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In 2021, Solana (SOL) experienced substantial growth due to the advocacy of Sam Bankman-Fried (SBF), a prominent figure in the blockchain industry. This entrepreneur's efforts effectively elevated the altcoin's visibility, contributing to its success.
While Solana has several attractive features, including a scalable and developer-friendly network, other Ethereum (ETH) competitors possess these qualities as well. Despite this, Solana has managed to distinguish itself and garner a higher level of recognition.
The impact of Sam Bankman-Fried (SBF) on Solana (SOL) was significant, to the extent that the altcoin was often referred to as "Sam's cryptocurrency." Unfortunately, when SBF's fortunes took a turn in 2022, the SOL token experienced a dramatic drop, losing 60% of its market capitalization within a week. This decline was further exacerbated by the suspension of projects on the Solana network.
Furthermore, by the end of the year, Solana's blockchain had not demonstrated noteworthy progress in terms of transfer and payment volumes or asset storage, leading to a loss of competitiveness compared to networks like BNB Chain and Polygon (MATIC).
Given these challenges in its history, Solana has been criticized as one of the most overvalued networks aimed at the decentralized application market, as indicated by a study cited by Twitter profile Solana Daily.
Overvalued Solana
The metric used to assess the correlation between Solana's market price and its value is MC/TVL, which stands for Market Capitalization divided by Total Value Locked. This metric is commonly used to evaluate the financial performance and viability of decentralized finance (DeFi) projects.
It aims to compare the total value of assets on the platform with the total value of assets locked as collateral for decentralized financial protocols. A higher MC/TVL ratio implies a higher degree of utilization and trust in the DeFi platform. When a network's MC/TVL exceeds 1.0, it suggests an overvaluation of the network, which can result in a price correction.
At the time of writing, Solana has a market capitalization of $8.8 billion. However, data from DeFiLlama indicates that the Total Value Locked (TVL) on the Solana blockchain is $264.85 million. This results in a MC/TVL ratio of 17.5, indicating a potential market correction for the altcoin.
But is this cause for concern?
It is likely that Solana may experience some correction in the near future, which is common given its recent high valuation. However, interest in cryptocurrencies continues to grow, as evidenced by the increasing number of active wallets interacting with decentralized exchanges this year.
Additionally, Solana's network has demonstrated reliability up until now, with no downtime and fast transactions, even with a low TVL and limited NFT activity. This stability, combined with its strong potential, could position Solana as a significant player in the decentralized industry, especially if it can keep pace with its competition, including Ethereum's competitors and Layer 2 projects.
Alex Dovbnya
Gamza Khanzadaev
Denys Serhiichuk
