In 2021, Solana (SOL) skilled substantial progress as a result of advocacy of Sam Bankman-Fried (SBF), a outstanding determine within the blockchain business. This entrepreneur’s efforts successfully elevated the altcoin’s visibility, contributing to its success.
Whereas Solana has a number of enticing options, together with a scalable and developer-friendly community, different Ethereum (ETH) rivals possess these qualities as nicely. Regardless of this, Solana has managed to differentiate itself and garner the next degree of recognition.
The influence of Sam Bankman-Fried (SBF) on Solana (SOL) was vital, to the extent that the altcoin was sometimes called “Sam’s cryptocurrency.” Sadly, when SBF’s fortunes took a turn in 2022, the SOL token skilled a dramatic drop, dropping 60% of its market capitalization inside per week. This decline was additional exacerbated by the suspension of tasks on the Solana community.
Moreover, by the tip of the 12 months, Solana’s blockchain had not demonstrated noteworthy progress by way of switch and cost volumes or asset storage, resulting in a lack of competitiveness in comparison with networks like BNB Chain and Polygon (MATIC).
Given these challenges in its historical past, Solana has been criticized as one of the vital overvalued networks aimed on the decentralized software market, as indicated by a examine cited by Twitter profile Solana Day by day.
Overvalued Solana
The metric used to evaluate the correlation between Solana’s market worth and its worth is MC/TVL, which stands for Market Capitalization divided by Whole Worth Locked. This metric is often used to guage the monetary efficiency and viability of decentralized finance (DeFi) tasks.
It goals to check the entire worth of property on the platform with the entire worth of property locked as collateral for decentralized monetary protocols. The next MC/TVL ratio implies the next diploma of utilization and belief within the DeFi platform. When a community’s MC/TVL exceeds 1.0, it suggests an overvaluation of the community, which may end up in a worth correction.
On the time of writing, Solana has a market capitalization of $8.8 billion. Nevertheless, information from DeFiLlama signifies that the Whole Worth Locked (TVL) on the Solana blockchain is $264.85 million. This ends in a MC/TVL ratio of 17.5, indicating a possible market correction for the altcoin.
However is that this trigger for concern?
It’s doubtless that Solana could expertise some correction within the close to future, which is widespread given its latest excessive valuation. Nevertheless, curiosity in cryptocurrencies continues to develop, as evidenced by the rising variety of energetic wallets interacting with decentralized exchanges this 12 months.
Moreover, Solana’s community has demonstrated reliability up till now, with no downtime and quick transactions, even with a low TVL and restricted NFT exercise. This stability, mixed with its sturdy potential, may place Solana as a big participant within the decentralized business, particularly if it might probably maintain tempo with its competitors, together with Ethereum’s rivals and Layer 2 tasks.
