June 23, 2024

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Is Solana the crypto choice in this time of uncertainty?

Is Solana the crypto choice in this time of uncertainty?

The open interest of SOL futures contracts recently reached $1 billion and positions it as an investment option against other cryptocurrencies

Solana (SOL) reached an all-time high of $216 on September 9, after rising 508% since August. The bullish run has led some analysts to expect a target of $500, which would translate into a market capitalization of $150 billion.

Notably, during the SOL run, the average transaction fee for the Ethereum network exceeded $40. The growing interest in the market for NFT Accelerating investors’ transition to Solana, which was prompted by the launch of FTX’s NFT marketplace on September 6.

Solana, Avalanche and Cosmos Pricing on Binance. Source: TradingView

The chart above shows SOL’s performance for two months compared to Avalanche (Afax) and Cosmos (corn). Both are fighting for the same decentralized application user base and offer faster and cheaper transactions compared to Ethereum (ETH).

Some of the major players in the sector have also invested in the Solana ecosystem due to its potential against it Ethereum. in June, Andreessen Horowitz And Polychain Capital He led a $314 million funding round in Solana Labs, which was also funded by venture capital firm Andreessen Horowitz, Polychain Capital and Alameda Research.

Does Solana’s disruption affect the price of Solana?

In the Conference Salt 2021Founder and CEO of Solana, Anatoly Yakovenko, told Cointelegraph that the network is “optimized for a specific use case: the Central Online Limit Order Book (CLOB), a trading method used by exchanges that match bids with bids. It is designed for market makers who need to deliver millions of transactions a day.”

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Yakovenko added at the time: “There are Pareto efficiency trade-offs. If I improve hash power security, then I can’t get much TPS (transactions per second). You have to choose one or the other.”

Interestingly, on September 14, Solana’s network experienced an outage that lasted more than 12 hours. The team explained that a significant increase in transaction load, as high as 400,000 per second, overwhelmed the network, resulting in a denial of service that caused validators to start splitting.

Solana futures total open interest.  Source: Bybt.com

Solana futures total open interest. Source: Bybt.com

Despite the recent setback, Solana’s futures markets total open interest at $1 billion, an increase of 640% in two months. This figure makes Solana derivatives market the third largest after Bitcoin (BTC) and ether. This data confirms investor interest, but cannot be considered bullish because futures buyers (buy or buy positions) and sellers (short or short) are present at all times.

Derivatives markets indicate equilibrium

To answer this question, you have to analyze the financing rate. Perpetual contracts, also known as reverse swaps, have an implicit rate that is typically charged every eight hours. This rate ensures that there are no imbalances in exchange risk. A positive funding rate indicates that long positions (buyers) are claiming the most leverage.

However, the opposite situation occurs when the short positions (sellers) demand additional leverage, and this causes the financing rate to turn negative.

8-hour financing rate for Solana futures.  Source: Bybt.com

8-hour financing rate for Solana futures. Source: Bybt.com

As shown above, the eight-hour average peaked at 0.12% on September 5th, which equates to 2.5% weekly. This temporary rally was quickly curbed when SOL faced extreme volatility on September 7. After reaching $195, the SOL price fell 35% in 9 hours and liquidated the leveraged positions, resulting in the current equilibrium between long and short positions.

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The data does not show that investors are rushing to add long positions, despite the current open interest of $1 billion. Moreover, given the 410% gain in the past two months, traders have reason to fear further declines, as Bitcoin price has also failed to overcome the psychological $50,000 barrier yet to be confirmed. 40,000 was the bottom in the short term.

Source: Cointelegraph