The last eighty days have been moderately bearish for cryptocurrencies, as the altcoin market capitalization declined by 16%. The downward movement can be explained in part by the quantitative tightening of the US Federal Reserve, the increase in interest rates and the suspension of asset purchases. Although aimed at curbing inflationary pressure, the policy also increases borrowing costs for consumers and businesses.
Solana’s (SOL) drop has been even more brutal, with the altcoin facing a 29% correction since August. The smart contract network focuses on low fees and speed, but frequent outages highlight a centralization issue.
Solana price/USD (blue) vs. altcoin capitalization (orange). Source: TradingView
The latest mishap occurred on September 30 after a misconfigured validator halted blockchain transactions. A duplicate node instance caused the network to fork, as the remaining nodes could not agree on the correct version of the chain.
Solana co-founder Anatoly Yakovenko recently took a chance on Firedancer, a scaling solution developed by Jump Crypto in partnership with the Solana Foundation. Dubbed the long-term solution to the network outage problem, the mechanism should be ready for testing in the coming months.
On Oct. 11, Mango Markets, the Solana-based decentralized finance exchange, was hit by an exploit worth more than $115 million. The attacker successfully manipulated the collateral value of MNGO’s native token, obtaining “mass loans” from the Mango treasury.
Solana’s TVL and the number of active addresses have been reduced
The main metric for the Solana decentralized app started to show weakness in early November. The network’s total value locked (TVL), which measures the amount deposited in its smart contracts, hit its lowest level since September 2021 at 30.4 million SOL.
Solana Network Total Blocked Value, SOL. Source: Defi Llama
There are other factors that influence the decrease in value and TVL of Solana. To confirm whether DApp usage has indeed decreased, investors should also look at the number of active addresses within the ecosystem.
Solana DApps 30 day on-chain data. Source: DappRadar
Data from October 19 from DappRadar shows that the number of Solana network addresses interacting with decentralized applications decreased in 13 of the top 20 DApps. The reduced interest was also reflected in the SOL futures markets.
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Fixed-month contracts typically trade at a slight premium in spot markets because investors demand more money to retain settlement. Anytime this indicator fades or turns negative, it is an alarming bearish red flag indicating a situation known as a pullback.
Solana 3-month futures on an annualized basis. Source: Laevitas.ch
The chart above shows how Solana futures have been trading at a 7% discount compared to the current spot price. This data is worrying as it indicates a lack of interest from leveraged buyers.
SOL will continue to underperform until you change these metrics
It’s hard to pin down the exact reason for Solana’s price drop, but it’s clear that centralization issues, a decline in network DApp usage, and fading interest from derivatives traders no doubt played a role.
If sentiment changes, there should be an inflow of deposits, increasing Solana’s TVL and the number of active addresses. Consequently, the above data suggests that Solana holders should not expect a price rebound anytime soon as network health metrics remain under pressure.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
This post 3 key Solana metrics explain exactly why the SOL price is down
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