign. It suggests a level of confidence in its long-term viability and potential to offer a viable alternative to Ethereum. However, converting this institutional interest into broader market adoption will require Solana to demonstrate sustained stability and ongoing innovation.

Finally, community engagement and development support will be vital. For Solana to truly realise its potential as a leading blockchain platform, it needs to foster a strong, active community of developers and users who are committed to building and maintaining a diverse range of applications. This community support will be critical in driving innovation, attracting new users, and maintaining a vibrant ecosystem.

Solana’s trajectory in the near future is dependent on a multifaceted approach: addressing regulatory and trust issues, technological advancements, market positioning, and community building. Successfully managing these aspects will be key to its ability to capitalise on its potential and establish itself as a leading Web3 platform.

17 November 2023