Daniel, Jan 2022
Solana is a decentralized blockchain network designed by Solana Labs to be fast, scalable, and secure, and launched in 2020.
Solana gained significant attention in 2020 and 2021 due to its fast transaction speeds and low transaction fees, which made it attractive for decentralized finance (DeFi) applications and other high-throughput use cases. Additionally, Solana’s use of proof-of-history (PoH) as a consensus mechanism, which allows it to achieve high transaction speeds without sacrificing security, was seen as an innovative and promising development in the blockchain space. It soon gained momentum in GameFi, too, with the popularity of the move-to-earn app STEPN.
However, as the macroeconomic outlook turned negative and put significant strain on DeFi and GameFi, Solana has been in an especially precarious position in the market. For those researching blockchain and looking beyond the bear market, here are 10 reasons Solana won’t survive.
1. Solana has 0.7% market share among the top 10 chains by TVL
As of Jan. 8, Solana was the 10th largest chain by TVL, below Cronos and above Mixin. One year ago, Solana was the 5th largest chain by TVL.
*Source: Footprint Analytics — *Total Value Locked All Chains
2. The TVL of Solana has collapsed by 96% YoY
The TVL of Solana collapsed by 96% from Jan. 4 2022 to 2023. TVL, or Total Value Locked, refers to the total value of assets that are locked in a particular protocol or system. In the context of blockchain, TVL is often used to measure the size and activity of decentralized finance (DeFi) protocols.
TVL can be a useful metric for comparing different blockchain protocols or ecosystems because it provides a sense of the amount of value that is being actively used within a particular system. A higher TVL can indicate that a particular protocol or ecosystem is more popular or actively used, while a lower TVL may suggest that it is less popular or used.
*Source: Footprint Analytics — *SOL-TVL
3. Almost all of Solana’s value is in the DeFi sector
As of Jan. 8, 52% of Solana’s active projects were DeFi projects and 37% were NFT projects. Note that diversification is a challenge for several chains, including Tron, which has all of its value in DeFi as well. On the other hand, more sustainable chains like BSC and Ethereum have more TVL and transactions in GameFi and NFT sectors.
Source: Footprint Analytics — Percentage of protocol categories
4. Yield projects on Solana have been almost entirely wiped out
At the beginning of 2022, yield and staking projects had a TVL of roughly $4.5B on Solana. At the beginning of 2023, that figure was just $130M. Yield farming and staking projects are an important part of the DeFi ecosystem because they allow users to earn passive income on their cryptocurrency holdings without having to sell them. This is particularly appealing in a bear market, when selling cryptocurrency may not be a desirable option, and will provide an alternative to traditional financial instruments or CeFi once markets reverse. Hence the wipeout does not bode well for Solana.
*Source: Footprint Analytics — *Solana TVL by Category 2022
5. Once the most promising project on Solana, STEPN’s protocol token GST crashed by 99.9 percent in 2022
All GameFi tokens collapsed significantly, but STEPN’s in-game inflationary token had a particularly precipitous drop. By comparison, the in-game token of Splinterlands (SPS) fell by 97.5% from 0.8 to 0.02. ILV, Illuvium’s token, fell by 97.9% from $1,846 to $38.
*Source: Footprint Analytics — *GST Price
6. As of the start of 2023, SOL was down about 96% from it’s ATL
While many tokens had significant price decreases, this is a worryingly large decrease. By comparison, ETH was down 75% from ATL on January 1st, AVAX was 91.5% down, and MATIC 72%. A sharp decrease in the price of a particular cryptocurrency can be a sign of increased risk for holders of that currency. When the price of a cryptocurrency falls significantly, it can be a sign that market demand for the coin is decreasing or that there are negative developments related to the coin or the broader market.
*Source: Footprint Analytics — *SOL Price
7. Magic Eden, the marketplace for Solana NFTs, had just $19M in trading volume in January
This was 76% less than the trading volume of OpenSea, 54% less than X2Y2 and 20% less than LooksRare. It is also worth noting that the NFT ecosystem on Solana may be in the early stages of development and may grow in popularity over time.
*Source: Footprint Analytics — *Magic Eden Trading Volume
8. By the end of 2022, Polygon overtook Solana for the number of NFT transactions
Solana has performed quite strongly for this metric for most of 2022, even overtaking Ethereum for several months. However, Polygon has recently started gaining ground. Combined with the relative stability of Ethereum and MATIC compared to both the Solana network and SOL, this could increase during the bear market.
*Source: Footprint Analytics — *NFT Transactions by Chain 2022
9. Marinade Finance has roughly 40% percent of Solana’s total TVL
Marinade Finance is a culinary-themed liquid staking protocol. While there is nothing wrong with the protocol, it is worrisome that Solana currently lacks major protocols approaching the stature of AAVE or LIDO, lasting GameFi projects, or highly anticipated titles or projects.
*Source: Footprint Analytics — *Market Share of Solana Protocols
This piece is contributed by Footprint Analytics community.
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