January plummeted by 40%, is the "King of Retail Investors" Solana done for?

Author: Tuo Luo Finance

When it comes to the most eye-catching public chain in this bull market, Solana, jokingly referred to as the "machine room chain," undoubtedly takes the lead. The heavy blow from FTX became the soil for Solana's rebirth. With outstanding performance and precise positioning, SOL rode the wave of MEME to create a rare growth miracle, soaring from $8 to over $290, leaving the market astonished. Active participants, active funds, and active projects constitute a vibrant ecosystem, and the slogan of surpassing Ethereum frequently appears in discussions about Solana.

However, recently, the performance of the "king of retail investors" has been somewhat disappointing. Over the past month, the price of SOL has dropped from a high of $295.83 to the current price of $169, with a maximum decline of over 45%, nearly halving. The sluggish price, the cooling of MEME, and the contrast between unlocked tokens and the bustling crowd at the SOL conference create a stark picture.

This raises the question: Is Solana viable or not?

In terms of price alone, the sluggish performance of SOL is mainly attributed to two direct factors: MEME and token unlocking. Previously, SOL had successfully risen as a major on-chain casino thanks to MEME, but the recent MEME circle has left the market somewhat disappointed.

The root cause lies in the explosive popularity of celebrity coins, such as Trump Coin, Melania Coin, and the Argentina president-related LIBRA, which have continuously emerged. Celebrities leveraging their influence to harvest has made the already liquidity-scarce market feel overwhelmed. In terms of price performance, Trump Coin has dropped 76% from its peak, with 800,000 people standing guard at the top, while MELANIA has seen a decline of 90%. The less influential LIBRA has plummeted by an astonishing 92%, nearly reaching zero, with nearly 30% of large holders buying at high prices, and over 70,000 addresses being harvested.

The low threshold for token issuance, with presidents choosing their own MEME between Bitcoin and Ethereum, has undoubtedly shattered the market's confidence in liquidity injection. This sentiment cannot be expressed to the project parties but is directly reflected in the infrastructure, especially considering the controversies surrounding Jupiter and Meteora in LIBRA, Solana has also suffered unwarranted misfortune.

Of course, Solana is not entirely innocent. Since it became a MEME casino, various institutions, bots, and market makers have profited billions of dollars through MEME on Solana. According to statistics from DeFiLlama founder 0xngmi, total profits range between $3.6 billion and $6.6 billion, with MEV (Maximum Extractable Value) accounting for $1.5 billion to $2 billion, trading bots and applications $1.09 billion, automated market makers between $0 to $2 billion, Trump-related insiders $500 million to $1 billion, and the Pump.fun platform has also made a fortune, earning $492 million.

MEME on Solana has become a cash cow for high-frequency traders, arbitrageurs, and insiders. As the market gradually cools, many have chosen a more straightforward way to resist—simply quitting. According to crypto analyst Ali's monitoring, the number of active addresses on the Solana chain has significantly decreased from 18.5 million in November 2023 to the current 8.4 million, a decline of 54.6%. According to Nansen's data, the number of active addresses on February 18 was only 5.17 million, a 30-day drop of 22.37%.

With fewer people, the price of the coin is naturally affected, not to mention that even Bitcoin is currently in a half-dead Schrödinger state. However, to drop 40% in a month and become the worst-performing token among the top 30 by market capitalization, the impact of just the MEME market is not enough.

Token unlocking has become another mountain looming over SOL. As early as last month, anonymous crypto commentator artchick.eth shared the token unlocking timeline for Solana in 2025 on social media, mentioning that Solana's current token inflation rate is 4.715%. However, in the next three months (February to April), over 15 million SOL tokens worth more than $7 billion will enter circulation. And on March 1, the largest unlocking will occur, with 11.2 million SOL tokens worth approximately $2.06 billion being unlocked.

SOL Unlocking Timeline, Source: artchick.eth

To trace the source of this unlocking, we must return to FTX. As part of the bankruptcy proceedings, FTX liquidated 41 million SOL in three auctions, with the largest buyer being Galaxy Digital, which acquired 25.52 million SOL at a price of $64 per token, accounting for 62.24% of the total. The second-largest buyer was Pantera, whose buying consortium purchased 13.67 million SOL at a price of $95 per token, yielding a return of 93%. Other buyers acquired 1.8 million SOL at a price of $102 per token.

The unlocking on March 1 is indeed part of the liquidation of SOL. The only good news is that FTX began repaying debts on February 18, and Kraken has completed the first fund distribution for the FTX estate, compensating over 46,000 creditors. Creditors are happy, but SOL holders are somewhat anxious.

In the current not-so-good market, the large unlocking of SOL is bound to be seen as selling pressure, thus undermining investor confidence. Crypto trader RunnerXBT bluntly stated that now is a "dangerous" time to buy Solana. He also emphasized that once the SOL unlocking occurs, companies like Galaxy, Pantera, and Figure will extract unrealized gains of $3 billion, $1 billion, and $150 million, respectively.

With external turmoil and internal instability, the market quickly took action. Besides selling off to convert to stable assets, shorting became the only option. Not only did the total open interest and funding rates diverge, but the long-short ratio also showed a significant disparity. With the increase in open interest and funding rates turning negative, the current long-short ratio is 4:1, and most positions were added after SOL dropped to $190, indicating that new buyers are highly bearish. Trading data has also shown a significant contraction, with Solana's on-chain activity plummeting from a peak daily trading volume of $35.5 billion on January 17 to $3.1 billion on February 17.

