Sol Rally Toward $100 Fizzles As Solana Competitors Rise

Key takeaways:

• SOL derivatives signal bearish sentiment as funding rates hit 0% and put (sell) options trade at a premium.

• While Solana leads in DEX volume, it faces stiff competition from Hyperliquid in the perpetual contracts sector.

Solana’s native token SOL (SOL) faced a 3-day 11% decline after peaking at $97.70 on Monday. Thursday’s move down to $87 triggered $25 million in leveraged long positions being liquidated, negatively impacting trader sentiment. SOL derivatives currently point to fear of further downside and a lack of conviction from bulls, increasing the odds of retesting the $80 level.

The SOL perpetual futures annualized funding rate stood near 0% on Thursday, signaling a lack of demand for longs. Bears have dominated leverage demand for the past month, which is highly unusual for crypto markets as traders are historically optimistic. Moreover, the mere cost of capital and exchange risks usually drive the funding rate near 9% under neutral conditions.

SOL options markets confirm that professional traders are not comfortable that the $87 level will hold for long.

The delta skew (put-call) jumped to 12% on Thursday, meaning put options traded at a premium relative to equivalent call instruments. Whales and market makers are not comfortable holding downside price exposure, even as SOL trades 70% below its all-time high. Part of this bearishness can be explained by weaker demand for the decentralized applications (DApps) industry.

Solana DApps revenue dropped to its lowest level in 18 months at $22 million, down from $36 million two months prior. The issue is not exclusive to Solana, as DApps revenue declined by 52% on BNB Chain over the same period, but increased competition in perpetual contracts trading is somewhat concerning as Hyperliquid dominates the industry.

While Solana remains the undisputed leader in decentralized exchange (DEX) volumes, driven by Pump, Raydium and Orca, the situation in synthetic derivatives is reversed. Blockchains specifically designed to handle perpetual contracts trading, such as Hyperliquid, Edgex, Zklighter and Aster, handle more than 80% of the total volume.

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Weak onchain data and bearish derivatives delay SOL price recovery

The launch of an officially licensed S&P 500 Index perpetual futures contract on Hyperliquid has likely contributed to the weaker demand for SOL. The product offer, available for eligible users based outside of the United States, was developed by Trade[XYZ] and adds to the aggregate tokenized equities markets nearing $1.1 billion in assets.

SOL’s current $51 billion market capitalization represents a 42% discount relative to competitor BNB (BNB) at $88 billion. However, the Solana network’s total value locked (TVL) stood at $6.9 billion, while BNB Chain held $5.7 billion in TVL. More importantly, Solana’s 30-day network fees totaled $20.8 million, while BNB Chain had $9.1 million in fees, according to DefiLlama data.

Multiple companies that opted for a digital asset treasury strategy focused on SOL, such as Forward Industries (FWDI US) and DeFi Development Corp. (DFDV US) are underwater in their holdings, adding to the negative sentiment. Ultimately, the weakness in Solana onchain activity and lack of enthusiasm in derivatives markets hint that a bull run above $110 will take longer than anticipated.