After the meme craze, will Solana be the fragile house of cards?
author:Flip Research
Compiled by: Xiaobai Navigation coderworld
Lately my social media timelines have been filled with $SOL I started to believe that the meme coin supercycle is real and Solana will surpass Ethereum and become the main first layerBlockchain. But then I started digging into the data, and the results were worrying, to say the least… In this post, I’ll present my findings, and why Solana might be a house of cards.
First, let’s look at the bullish arguments, led by @alphawifhat To put it simply:
Explanation of the above picture:
Nachi: "I saw@BanklessHQ A recent show about $SOL mentioned that its price is 83% lower than $ETH. I am completely shocked by the mispricing of Solana relative to ETH, even though Solana is my largest holding.
Based on the second quarter’s performance, Solana’s numbers are as follows:
Integrated Kyle e/acc: “We almost never make specific forecasts, especially to our liquidity providers.
In our annual letter, we predicted that Solana would surpass Ethereum on most major on-chain metrics by the end of the year. We specifically pointed to transaction volume as the most important statistic.”
There are four clear claims regarding metrics with ETH and L2:
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A high proportion of user base
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Relatively higher costs
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High DEX trading volume
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Significantly higher proportion of stablecoin trading volume
User base comparison
Below is a comparison between the ETH mainnet and SOL (only comparing the mainnet, because the vast majority of fees come from this, source:@tokenterminal):
ETH user base + transaction volume
SOL User Base + Transaction Quantity
At first glance, these numbers look pretty good for SOL, with over 1.3 million daily active users (DAUs), while ETH only has 376,300 DAUs. However, when we take the number of transactions into account, I noticed something odd.
For example, on Friday, July 26, ETH had 1.1 million transactions, and ETH only had 376,300 DAUs, with users averaging about 2.92 transactions per day. However, SOL had 282.2 million transactions and 1.3 million DAUs.The average user makes 217 transactions per day.
I think this may be due to lower transaction fees, which allows more trades, more frequent position compounding, increased arbitrage bot activity, etc. Therefore I compared it to another popular chain, Arbitrum. However, Arbitrum's average user transaction volume on the same day was only 4.46. Looking at other chains also yielded similar results.
Given that the number of users is higher than ETH, I looked at Google Trends, which should be relatively unbiased about user value:
ETH is trending either equal to SOL or ahead of SOL. I shouldn’t have expected this given the difference in DAU and all the hype around the SOL meme coin trend. So what’s going on?
DEX Trading Volume Analysis
To understand the discrepancy in transaction numbers, looking at Raydium’s liquidity providers (LPs) can be instructive. Even at first glance, it’s clear that something is amiss:
At first I thought this was just a wash trade on low liquidity honeypot LPs to attract the occasional meme coin speculator, but looking at the chart, it’s far worse than that:
Each low liquidity pool is a project that has experienced a "pump" in the past 24 hours. Take MBGA as an example.In the past 24 hours,There were 46,000 transactions with a transaction volume of $10.8 million and 2,845 uniquewalletIn buying and selling, and incurred more than $28,000 in fees on Raydium. (Note that a legal LP of similar size,$MEW, only 11,200 transactions were generated)
View participatingwallet, most of which appear to be bots in the same network, making tens of thousands of trades. They independently generate fake trading volume, random SOL amounts, and random trade times until the project is pulled, and then move on to the next project.
On Raydium’s standard liquidity pool, there have been over 50 pumps in the past 24 hours, with over $2.5 million in volume, generating over $200 million in volume and over $500,000 in fees. Orca and Meteora have significantly fewer pumps, and I could hardly find any pumps with any substantial volume on Uniswap (ETH).
Clearly, there is a serious pump problem on Solana, which has multiple implications:
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Given the unusually high transaction-to-user ratio, and the number of on-chain wash trades and pumps, it seems likely that the vast majority of transactions are unnatural. On the main ETH L2, the highest daily transaction-to-user ratio is 15.0x, on Blast (where fees are similarly low and users are mining Blast S2). As a rough comparison,If we assume that the true SOL transaction-to-user ratio is similar to Blast, that means that over 93% transactions (and corresponding fees) on Solana are unnatural.
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These scams exist because they are profitable. Therefore, users lose a lot of money every day.At leastThis equates to millions of dollars in fees and transaction costs.
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Once deploying these scams becomes unprofitable (i.e. when actual users get tired of losing money), you’d expect most trading volume and fee revenue to decline.
Therefore, users, organic fees, and DEX trading volumes are all greatly exaggerated.
I am not the only one to come to these conclusions;@gphummer Similar content was recently posted:
gphummer.eth: “Some people calling themselves “researchers” are making a big fuss about SOL surpassing ETH in DEX volume. Let’s take a deeper look. The number is highly suspicious and suggests money laundering and fraud, which is not surprising for a chain that initially became popular with the help of SBF.”
Ryan Connor | BWR:“The most interesting and important milestone in the crypto market today –> Solana surpassed Ethereum in DEX volume over the past 30 days for the first time. From this perspective, it is now the most used chain.”
MEV on Solana
MEV on Solana has unique characteristics. Unlike Ethereum, Solana does not have a built-in transaction pool; instead, participants like @jito_sol created (now deprecated) extra-protocol infrastructure to simulate the functionality of a transaction pool, allowing MEV opportunities such as front-running, pincer attacks, etc. Helius Labs put together an articleIn-depth articles, which introduces MEV in detail.
