Solana (SOL) has recently become a central point of discussion among investors and analysts. After rising from less than $22 to a high of $210 in six months and currently trading at around $174, an increase of almost 700%, questions are being asked about the sustainability of the price rise.
Despite this impressive rise, SOL remains 50% off its all-time high of $260 from November 2021. The recent consolidation pattern over the past four weeks suggests a period of reflection. As the market looks to the future, it becomes crucial to understand the underlying fundamentals.
Jamie Coutts, Chief Crypto Analyst (CMT) at Real Vision, Remarks in an analysis: “Although Solana's outperformance has declined over the past month, it remains the best-performing network over the past 12-18 months by a mile. (…) Solana’s price adjustment appears abrupt but is aligned with fundamental indicators that suggest a stabilizing rather than decreasing value proposition,” explains Coutts.
Solana's fundamentals remain strong
Solana's daily active users (DAU) have increased dramatically, by more than 400% in the last nine months. This growth places Solana in a rarefied group of networks with more than 1 million DAUs. Although it did not reach its peak DAU in 2021, which may have been inflated by synthetic activities related to the FTX exchange, the nature of engagement on Solana has evolved.
“The ecosystem is maturing; the engagement we see today is fundamentally different: more diverse and significantly more integrated with real-world applications,” Coutts noted. He highlighted booming sectors contributing to this growth, including artificial intelligence, decentralized finance, consumer applications, and the burgeoning memecoin and NFT spaces.
With a significant retracement from its 2021 all-time high price, Solana's market capitalization has still managed to reach new highs this cycle, suggesting a broadening of the investment base and a recalibration of valuation. “The network value per user (NVU) ratio indicates that while asset appreciation is notable, it is user growth that is a compelling story for Solana,” notes Coutts.
Currently, Solana's NVU ratio hovers between 50 and 100, reflecting a balanced growth/value dynamic compared to other networks where speculative value often exceeds user growth.
One of Solana's biggest metrics this cycle has been its fee income, which grew sixfold over a nine-month period. Daily rates now average $1.8 million, a forty-fold increase. This increase is largely attributable to the growing use of the network in various applications.
“Fee income that does not reach its maximum is a misnomer; what is crucial is that the financial foundations of the network, evidenced by commission income, are stronger than ever,” stressed Coutts. He also compared Solana's fee income, which reached around 20% of Ethereum's in March, demonstrating its growing financial stature within the ecosystem.
Solana counters. Ethereum and future prospects
Although Solana still lags behind Ethereum in terms of total dApps, its economic indicators are robust. With 134 dApps, compared to Ethereum's 2,702, Solana's dApp cash flow intensity is second only to Ethereum, indicating high monetization capacity per application. “Solana’s smaller, more powerful suite of applications generates cost efficiencies that rival even the largest networks,” says Coutts.
Despite the speculative elements associated with memecoins and airdrops driving some of the trading volume, Solana's fee-adjusted growth metric isolates and highlights real economic activity. With a staggering real fee growth rate of 3,259.7%, Solana leads all networks in this metric.
“While some underlying activities may be transient, the intense and growing use of the Solana blockchain is undeniable evidence of its usefulness and viability,” concludes Coutts.
As Solana continues to develop and expand its ecosystem, fundamental analysis highlights a network that not only maintains strong health and economic vigor, but is also poised for future growth. This paints a picture of a blockchain platform that, despite market volatility, remains a leading player in the crypto landscape, supported by strong fundamentals and promising growth indicators.
At press time, SOL was trading at $173.47.
Featured image from Forbes India, chart from TradingView.com
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