What drove Solana’s 11% surge?

Author: Krisztian Sandor, James Van Straten, CoinDesk; Compiler: Tao Zhu, Golden Finance

Summary

• Solana’s SOL outperformed Ethereum (ETH) and Bitcoin (BTC) on Thursday.

• The latest meme coin trend, promoted by artificial intelligence agents and investment tokens, is centered mainly on Solana.

• Open interest in Solana futures has increased by nearly 3 million SOL, or $506 million, over the past four days.

While the broader cryptocurrency market has been consolidating after a rapid rise from early October lows, Solana (SOL) has been rising relative to the largest cryptocurrencies.

SOL was the best performing asset in the broad market CoinDesk 20 index over the past week, rising 11%, while nearly all other cryptocurrencies fell.

SOL hit a new all-time high against first-layer network Ethereum on Tuesday, surpassing the 0.064 level first hit in August, TradingView data showed.

Meanwhile, SOL also showed relative strength against bitcoin, reaching its highest price relative to BTC in more than two months.

BTC and ETH price performance (CoinDesk Index)

Such price movements coincide with a resurgence in memecoin speculation, a sharp increase in network revenue and an increase in bullish bets in the cryptocurrency derivatives market.

Solana Activity Booms on Memecoin Frenzy

Solana has benefited greatly from the renewed speculative frenzy surrounding memecoins, with much of the activity centered around Solana-based decentralized finance (DeFi) protocols. The latest trend or fad in artificial intelligence (AI) memecoins is also largely based on the Solana network.

A prime example is the Goatseus Maximus (GOAT) token, which has surged from zero to over $600 million in market cap in just two weeks, as a Marc Andreessen-funded AI bot called Truth Terminal heavily promoted it on social media. The token was created on October 10 by an anonymous developer using Pump.fun and endorsed by Truth Terminal.

“Thus, the intersection of AI, memecoins, and cryptocurrencies has created a whole new story,” David Zimmerman, DeFi analyst at K33 Research, wrote in a report on Wednesday. “AI memecoins have gained widespread attention over the past two weeks, with many tokens now valued at over $100 million.”

The memecoin frenzy has pushed blockchain activity on Solana to new highs. Token Terminal showed that network revenue from transaction fees exceeded $4 million per day on Tuesday, approaching the March record and a tenfold increase from the low in early September. Meanwhile, on-chain active users rose to a record high, breaking through 8 million.

Solana On-Chain Activity Soars (Token Terminal)

Higher revenues have also curbed the token’s inflation, with more than 15% of newly issued tokens now destroyed or burned, according to Blockworks.

Open Interest Soars

Open interest in the SOL futures market climbed to more than 18 million SOL, or $3.09 billion, the highest level in notional value since January 2023, CoinGlass shows. In the last four days alone, open interest has increased by nearly $3 million SOL, worth $506 million.

Open interest refers to unsettled futures bets or the total amount of money allocated in open futures contracts. It is one of the best ways to determine if new money is entering the market. It can be measured in native token terms, such as solana (SOL) notional value. The native token is the preferred denominator because notional value is affected by whether the asset price rises or falls. A spike in leverage can cause volatility in the market, and if prices start to move in one direction, we may see a large number of short or long liquidations.

The annualized funding rate for perpetual contracts, which measures the price that longs must pay short traders to keep their perpetual futures positions open, is 10%, which shows that most bets are long in anticipation of prices climbing.