The last thirty days have been extremely bearish for cryptocurrencies. The overall market capitalization of the sector fell 33% to $ 1.31 trillion, while the fall of Solana (SOL) was even sharper. At the time of writing, SOL has made a 50% correction and is trading at $ 51.
The network aims to overcome the scalability problem of the Ethereum blockchain by incorporating a proof-of-history (PoH) mechanism into a proof-of-promise (PoS) blockchain. With PoH, Solana delegates a central node to determine transaction time that the entire network can agree on.
The low fares offered by the Solana network are attractive to developers and users, but network outages often continue to call into question the issue of centralization and are probably feared by some investors.
It seems too simplistic to attribute the underperformance exclusively to the 30 April 7am network outage and does not explain why the decoupling started a month earlier. According to Solana Labs, the problem was caused by robots that initiated multiple transactions on Metaplex, a non-mixed signal (NFT) market built on Solana.
The volume of transactions exceeded six million seconds per peak, overflowing individual nodes and as a result, validators lost data memory, resulting in loss of consensus and network disruption.
To alleviate the problem, the developers introduced three measures: a change to the data transfer protocol, the processing of weighted transactions in bets, and “ fee-based execution priority “.
TVL and the number of active addresses fell
Decentralized app Solana’s key metric began showing signs of weakness in early November after the network’s Total Locked Value (TVL), which measures the amount deposited in its smart contracts, failed to exceed levels above 60 million SOL keep repeating.
However, the 50% price correction has other factors besides just a decrease in TVL. To determine whether DApps usage has declined, investors should also analyze the number of active addresses within the ecosystem.
May 18 data from DappRadar shows a decrease in the number of Solana network addresses interacting with the top seven decentralized applications, except for the Orca DEX exchange. The reduced interest in Solana DApps was also reflected in SOL futures markets.
The chart above shows how Solana’s futures open interest fell 22% in the past month to the current $ 510 million. This is of particular concern because a smaller number of futures contracts could reduce the activity of arbitration desks and market makers.
Things could be even worse for SOL
It is probably impossible to find the exact cause of Solana’s price fall, but this decline was due in part to factors that contributed to centralized issues following network outages, reduced use of network DApps, and declining interest from derivatives traders.
The data reviewed in this article suggest that Solana holders should not expect a price refund anytime soon, because network health metrics are still under pressure. There is no doubt that Solana Labs is working to reduce its reliance on network collectors, but at the same time, investors are trying to avoid centralized projects.
If sentiment improves, there should be an influx of deposits, increasing TVL Solana and the number of active launches. As long as these indicators continue to deteriorate, there is no way to predict a price floor for SOL.
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