2022 has not been a good start for cryptocurrencies. So far, the total market value is down 21% to $1.77 trillion. Solana’s (SOL) correction was even tighter, providing a 48.5% year-to-date correction.
Solana (blue) vs Ether (orange), Avax (purple), GDP (yellow). Source: Trading View
Solana tops the list of unlocked stakes with $35 billion, representing 74% of all SOL tokens in circulation. Several reasons for poor performance can be identified, including four network outages in late 2021 and early 2022.
The latest incident on January 7th was related to a distributed denial of service (DDoS) attack, in which the Solana Lab developers updated the code and thus rejected this type of request.
However, investors are more worried about the centralization caused by the cost of being Solana’s auditor. To achieve a lock time of 400ms, the recommended hardware includes a 12-core 2.8GHz processor, 256GB of memory, 1TB of high-speed SSDs, and a low-latency Internet connection.
DApp usage is declining
DApp Solana’s core calculations began showing weakness in early November after the total value of the Locked Network (TVL) began to rise to $15 billion.
The total cost of the blocked Solana network, USD. Source: Defillama
The chart above shows how Solana’s DApp deposits fell 50% in three months as the index reached its lowest level since September 8th. In comparison, TVL Phantom is currently worth $9.5 billion after doubling in three months. Terra, another competitor for DApp scaling solutions, increased TVL by 87% to $23.2 billion.
On the other hand, on February 21, FTX.US, the US division of global cryptocurrency derivatives and FTX spot exchange, announced a new blockchain gaming console. Also worth noting is that Solana Ventures partnered with FTX and Lightspeed Venture on Nov. 5 to launch a $100 million fund dedicated to the sector.
To confirm whether this TVL drop is a concern, the DApp usage calculations need to be analyzed. Some DApps are not financially viable, so the added value doesn’t matter.
Solana DApps online data for 30 days. Source: DappRadar
As data from DappRadar shows, the number of Solana network addresses that interacted with DApps on January 28th decreased by an average of 18%. The only positive change was Solend, the account lending protocol.
Decreasing interest in DApps Solana has also been reflected in open interest in futures, which peaked at $2 billion on Nov. 6 and has recently undergone a sharp correction.
The gaming sector can be a surprising factor
While Solana has suffered the most compared to similar smart contract platforms, the network is heavily used in the NFT (non-perishable token) markets, as measured by 178,820 Magic Eden addresses that have been active over the past 30 days.
In addition, Solana Ventures’ investment in the gaming sector could further increase the computing power of the network. For example, games make up half of the top 10 dapps on every blockchain covered by DappRadar. This includes Splinterlands with 578,280 active games and Alien Worlds with 544,900 games.
The data above shows that Solana is losing ground to competing networks, but the owners are not worried since 74% of the coins are still in storage. As long as Solana Labs partnerships and investments continue to show potential, there is little reason to be concerned about SOL.