Solana’s High Fee Generation May Not Indicate Price Recovery Amid Ongoing Seller Sentiment

• As market sentiment remains largely bearish, Solana (SOL) faces significant headwinds despite a rise in blockchain fee generation.

• Recent analytics show that while transaction fees have surged, the decline in active user engagement casts doubt on SOL’s price momentum.

• “High fee generation does not necessarily equate to a bullish market,” states a recent report from COINOTAG, emphasizing the complexities of market movements.

Explore the current challenges faced by Solana as high fee generation contrasts with declining user engagement, setting the stage for potential price pressures.

Solana’s fee generation hits a high – Good for SOL?

Solana has generated the highest fees in the market over the last 24 hours.

Data from Artemis revealed that $1.4 million in fees were generated from activity on the chain.

Source: Artemis

Typically, several factors contribute to fee generation, including the cost of transactions and the number of transactions on the network. However, COINOTAG’s analysis found that although fees increased, this hike was likely driven by selling activity based on netflows data.

In the last 24 hours, Solana’s chain netflows turned negative, placing the network among the top five chains with the highest number of withdrawals. These withdrawals suggested that more sellers were active in the market, accounting for $1.9 million worth of SOL being sold during that time.

This context helps clarify why Solana’s high fee generation isn’t necessarily a bullish signal.

Activity has weakened significantly

Additionally, on-chain data revealed that traders have become less engaged, as activity across the network has declined.

For example, in the last 24 hours, both the number of daily active addresses and the daily transaction count dropped noticeably. In fact, the number of daily active addresses plunged to 3.2 million. Such a drop could allude to several things.

Source: Artemis

It could mean that traders likely sold their Solana from the previous day and bridged to other networks.

It might also point to a broader decline in demand for SOL.

Source: TradingView

At the same time, the daily transaction count followed a similar path, falling to 97.3 million on the charts.

If this lack of demand persists, it could drive SOL even lower this week, potentially replicating 4 March’s downtrend.

Liquidity outflows from protocols

There has also been a noticeable outflow of liquidity from Solana-based protocols as the Total Value Locked (TVL) declined.

TVL measures the amount of staked SOL across protocols and serves as a valuation metric for the network’s ecosystem.

Source: DeFiLlama

At the time of writing, the TVL had plunged from its May high of $8.039 billion to $7.825 billion. This implied that during this period, $214 million worth of SOL was unlocked and redistributed into the market.

Such a large unlock puts additional pressure on SOL’s price by increasing supply and reducing demand.

SOL could face more downside in the days ahead if these liquidity outflows from protocols, coupled with the drop in trader activity, continue.

Conclusion

In conclusion, the recent high in Solana’s fee generation highlights a contrasting reality; rising operational metrics are overshadowed by declining user activity and negative netflows. The outlook for SOL remains precarious as liquidity outflows continue to exert downward pressure on the asset’s price. Stakeholders should remain vigilant as market conditions evolve.