Solana’s native token SOL (SOL) experienced a remarkable 16% surge between July 25 and July 29, reaching a four-month high of $193.92. However, the $190 resistance proved stronger than expected, triggering an 8% correction that brought it back down to the current $179 level.
Despite this short-term slowdown, SOL prices rose 23.5% in July, but some traders are concerned that the downtrend is just beginning.
Is the Mimecoin Rally a Sustainable Path for Solana Network Growth?
To determine if there is a possibility of further correction in the SOL price, it is important to analyze whether the recent outperformance is justified. Is it based on fundamentals, hype, or easily inflated indicators? For example, investors had high hopes for the approval of SOL’s ETF (exchange-traded fund) after Ether (ETH) products were approved for trading in the US on July 22. The US Securities and Exchange Commission (SEC) has set a deadline of March 2025 for the SOL ETF ruling.
At a Bitcoin conference in Nashville on July 25, BlackRock’s head of digital assets said there was “very little interest today” in the client base beyond Bitcoin and Ethereum. The sentiment is not unanimous, with asset manager Franklin Templeton offering a very bullish view on the SOL ETF, based on “mass adoption” and successful overcoming of “technical growing pains.” While it may be too early to bet on the outcome of the SEC’s decision, traders’ anticipation explains part of SOL’s recent rally.
Memecoin, in particular, has driven the growth of trading volume and revenue on the Solana network, using incentivized liquidity and trading platforms such as Pump.fun. The platform promises a way to easily and instantly launch tradable tokens using a “fair launch” method, with no pre-sales, team allocations, automated market making, or incentivized burn mechanisms.
According to DefiLlama, Pump.fun fees totaled $25.8 million over the past 30 days, surpassing the $24.4 million paid to miners by Bitcoin protocols over the same period. Additionally, according to DappRadar data, the number of unique addresses participating in Pump.fun reached an impressive 219,070 over the past week, while PancakeSwap on BNB Chain had 118,750 users and Uniswap on Ethereum had 132,010 users over the same period.
Investors question Solana’s heavy reliance on memecoins, including Dogwifhat (WIF), Bonk (BONK), Book of Meme (BOME), and Cat in a Dog’s World (MEW). However, these criticisms overlook Solana’s SPL tokens, such as Jupiter (JUP), Lido DAO (LDO), Helium (HNT), and Raydium (RAY), which demonstrate the network’s benefits based on validators that require significantly more technology to support a high-power base layer.
Solana Stagnant TVL and excessive power of validators pose risks.
Other concerns about Solana may have investors reconsidering whether the $190 SOL price is justified. According to DefiLlama data, the network’s total locked value (TVL) has been stagnant around 30.5 million SOL for the past two weeks after peaking at 32.1 million SOL on July 5, the highest level since October 2022. Competitors like Ethereum are facing similar issues, with the current 18 million ETH TVL having been flat since July 14. Additionally, BNB Chain’s TVL has stagnated at 8.5 million Binance Coin (BNB) over the same period.
Finally, there is a valid critique of the maximum extractable value (MEV) issue affecting the Solana network. Validators can profit by including, reordering, or excluding transactions when creating new blocks. Competing chains face similar issues, but according to Flip Research’s X article, Solana “does not have a built-in memory pool,” forcing players to use “infrastructure outside the protocol.”
Related: SEC Drops Claims in Binance Lawsuit That SOL, ADA, MATIC and Other Tokens Are Securities
The Flip Research article argues that Solana decentralized application metrics are “significantly overstated” because “the majority of tokens traded are highly volatile and low-liquidity Mimecoins,” creating a “juicy attack surface for MEV to extract value.” The article concludes that “the majority of organic users are losing money on-chain to bad actors at a rapid rate,” which seems unsustainable.
While it may be premature to consider SOL “fundamentally overvalued” as the research article argues, traders currently in profit are likely to reconsider their positions given the plethora of uncertainty surrounding the network’s growth potential.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.