- Solana’s native token, SOL, faces resistance near $190 due to policy changes eliminating the burn rate on priority transactions, potentially increasing inflation, and the overshadowing impact of Ethereum’s ETF approval.
- Additionally, Solana’s network activity remains stagnant, with minimal growth in decentralized application volumes and a decline in active users.
Solana’s native token, SOL, has seen a notable increase in value, experiencing a 5% rise from $161 on May 26 to $171 on May 27. This upward movement generated optimism among investors, especially since SOL had previously hit $188.90 on May 21. However, the path to sustained growth appears challenging, as several factors contribute to the resistance near the $190 mark.
Changes in Transaction Fee Policy
A significant development influencing SOL’s price is the approval of the SIMD-0096 proposal by Solana’s validators. This proposal eliminates the 50% burn rate on priority transactions, reallocating all transaction fees to block producers. This policy change, effective from epoch 621, aims to incentivize validators to enhance network security and efficiency instead of engaging in profit-driven transaction reordering.
Maximal extractable value (MEV) plays a critical role here, referring to the profits validators earn by selecting the order of transactions within a block. This mechanism often leads to higher costs for regular users in decentralized finance (DeFi) applications. While the proposal is designed to motivate validators, it may inadvertently increase SOL’s inflation rate. Laine, a Solana staking validator, warns that the effective inflation rate could rise to approximately 9.9% annually.
Impact of Ethereum ETF Approval
Another significant factor affecting SOL’s recent price movement is the approval of an Ether (ETH) exchange-traded fund (ETF) by the SEC on May 23. This event boosted ETH’s price to $3,975 on May 27, nearing its peak of $4,090 for 2024. Analyst ‘gumshoe’ suggests that the market’s focus on this “once in a lifetime bull catalyst” for Ether led to a bearish outlook on SOL. Despite this, SOL has still achieved a year-to-date gain of 69%, closely trailing Ether’s 72% increase.
Stagnant Network Activity
Despite the policy changes and market reactions, Solana’s network activity has shown little growth. Over the past week, Solana’s decentralized application (DApp) volumes increased by only 5%, significantly underperforming compared to Ethereum’s 52% rise and BNB Chain’s 22% increase. Additionally, Solana saw a 6% decline in unique active addresses, contrasted with a 4% decrease for Ethereum and a 25% increase for BNB Chain. Notably, Raydium, Solana’s second-largest decentralized exchange, experienced a 16% drop in users, while its NFT marketplace Magic Eden saw a 22% decline.
The combined effects of the new transaction fee policy and the overshadowing impact of Ethereum’s ETF approval have contributed to SOL’s recent price fluctuations. Coupled with stagnant network activity, these factors make it unlikely for SOL to reclaim its previous high of $188.90 in the near future. Investors and stakeholders will need to closely monitor these dynamics to gauge Solana’s potential for recovery and sustained growth.
