The price of Solana’s SOL (SOL) recently experienced a 20% gain. However, it is important to determine whether this rally is merely a result of a correlation with Bitcoin (BTC) or if there are other factors at play. Prior to this price breakout, SOL faced a turbulent period following the approval of a U.S. court for the sale of $1.3 billion in SOL from the bankrupt exchange FTX.
To prevent the liquidation of FTX assets from burdening the crypto market, the bankruptcy court implemented measures that would require the sale to occur through an investment adviser in weekly batches, following preestablished rules. The initial impact of the FTX bankruptcy led to a decline in SOL’s price, hitting a two-month low of $17.34 on September 11. However, the cryptocurrency showed signs of recovery as it regained the $20 support on September 29. This recovery coincided with a successful upgrade to version 1.16, resulting in a 16% increase in SOL’s price over the next seven days.
Increased Usage of DApps and NFTs
Solana’s rally was further supported by the growth in decentralized applications (DApps) usage and non-fungible token (NFT) volumes on the network. In order to analyze the success of networks focused on DApp execution, it is crucial to prioritize the number of active users. In this regard, Solana outperformed Ethereum during the same period, with active addresses engaging with DApps exceeding 55,230. This rise in activity extended across all sectors, including NFT marketplaces, decentralized finance, collectibles, social platforms, and gaming.
Solana has gained traction in the NFT market due to its cost-efficient and scalable solution. By compressing and storing data off-chain, Solana enables creators to produce larger quantities of NFTs at lower minting fees. This, in turn, allows creators to reach wider audiences. Recent data shows that the Solana network surpassed Polygon in NFT sales, accumulating $6.8 million in value over the past seven days. However, it is worth noting that in September, Solana’s NFT sales amounted to $23.9 million, while Polygon achieved $31 million in sales.
One potential driver behind SOL’s recent price gains was the network upgrade to version 1.16 on September 28. This upgrade introduced a “gate system” to ensure the gradual activation of new features on the network, ensuring network stability and preventing issues caused by sudden changes. Additionally, the update included “confidential transfers” that utilize zero-knowledge proofs to encrypt transaction details, enhancing user privacy. Other improvements introduced in this update include enhancements in RAM usage for validators, resizable data accounts, and a mechanism to identify corrupted data. Overall, this update significantly enhances efficiency, privacy, and security on the Solana blockchain.
Despite Solana’s progress in terms of privacy, scaling, and security, it faces stiff competition from other blockchain networks, particularly Ethereum layer-2 solutions. In terms of total value locked (TVL) and activity, Ethereum’s layer-2 solutions, such as Arbitrum and Optimism, have gained more traction. Arbitrum holds $1.73 billion in TVL, while Optimism holds $637 million. In comparison, Solana’s TVL is at $326 million, indicating that Ethereum’s ecosystem still dominates in terms of developers and consolidated decentralized applications.
Final Thoughts
Although Solana’s recent price rally is promising, it is crucial to carefully consider the factors driving this rally. While the FTX bankruptcy drama and the network upgrade to version 1.16 have certainly played a role, competition from other blockchain networks, particularly Ethereum, and external factors cannot be overlooked. As investors continue to focus on the Ethereum ecosystem, Solana must demonstrate sustained growth, adoption, and innovation to solidify its position in the highly competitive cryptocurrency market.
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