Solana’s native token, SOL (SOL), experienced an impressive 22% increase on November 10, breaking $54 for the first time since May 2022. This increase occurred particularly against the background of the continuous sale of SOL tokens by the insolvency estate of FTX. The Delaware bankruptcy court approved the sale of the failed exchange’s assets, including 55.75 million SOL, in September 2023.
Investors’ excitement over SOL’s price rise can be attributed to the fact that some of the tokens from the bankruptcy process are either vested or locked. Additionally, there is a weekly sales limit of $100 million as part of the FTX liquidation plan. Essentially, the initial fear of asset liquidation has turned into hope as investors realize the limited impact of the sales.
FTX has sold between $250,000 and $700,000 SOL every day for the past two weeks, while the price has either risen or gone sideways.
So far it has been absorbed like a champ and at the current rate their unlocked tokens should be depleted within a week.
Once this seller is gone I can… pic.twitter.com/AtnTqz3uxG
— Bluntz (@Bluntz_Capital) November 9, 2023
As trader and independent analyst Bluntz aptly described the situation, SOL’s resilience during the FTX bankruptcy token dump is impressive. The post on X (formerly Twitter) adds a bullish argument for SOL, saying:
“Once this seller is gone, I can only imagine how hard it will pump.”
SOL price was boosted by solid demand for leveraged long positions
SOL’s significant weekly gains of 39% have pushed futures open interest to $745 million, the highest level since November 2021, when SOL hit its all-time high of $260. However, in futures markets, leveraged long and short positions are constantly aligning, so it is important to examine SOL’s funding rate for a more nuanced perspective.
A positive funding rate means that long positions (buyers) require more leverage, while the opposite is true when short positions (sellers) require additional leverage, resulting in a negative funding rate.
Average funding rate for SOL futures, 8 hours. Source: CoinGlass
SOL’s current futures funding rate represents a weekly cost of 0.5% for leveraged longs, which is not exaggerated given the prevailing bullish momentum. However, this is a significant shift from the funding rate levels seen three weeks earlier when leverage shorts paid to use leverage.
While one could argue that derivatives markets have primarily driven SOL’s rally, there is solid evidence pointing to growth in deposits and the use of decentralized applications (DApps) within the Solana ecosystem.
Beyond derivatives, Solana’s ecosystem is showing solid growth
Solana’s Total Value Locked (TVL), which measures the amount deposited in its smart contracts, has reversed its bearish trend after six consecutive weeks.
The total value of the Solana network is fixed in SOL terms. Source: DefiLlama
Solana’s DApps deposits have increased by 10% in the last three days. While the current level of 11.1 million SOL is still below the 30 million SOL before the FTX exchange went bankrupt, this recent trend suggests that the worst of times for the Solana network may be behind us.
To confirm that this movement is not just being driven by a few large holders driving up TVL, it is important to analyze the number of users using active addresses as proxies.
Total active DeFi address in 30 days. Source: DappRadar
Solana is now the fourth largest blockchain in decentralized finance (DeFi) TVL, accompanied by a 28 percent growth in the number of active addresses. Interestingly, this increase in activity has come while competitors have seen declines, with market leader Ethereum suffering a 22% decline in active DeFi users, according to DappRadar.
Related: 3 theses that will drive Ethereum and Bitcoin in the next bull market
On the one hand, SOL token bulls benefit from increased network activity and higher TVL. On the other hand, Solana’s current market cap of $22.8 billion has surpassed Polygon’s $7.8 billion by almost three times, despite both networks having comparable DeFi TVL. This has caused investors to question the sustainability of SOL’s uptrend above $54.
Additionally, the Solana protocol’s 30-day cumulative fees were $1.9 million, compared to $1.6 million for Polygon, according to DefiLlama. However, these numbers pale in comparison to BNB Chain’s $9.1 million, casting doubt on its valuation following SOL’s recent rally.
There is currently no obvious reason to bet against the trend as excessive leverage demand is not observed in SOL derivatives contracts. Still, fundamentals suggest that room for further upside is limited.
This article is for general information purposes and is not intended to constitute, and should not be construed as, legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
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