Solana (SOL) Price Plummet: What’s the Deal?

Over the past week, Solana’s native token, SOL, has experienced a 13% decline in value, dropping to $101. This decline has caused Solana to fall behind the top three contenders in terms of market capitalization. Investors may be concerned that the peak demand for SOL has passed, especially as the frenzy around airdrops begins to subside. When compared to other blockchains, the activity on the Solana network supports a bearish momentum.

One factor contributing to the price correction of SOL is the poor performance of Solana’s SPL tokens, including Jito (JTO), Jupiter (JUP), and Dogwifhat (WIF). Since February 19th, these tokens have experienced significant decreases in value, with drops of 17%, 16%, and 18% respectively. This negative performance has impacted investors who were hoping to benefit from potential airdrops, as future listings often depend on the value of existing alternatives.

SOL’s demand is not solely reliant on airdrops. There are numerous decentralized applications (DApps) already operating on the Solana network. For example, the decentralized exchange Raydium saw 172,440 active addresses in just one week, while the NFT marketplace Magic Eden attracted 167,930 addresses during the same period. Despite this, when comparing Solana’s network activity to competing chains, its recent performance has been less than optimal.

In the week leading up to February 21st, the volumes of DApps on the Solana network totaled $813 million, significantly lower than Polygon’s $2.9 billion and BNB Chain’s $5.2 billion. In fact, Solana was the only blockchain among the top seven to not experience volume growth during this period. While the number of active addresses on Solana grew by 5%, competitors Ethereum and BNB Chain saw gains of 14% and 27% respectively.

On a positive note, the total value locked (TVL) on the Solana network, which measures the amount of SOL deposited on DApps, reached 37.7 million on February 17th, its highest level since November 2022. This represents a 13.5% increase compared to the previous month, indicating an overall increase in demand for SOL, regardless of the expectation for airdrops. The staking rate of SOL in the native validating process reached 67.3% on February 21st. An increased TVL and staking rate suggest less short-term sell pressure, with holders seeming unaffected by the recent price correction.

Another reason for optimism among Solana investors is the partnership with Filecoin, a decentralized storage solution. This integration addresses the issue of historical data availability, as the records exceed 250 terabytes of storage. Previously, Google Cloud’s BigQuery platform was used, which did not align with the values of some DApps users and developers.

When considering the active users and volumes, it becomes harder to justify Solana’s $44.6 billion market capitalization compared to competitors like Polygon and Arbitrum. Polygon has a market cap of $8.8 billion, while Arbitrum stands at just $2.3 billion. This data may not necessarily indicate further price corrections for SOL, but it does reduce the incentive for bullish buyers to maintain levels above $100.