Reasons Why Solana (SOL) Price Dropped by Nearly 50%

    The past thirty days have been a dark period for cryptos as the total market dropped by nearly 34% to $1.28 trillion. Among those, Solana (SOL) is one of the most affected projects when down up to 50%.

    Solana was created to overcome the scalability problem of Ethereum by incorporating the Proof-of-History (PoH) mechanism into the Proof-of-Stake (PoS) blockchain. With PoH, it authorizes a central node to determine the transaction time that the entire network can accept. 

    The low fees offered by Solana have attracted developers as well as users, but frequent network errors have raised suspicions about Solana’s centralization. 

    Most recently, the 7-hour network error on April 30 was considered to be the result of Solano’s underperformance, which explains why the Decoupling process started earlier a month. According to Solana Labs, the reason for this problem comes from bots that have performed too many transactions on Metaplex, an NFT marketplace built on Solana.

    Transaction volumes exceeding 6 million per second during peak periods overloaded individual nodes and caused validators to run out of memory, resulting in out-of-sync and network disruptions.

    To mitigate this problem, Solana team came up with a three-step solution: changing the data transfer protocol, dealing with stake-based transactions, and prioritizing fee-based transaction execution.

    TVL and active addresses

    Solana’s main dApps have shown signs of weakness since November after the network’s TVL, which measures the number of funds deposited in smart contracts, failed to sustain above 60 million SOL.

    Solana TVL. Source: Defi Llama

    However, SOL dropping 50% in price has other reasons than just TVL. To consider the effectiveness of using dApps, investors also analyze the number of active addresses in the ecosystem.

    Solano dApps on-chain data. Source: DappRadar

    Data from DappRadar on May 18 shows that exception of the DEX Orca exchange, the number of Solana network addresses interacting with the top 7 dApps has plunged. 

    Solana’s OI. Source: Coinglass

    The above chart shows that Solana’s open interest (OI) has dropped 22% over the past month, to $510 million.

    The information in this article suggests that SOL holders should not expect prices to rise soon as indicators of the network have yet to improve. Solana Labs has been working to reduce the network’s reliance on validators, but at the same time, investors are avoiding centralized projects.

    Disclaimer: This article is for reference purposes only, not investment advice. Investors should have deep research before making a decision. We are not responsible for your investment decisions.

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