Solana’s native token, SOL, dropped to $131.90 on February 25, marking its lowest point in five months. The sharp correction liquidated over $129 million in leveraged long positions. While SOL briefly rebounded to $140, it remains down 17% since February 22, underperforming the broader altcoin market, which has declined by 10%.
Declining Onchain Activity Signals Weak Demand
Several indicators suggest that Solana’s recovery may take longer than expected. Notably, decentralized exchange (DEX) volumes on the Solana network have dropped by 30% over the past week, hitting their lowest levels since October 2024.
Key Declines in Solana DEX Activity:
- Meteora: Down 48% in weekly volume
- Raydium: Dropped 28%
- Pump.fun Memecoin Launchpad: Declined 35%
Meanwhile, competing networks such as Ethereum and emerging Layer-1 blockchains have seen increased trading activity, further impacting Solana’s ecosystem.
More Than Just a Memecoin Slowdown
While some analysts blame Solana’s downturn on the fading memecoin hype, the decline has affected broader sectors like liquid staking, yield farming, gambling, NFT lending, and Web3 infrastructure. Key applications have seen a significant drop in user engagement:
- Jito: 49% decline in unique active addresses
- Fragmetic: 30% fewer users
- Save: 28% drop in activity
Staking Yields and Inflation Create Further Headwinds
Solana’s staking yield currently sits at 9.5%, but when adjusted for inflation, net returns are much lower. With 16.1 million SOL set to be unlocked between February and May 2024, the annualized inflation rate stands at 10%, effectively eroding staking rewards.
Derivatives Markets Show Bearish Sentiment
Traders’ confidence in SOL has weakened, with demand for leveraged long positions hitting a 12-month low. Futures contracts, which typically trade at a premium, have entered backwardation—indicating an increased preference for short positions.
Key Derivatives Market Trends:
- Open interest: Dropped 8.5% in 24 hours
- Futures demand: SOL contracts now trade at a discount to spot prices
- ETF expectations: Uncertainty surrounding a potential spot Solana ETF approval in the U.S.
Final Thoughts: A Slow Road to Recovery?
Solana faces multiple challenges, including declining onchain activity, inflationary pressure, weak derivatives demand, and fading hopes for an ETF approval. While the broader crypto market may see a rebound, SOL could take longer to regain its bullish momentum.
