What caused SOL to fall 17% in five days?

By Marcel Pechman, CoinTelegraph; Compiled by Tao Zhu, Golden Finance

Solana’s native token, SOL, fell 17% between February 14 and February 18 and is currently trading near $164. The drop coincided with the launch of the Libra memecoin, which was also participated by Argentine President Javier Milei. The price of Libra plummeted 83% after early investors sold their tokens.

However, it would be an oversimplification to blame SOL’s $18 billion market value drop entirely on the memecoin’s pump and dump, especially considering that Solana’s decentralized finance (DeFi) applications had already seen a decline in trading volume and deposits before the main token was unlocked. Additionally, memecoins roughly followed SOL’s price action, undermining the argument that the sector was the primary driver.

4-hour price of SOL/USD vs. Solana memecoins. Source: TradingView / Cointelegraph

While memecoin was not directly responsible for the drop in SOL’s price, traders’ interest in decentralized exchanges and new project launches declined.The decline in participants and reduced on-chain activity negatively impacted SOL’s price, as demand for its native cryptocurrency is driven by the use of decentralized applications (DApps).

Daily DEX volume on Solana (USD). Source: DefiLlama

After reaching a peak daily volume of $35.5 billion on January 17, Solana’s on-chain volume dropped sharply to $3.1 billion on February 17. The surge was initially driven by hype around the official Trump (TRUMP) memecoin, which reached a market cap of $15 billion after U.S. President Donald Trump publicly endorsed it.

While Solana’s DEX volume fell 20% week-over-week, some competitors saw different results. For example, BNB Chain rose 35% over the past week, surpassing Solana to become the market leader. Major contributors included Thena, which doubled its volume, Uniswap, which grew 61%, and DODO, which surged 53% between February 10 and February 17.

Solana TVL fell 19% in two weeks before the massive SOL unlock

Deposits on Solana decentralized applications (DApps) also underperformed competitors, measured by total locked value (TVL). It’s worth noting that this metric is largely uncorrelated with memecoin trading and token issuance, as liquidity staking, perpetual contracts, and yield platforms dominate the composition of TVL.

Solana network total value locked (TVL), USD. Source: DefiLlama

Deposits on Solana DApps fell 19% in two weeks, mainly due to net outflows from Jito, Kamino, Marinade Finance, and Sanctum. During this period, only a few projects were able to increase their total value locked (TVL), such as liquidity provision application Meteora and cross-margin perpetual futures DEX Drift.

In contrast, Ethereum’s TVL fell 2% during the same period, while BNB Chain grew 8%. Standout performers on BNB Chain include lending platform Venus and re-staking platform Kernel. If the launch of the Libra memecoin was the main reason for SOL’s recent underperformance, one would expect the event to have a greater impact on Solana’s on-chain metrics.However, this is not the case.

Another reason for SOL holders to worry is the large unlocking plan for Q1 2025. According to reports, over 15 million SOL (worth over $2.5 billion) are expected to enter the circulating supply during this period. While this event was not a surprise to investors, it was 12 times the amount of SOL unlocked in the previous quarter.

Ultimately, SOL’s underperformance can be attributed to a drop in on-chain transaction activity and a decline in DApps’ TVL, a trend that was already evident in the weeks leading up to the launch of the Libra memecoin on February 14.

Furthermore, the impending unlocking of a large amount of SOL fueled the FUD needed to create bearish sentiment, pushing the price of SOL to its lowest level since November 2024.