Solana TVL is falling, but will SOL price react negatively?

Solana (SOL), the native token of the Solana network, surged 16.4% between September 18 and September 20, but then fell 6% to its current level of $143 after the $152 resistance level proved stronger than expected.

Investors are now questioning the cause of the SOL price weakness and whether recent fund outflows from Solana network deposits signal a potential retest of the $120 support level.

The decline in SOL prices is due to the Federal Reserve’s interest rate cut.

The recent SOL price rally follows a broader altcoin market rally that has gained 11% since September 18, spurred by the U.S. Federal Reserve’s decision to cut interest rates. This shift toward more accommodative monetary policy also fueled a rally in the S&P 500 index, which hit a record high on September 19.

However, the price rise of SOL appears to have been driven by macroeconomic factors rather than specific developments within the Solana ecosystem. Looking at the performance of SOL, the recent drop to $143 has outpaced the broader altcoin market correction. The lukewarm response from investors may be partly due to funds flowing out of the Solana network, as measured by Total Value Locked (TVL). Nevertheless, other indicators show solid activity, which may offset these outflows.

The TVL of Solana’s decentralized applications (DApps) decreased by 8.5% from 36.9 million SOL on September 18 to 33.8 million SOL on September 21. These withdrawals affected major platforms including Jito (staking solution), Kamino (lending and leverage platform), and Jupiter (decentralized exchange). It is noteworthy that this represents a reversal from the strong inflows in August.

However, Solana’s decline appears to be less concerning than other blockchains. For example, Ethereum (ETH) TVL fell 5% in ETH terms, while Avalanche (AVAX) deposits hit a six-week low in AVAX terms. Additionally, according to DefiLlama, Solana’s decentralized exchange volumes increased 19% in the seven days to September 23.

Positive trends in Solana Network DEX volume include Orca up 20%, Raidium up 28%, and Phoenix up 16%. Meanwhile, Ethereum’s most active DEX, Curve Finance, remained flat at $868 million in seven-day volume, while Tron’s SUN fell 12% to $415 million over the same period.

Solana on-chain metrics show solid growth in activity.

However, assessing network activity based solely on deposits and transaction volume may not provide the full picture, as many decentralized applications (DApps) do not require significant deposits. This includes areas such as collectibles, non-fungible token (NFT) marketplaces, social applications, gambling platforms, and Web3 infrastructure. As a result, analysts often track the number of active addresses as an indicator of user engagement.

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According to DefiLlama data, Solana led the market in 7-day active addresses. However, its 8% growth rate in this metric lagged behind Ethereum, which leads in total locked value (TVL). Solana’s low fees give it an advantage in terms of transaction costs, but it also comes at a relatively high inflation rate to cover the costs and investments borne by validators.

For context, Solana’s 7-day fee revenue reached $3.04 million, according to DefiLlama, compared to Ethereum’s $15.6 million and Tron’s $9.72 million over the same period. So despite the recent 8.5% drop in TVL, the increase in DEX volume and active addresses suggests that Solana investors have nothing to be overly concerned about. On-chain data does not indicate an imminent correction to $120.