Solana (SOL) has recently become the focus of discussion among investors and analysts. After rising from $22 to a high of $210 in six months, and currently trading at $174—a nearly 700% gain—questions arise about the sustainability of its price rally.
Despite the impressive increase, SOL is 50% shy of the November 2021 all-time high of $260. The recent consolidation pattern over the past four weeks suggests a cooling period. As the market looks ahead, it becomes important to understand the fundamentals.
Jamie Coutts, Principal Crypto Analyst (CMT) at Real Vision, notes In an analysis, “Although Solana’s outperformance fell last month, it is still the best-performing network in the last 12-18 months by a country mile. […] Solana’s price adjustment appears sudden but is aligned with fundamental indicators that suggest a stabilization rather than a dilution of the value proposition,” explains Coutts.
Solana fundamentals remain strong
Solana’s daily active users (DAUs) have grown dramatically, over 400% in the past nine months. This growth puts Solana in the rare group of networks with more than 1 million DAUs. Despite not reaching the 2021 peak DAUs inflated by synthetic activity linked to the FTX exchange, the nature of engagement on Solana has evolved.
“The ecosystem is maturing; The engagement we see today is fundamentally different—more diverse and significantly more integrated with real-world applications,” commented Coutts. He highlighted growing areas contributing to this growth, including artificial intelligence, decentralized finance, consumer applications and the growing memecoin and NFT space.
With a significant retracement from the 2021 peak, Solana’s market capitalization still managed to hit new highs this cycle, suggesting a broad basis for investment and valuation recalibration. “The network value to user (NVU) ratio suggests that while asset appreciation is significant, it is user growth that provides a compelling story for Solana,” notes Coates.
Currently, Solana’s NVU ratio fluctuates between 50-100, reflecting a balanced growth-to-value dynamic compared to other networks where speculative value often outpaces user growth.
One of the standout metrics for Solana this cycle has been its fee revenue, which has grown sixfold in nine months. Daily fees now average $1.8 million, a forty-fold increase. This growth is mainly attributed to the increasing use of networks in various applications.
It is a misnomer that fee income does not peak; What’s important is that the network’s financial base – highlighted by fee income – is stronger than ever,” Coutts emphasized. He compared Solana’s fee income, which reached about 20% of Ethereum’s in March, to the increasing financial position in the ecosystem.
Solana Vs. Ethereum and its future outlook
While Solana is still behind Ethereum in terms of total dApps, its financial indicators are strong. With 134 dApps, compared to Ethereum’s 2,702, Solana’s dApp cash flow intensity is second only to Ethereum, indicating higher revenue potential per application. “Solana’s smaller, more powerful set of applications is driving financial performance that rivals even the largest networks,” says Cotts.
While the speculative element associated with MemeCoins and Airdrops drives part of the transaction volume, Solana’s Adjusted Fee Growth metric isolates and highlights real economic activity. Solana leads all networks in this metric, with an astounding actual fee increase of 3,259.7%.
“Some underlying activity may be ephemeral, but the intense and growing use of Solana’s blockchain is indisputable proof of its utility and viability,” Coutts concluded.
As Solana continues to develop and expand its ecosystem, fundamental analysis underscores a network that not only maintains strong health and financial vitality, but is also poised for future growth. It paints a picture of a blockchain platform that, despite market volatility, is a leading player in the crypto landscape, backed by strong fundamentals and promising growth metrics.
At press time, SOL traded at $173.47.