Solana's TVL Hits Near Yearly High—Can SOL Price Keep Up?

The surge in Solana's total value locked (TVL) is impressive, but will it be enough to drive SOL's price to new heights?

Solana's native token, SOL, has been struggling to break through the $150 resistance level since August 12. Despite this, network metrics for Solana show promising signs of strength. The total value locked (TVL) in Solana's decentralized applications (DApps) has surged, reaching its highest level since October 2022. This growth has led traders and investors to question whether these improved network fundamentals are sufficient to push SOL's price back to $190, or if there are other factors holding it back.

Diminished Prospects for a Spot Solana ETF in the US

One of the primary reasons for the lack of bullish sentiment among investors is the recent decision by Cboe Global Markets to remove the 19b-4 forms for spot Solana exchange-traded funds (ETFs) from its website on August 16. This move has led some market participants, including finance lawyer Scott Johnsson, to believe that the United States Securities and Exchange Commission (SEC) has informally rejected the Solana ETF, aligning with SEC Chair Gary Gensler's earlier stance.

Bloomberg’s senior ETF analyst Eric Balchunas also expressed skepticism, noting that while the S-1 filings from ETF issuers remain active, the chances of approval are slim. The only hope for approval might lie in a potential change in the current SEC administration if Donald Trump wins the US presidential election. As a result, investor optimism regarding the potential launch of a spot Solana ETF has waned, reducing the immediate impact of Solana’s improving network metrics on its price.

Mixed Sentiments in the Market

Crypto trader and investor CoinMamba pointed out that Solana’s appeal has decreased as Ethereum's average transaction fees have dropped to around $1, a level not seen since July 2020. Other blockchains are also gaining traction, especially with the launch of memecoins, which has been a significant driver of demand for the SOL token.

CoinMamba further suggested that Solana needs to “find a new narrative” to reignite interest and drive SOL’s price higher. However, this perspective may overlook some key developments. For instance, PayPal USD (PYUSD), a stablecoin issued on the Solana network, reached $620 million in issuance despite being launched less than three months ago in May 2024.

Moreover, several projects are still being actively developed on Solana, many of which are backed by million-dollar funding rounds from experienced venture capitalists. Examples include Colosseum, a company managing Solana’s hackathon programs after securing $60 million to accelerate ecosystem growth, and the Decentralized Autonomous Wireless Network (DAWN), a decentralized broadband initiative that recently raised $18 million.

Solana's TVL Growth and Its Implications

While success is never guaranteed, the growth of the Solana ecosystem is undeniable. The increasing total value locked (TVL) on the network suggests that there is still room for SOL’s price to improve. On August 22, Solana network DApps collectively held 34.9 million SOL, the highest level since October 2022, representing a 13.7% increase from the previous month.

Notable highlights from the past 30 days include the decentralized exchange Jupiter, which reached a TVL of $1.06 billion, and Kamino, a lending and leverage platform currently holding $1.48 billion in deposits. In USD terms, Solana's TVL stands at $5 billion, surpassing its closest competitor, BNB Chain, which holds $4.5 billion.

However, it's essential to note that while TVL growth is generally a positive sign, it doesn’t necessarily indicate an increase in user numbers or activity. Most DApps do not require a substantial deposit base to function effectively. The number of unique active addresses interacting with those applications remains the most reliable indicator for gauging the actual number of users.

Over the past 30 days, half of Solana’s top DApps experienced a decline in user numbers, with most of the growth concentrated on Raydium and a recently launched high-risk decentralized finance platform. In contrast, some projects that previously garnered attention, such as Helio, Solend, and Marginfi, saw fewer than 50,000 active addresses each. Therefore, Solana’s TVL growth alone may not be enough to trigger a short-term SOL price rally to $190 or higher.

photo source / Blockonome