Network activity has decreased and interest in memecoins has affected Solana's price, but derivatives data shows the decline is not significant.
The native token of Solana $SOL could not maintain levels above $200 after multiple rejections from December 25 to 26. This volatility aligns with the broader cryptocurrency market, which saw a 3.5% decline over two days ending December 27. However, SOL underperformed with a 5.1% adjustment, raising concerns among traders about the potential for further price declines.
A major source of concern is the network transaction volume of Solana, which has decreased by 30% over seven days.
Despite securing the second position in weekly trading volume with $20.9 billion, Solana still performed the worst among the top 10 blockchains. In comparison, Ethereum's on-chain trading volume decreased by 15%, while Sui fell by 8%. Furthermore, Ethereum's ecosystem has solidified its lead when considering layer 2 solutions like Arbitrum, Optimism, Base, and Polygon.
Weekly Dapp volume of Solana, USD. Source: DefiLlama
The weekly DApp volume of Solana, tracked by DefiLlama, also reflects a negative trend. Highlights include a 39% decrease in activity for Orca and Phoenix over seven days, while Raydium's activity dropped by 30%. More concerning, memecoins on Solana, which have been a significant draw for new users, have underperformed over 30 days. On-chain activity—including token launches, staking, and trading—remains a key driver of demand for SOL.
Among memecoins, Popcat decreased by 42% in 30 days as of December 27, Dogwifhat $WIF dropped by 40%, and $BONK fell by 25%. In contrast, the total cryptocurrency market capitalization remained flat during the same period.
Notably, this correction is not limited to Solana-based memecoins, but the recent success of Raydium is closely related to the memecoin pump.fun frenzy. These challenges highlight the importance of maintaining on-chain activity to sustain SOL demand.
The total deposits on the Solana network, measured by Total Value Locked (TVL), reached a two-year high of 44 million SOL. According to DefiLlama data, the 16% monthly increase is driven by platforms like Binance Staked SOL, Jupiter, Drift, and Orca. On the negative side, Jito, Sanctum, and MarginFi have seen a decline in deposits.
SOL futures contracts signal resilience despite the price decline.
To evaluate whether professional traders have turned bearish on SOL, the derivatives market provides critical insights. For instance, monthly futures contracts typically trade at an annual premium of 5% to 10% in a neutral market. This premium compensates sellers for the longer settlement time associated with these instruments.
The 3-month forward annual premium of SOL. Source: Laevitas.ch
Although lower than the 20% premium recorded on December 18, the current 10% premium is at the threshold of neutral to optimistic sentiment. Considering the 16% discount of SOL during the same period, the derivatives market has shown resilience.
To assess retail trader sentiment, analyzing SOL perpetual futures is essential. Exchanges manage risk through funding rates, becoming positive when buyers need more leverage and turning negative when sellers dominate.
The 8-hour funding rate of SOL futures. Source: Coinglass
In the past month, the SOL funding rate has remained below 0.015%—equivalent to 1.2% annually—indicating a neutral market. However, on December 27, this rate turned negative, signaling decreased demand from leveraged buying positions (buyers). This change is concerning, as SOL has dropped 30% from its all-time high of $264.50 on November 20.
The sharp decline in Solana's on-chain activity and decreased interest in memecoins suggest a moderately bearish outlook for SOL prices in the short term. Nevertheless, derivatives data indicates that whales and market makers remain optimistic, suggesting limited downside risk below $180.
