On October 13, it was reported that Solana (SOL) had dropped about 5% in the previous 24 hours. It had dropped as low as $28.35 earlier that morning. Notably, it was the lowest price since June 13, when SOL fell to $28.19. The demise of Solana's SOL token has been relentless. Since August, the 'Ethereum Killer' has experienced a 29% correction. The smart contract network prioritizes low fees and high speed. However, the frequent outages highlight a problem with centralization.
Solana's network has gone down three times in 2022. The most recent was on September 30, for a total of five major outages. Occasionally, the network has struggled to process transactions without going completely offline.
A Solana validator stated earlier in October that the recent downtime was caused by a misconfigured node. This resulted in an unrecoverable network partition. According to a Twitter thread from the same validator, the downtime appeared to be caused by a validator that propagated an invalid block.
The thread revealed that the offending validator was running two instances, both of which produced a block. The production of blocks resulted in a fork that created an 'obscure code path where validators were unable to switch back to the heaviest (main) fork.' Simply put, Solana validators were on the incorrect fork.
The downtrend was accelerated on October 11. On that day, a leading decentralized finance application on the Solana Network was hacked for $116 million. Traders stole more than $110 million in cryptocurrencies from the network in mid-October by exploiting a flaw in the decentralized finance (DeFi) trading platform Mango Markets. The funds were then used to obtain a $116 million loan using several platform tokens, including Bitcoin, Solana, and Serum (SRM).
It's difficult to pinpoint the exact cause of Solana's price drop. However, it's clear that centralization issues, a decrease in DApp use on the network, and fading interest from derivatives traders all played a role.
Solana's primary decentralized application metric began to show signs of weakness in early November. Total value locked (TVL) on the network, which measures the amount deposited in smart contracts, fell to its lowest level since September 2021, at 30.4 million SOL.
Hsaka, a trader and Crypto Twitter influencer, recently expressed concern about the firm suppressing SOLs price even after bullish catalysts emerged. Hsaka's theory could explain the rather unusual steady demand for leverage shorts as well as the negative basis rate. The arbitrage and market-making firm could have reduced its exposure by using derivatives instruments rather than selling SOL on the open market.
According to data from October 19, the number of Solana network addresses interacting with decentralized applications has decreased in 13 of the top 20 DApps. The decreased interest was mirrored in SOL's futures markets.
Solana's developers, including the founding team at Solana Labs, have rolled out a number of network upgrades in recent months in an attempt to stabilize the network. There are no signs that short sellers using SOL futures instruments are nearing liquidation or exhaustion, so their advantage will remain until the broader cryptocurrency market shows signs of strengthening.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.