Solana Faces Challenges Amid Market Fluctuations

According to Cointelegraph, Solana's native token, SOL, experienced a significant decline of 22.5% between January 6 and January 13, testing the $169 level for the first time in ten weeks. Although there was a subsequent 15% recovery by January 15, it was insufficient to push SOL above $200, raising concerns among traders about the impact of decreased decentralized application (DApp) activity on the Solana network, which may hinder a near-term return to $230. Despite leading in on-chain volume, Solana's network activity decreased by 10.3% between January 8 and January 15, as reported by DefiLlama. Notable negative performers included Raydium, which fell by 23.3%, and Orca, which declined by 2%. Conversely, Lifinity and Stabble saw increases in activity of 27.7% and 29.7%, respectively. In contrast, Ethereum experienced a 9% increase in on-chain volumes during the same period, with Arbitrum's activity rising by 20%. Ethereum's growth was driven by platforms like Curve Finance, Pendle, and Fluid, while Uniswap and Camelot were key contributors to Arbitrum's rise. Additionally, Aerodrome, the largest decentralized exchange on the Base network, reported a 14% volume increase. Evaluating DApp networks based solely on on-chain activity can be misleading, as some applications, such as lending, staking, gaming, and synthetic assets, do not rely on constant transactions. Therefore, monitoring trends in deposits, measured by total value locked (TVL) on each network, provides more accurate insights. Ethereum leads in this regard, while Solana remains firmly in second place. Despite a 5.9% monthly decline in TVL, Solana's performance reflects broader market challenges, with Ethereum experiencing an 18.1% drop in deposits. Solana's TVL decline was largely driven by Jito, down 14.1%, and Marinade, down 12%. On Ethereum, the downturn was led by Lido and EigenLayer’s staking solutions. Consequently, the drop in Solana's TVL should not be a major concern. Beyond on-chain metrics, Solana investors remain hopeful for a potential spot exchange-traded fund (ETF) approval in the United States. Under the leadership of Gary Gensler, the current US Securities and Exchange Commission has taken an anti-crypto stance, so investors expect a greater chance of Solana's spot ETF approval once President-elect Donald Trump assumes office. Solana's lead over competitors boosts its chances for SOL to exceed $230. A self-proclaimed quant trader, tri_sigma_, noted on X that $1.5 billion of USD Coin (USDC) stablecoin was minted on Solana’s network in just 15 days, highlighting the network’s low fees attracting both users and institutions. While cross-chain USDC transfers still face challenges on Solana, the overall network infrastructure shows promising growth. As long as Solana maintains its lead over direct competitors like BNB Chain and Tron, there remains a chance for SOL to break above $230 in the near term. Regardless of the potential approval of a Solana spot ETF, the strong inflows from memecoin launches and trading demonstrate SOL’s ability to benefit from a new wave of market entrants.