Against this backdrop, SOL has indeed declined, dropping from $290 on January 19 to a low of $160, a 45% decrease in January, which is not an exaggeration to describe as a dramatic fall. Is the "king of retail investors," Solana, about to fall?

Interestingly, at the recent Consensus Conference, the Side Event hosted by Solana was still bustling with activity. Some represent attention, and attention in the crypto circle means capital flow, contrasting sharply with the activities of inscriptions and NFTs, where once-popular concepts now have only a few participants.

In this regard, most industry insiders still seem to show considerable interest in Solana. Ultimately, despite the complaints, the Solana ecosystem remains relatively robust. Looking at its ecosystem, it encompasses payment, DeFi, LSD, Meme, gaming, NFT, and DePIN fields, with many star projects clustered together. In terms of total TVL, Solana TVL has reached $8.24 billion. Although the gap compared to Ethereum's $57.3 billion is vast, it has successfully risen from obscurity in 2023 to the second position among public chains, accounting for 7.72% of the total TVL. It is worth mentioning that in the past two weeks, influenced by the unlocking, Solana's TVL has dropped by 19%, with Jito, Kamino, Marinade Finance, and Sanctum experiencing rapid outflows.

A single-chain can return to its peak from below $10, and aside from the so-called technical and positioning advantages, the power of capital is the true invisible hand. Strong Western capital such as A16z, Multicoin, Galaxy, and Pantera provides strong backing, allowing Solana to thrive in many payment fields. In previous institutional predictions for 2025, there was no exception in expressing high confidence in SOL.

Returning to the fundamentals, aside from the gradually declining MEME being difficult to repair, the impact of token unlocking remains relatively controllable in the short term. This unlocking has already begun to occur gradually since early February, and the market has long anticipated it. The upcoming unlocking only accounts for 2.31% of the total supply and market value. Compared to the current spot trading volume of around $3.6 billion in 24 hours, the selling pressure is not strong. Of course, if the capital parties choose to sell a large amount in the market at once, SOL will undoubtedly face a sharp decline. However, for personal profit considerations, capital parties are unlikely to choose this method and will often control the frequency of sales. Even if they do sell a large amount at once, they will likely opt for over-the-counter (OTC) transactions to minimize market impact and maximize personal interests. However, it is not entirely optimistic; aside from the unlocking on March 1, there will be more selling pressure later this year.

From a positive news perspective, there will still be a wave of speculation around SOL ETFs. Currently, five institutions have submitted applications for SOL's spot ETF: Grayscale, Bitwise, VanEck, 21Shares, and Canary Capital. Although last year's SOL ETF failed, with the new regulatory bodies in place, SOL ETF has seen a glimmer of hope. The SEC has already accepted the 19b-4 application for the Grayscale Solana ETF, with the most recent approval date being March 30. However, according to standard procedures, the SEC usually continues to postpone the acceptance of applications, with the maximum time frame being 240 days. Given that the securities nature of SOL has been explicitly named, subsequent approvals still need to be observed. In terms of possibilities, Litecoin and Dogecoin have a relatively higher probability of approval, but regardless, as long as the ETF is still under review, the narrative will not cease.

On the other hand, this does not mean that Solana is without problems. Looking at the current structure, although DeFi and DePin are also hot, Solana indeed heavily relies on the MEME ecosystem. According to data released by Messari for the fourth quarter of 2024, Solana's application revenue surged from $268 million in the third quarter to $840 million in the fourth quarter, a staggering growth of 213%, primarily attributed to MEME. Among them, Pump.fun generated revenue of $235 million in the fourth quarter, while the DeFi trading terminal Photon and decentralized exchange Raydium recorded revenues of $140 million and $74 million, respectively.

Objectively speaking, although MEME has indeed become an enduring narrative segment in crypto with long-term effects, ultimately, the frenzy of MEME still stems from the industry's ongoing downturn. In other words, MEME is more like a lottery effect in the crypto market, a wealth-seeking behavior of betting small to win big. The MEME cycle is, in fact, a temporary product under the backdrop of insufficient liquidity. However, the market has grown weary of VC-style profiteering, and despite seemingly fair launches, MEME rushes, insider trading, and market manipulation are also prevalent. This high-frequency, wave-like harvesting has, to some extent, severely damaged the industry ecosystem. Taking LIBRA as an example, the team behind it even attempted to establish contact with the Nigerian president, which suggests that perhaps presidential tokens could soon be everywhere, making scarcity a moot point.

In this context, Solana's high dependence on MEME is bound to fluctuate with MEME. The recent fallout from LIBRA has led to market anger directed at Jupiter and Meteora, as well as a blow to SOL, which confirms this point. As market speculation is suppressed, the associated SOL is also inevitably affected. Coupled with the critical expectations of unlocking and selling pressure, SOL continues to decline.

Indeed, at this stage, Solana remains one of the public chains with the most active funds in the market. Emotional outbursts are unlikely to last long, and the capital-backed Solana is still "building." However, in a crypto market filled with FUD, the time left for SOL may not be as long as one might imagine.