- Solana’s generation of high blockchain fees might not guarantee a price rally
- Negative netflows and a decline in active addresses dampened SOL’s potential for an upside
Over the past week, Solana has struggled to make any significant move in the market, with the asset falling by just under 3% on the charts. Despite the altcoin gaining slightly in the last 24 hours, the uptick had little impact of SOL’s fortunes.
In fact, further analysis suggested that the asset is likely to continue following its downtrend from the previous week.
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, AMBCrypto’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.