The problem on Solana is that the vast majority of transactionsTokenThey are all meme coins with extremely high volatility and low liquidity. Traders usually set slippage of more than 10% to ensure successful execution of transactions. This provides a rich attack surface for MEV:
Ben:“在过去的 1-2 个月里，著名的三明治机器人 arsc 在 Solana 上获利超过 3000 万美元！他们的利润主要存放在以下两个wallet里。”
If we look at the profitability of block space, it’s clear that the majority of value now comes from MEV tips:
Dan Smith:“Solana generated $5.5M in total fees yesterday, the highest level in the past three months. 58% of value came from MEV tips and 37% from priority transaction fees. Most of the activity came from spot DEX trading.”
While this is strictly true value, MEV will only be carried out while it is profitable, i.e. as long as retail investors continue to participate and lose money on the meme. Once the meme starts to cool, MEV revenue will also collapse.
I see a lot of arguments about SOL mentioning that it will eventually turn to $JUP,$JTO This may be possible, but it is worth noting that their lower volatility and higher liquidity simply do not offer the same MEV opportunities.
Complex players are incentivized to build the best infrastructure to take advantage of this situation. In my research, some sources mentioned rumors that these players invest in controlling transaction pool space and then sell access to third parties. However, I was unable to verify this information.
However, there are some clearly distorted incentives at play - by moving as much meme coin activity as possible to SOL, this enables sophisticated individuals to continually profit from MEV, profit from insider trading of said memes, and profit from price increases in SOL.
Stablecoins
There is another oddity in terms of stablecoin trading volume and total locked value (TVL). Trading volume is significantly higher than ETH, but when we look at @DefiLlama’s stablecoin data, ETH’s stablecoin TVL is $80 billion, while SOL is only $3.2 billion.
I think stablecoin (and more broadly) TVL is a metric that is less susceptible to manipulation than volume and fees on low-fee platforms, and it shows the actual investment of participants.
This is highlighted by the dynamics of stablecoin trading volumes.@WazzCrypto noted that once the CFTC announced its investigation into Jump, trading volumes suddenly dropped:
Wazz“Since Jump was investigated by the CFTC, the graph of Solana stablecoin trading volume has actually flattened. It’s a big mystery what caused this.”
General value extraction
Scams and MEV aside, the outlook for the general market remains bleak. Celebrities have chosen Solana as their top choiceBlockchain,butresultNot ideal:
Slorg:“Jason Derulo’s coin is labeled DERULO instead of JASON, but the data does use the correct coin.” Andrew Tate's DADDY is the best performing celebrityToken, but the return rate is -73%. On the other end,The situation is just as bad:
Penn风と:"about $WIF, Ansem literally said that the main player should be the one chosen by the entire ecosystem. $NEIRO On , apparently already picked one, which has over 50 million in trading volume. This nasty guy then backed one on 2 million, talking about old projects being important, when in reality he just missed the main opportunity. This is what he gets after WIF, you guys need to stop worshipping this celebrity idol. "
On XQuick SearchIt also shows rampant insider trading and developer selling to buyers:
Lookonchain: "$Neiro of developers use only 3 $SOL(552 USD) earned 15,508 $SOL (2.85 million USD), a return rate of 5,169 times!
He spent 3 $SOL ($552) to buy 97.5 million $Neiro when deploying $Neiro.
He then exchanged 15,511 $SOL ($2.85 million) across multiple wallets, selling 68 million $Neiro for a profit of 15,508 $SOL ($2.85 million).
He also sent 10 million $Neiro to the destruction wallet, leaving him with 19.5 million $Neiro ($1.8 million), an unrealized gain of $1.8 million!
$Neiro is a #MEMEcoin on #Solana, named after the newly adopted dog of $DOGE (Kabosu)’s owner.”
But Flip, my timeline is full of people making millions trading memes on Solana. How does this relate to what you’re saying?
我根本不相信 KOL 在 X 上的帖子能够代表更广泛的用户基础。在当前的狂热中，他们很容易建立头寸，宣传他们的代币，从追随者那里获利，然后反复进行。这里绝对存在生存偏差——赢家的声音远远超过输家，从而造成了扭曲的现实感知。
Objectively speaking, the general market suffers millions of losses every day, the losses come from scammers, developers, insiders, MEV, KOL,And that’s not even counting the fact that most of the tokens they trade on Solana are just memes with no real backing.It's hard to argue with the fact that most memes will eventually meet the same fate as $boden.
Additional considerations
Markets are volatile, and when sentiment shifts, factors that buyers had overlooked become apparent:
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BlockchainInstability and frequent failures
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High transaction failure rate
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Difficult to use block explorer
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The development threshold is high, and Rust is much less user-friendly than Solidity
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Poor interoperability with the EVM. I think it’s healthier to have multiple interoperable chains competing for our attention than to be stuck on a single (relatively centralized) chain.
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The likelihood of an ETF is low, both from a regulatory and demand perspective. This article highlights the reasons why institutional demand is low in Solana’s current state.@malekanoms It also highlights some points that I think are relevant to traditional finance (and @0xmert Refutation):
Omid Malekan: "ETH iscryptocurrencyof high-quality liquid assets (HQLA).In preparation for the launch of the ETH ETF, I wrote a brief paper explaining what HQLA is, why we need a native digital asset, and why ETH is the most likely choice. My analysis contrasts it with BTC and SOL.”
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Up to every day Xiaobai Navigation67,000 SOL ($12.4 million) of newly generated tokens
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41M SOL ($7.6B) remains locked in the FTX asset sale. 7.5M ($1.4B) will unlock in March 2025, with another 609,000 ($113M) unlocked monthly thereafter until 2028. Most tokens were purchased for around $64 each.
in conclusion
As usual, it is the shovel sellers who profit, while speculators often suffer losses without knowing it.
I believe that the commonly cited SOL metrics are grossly inflated. Furthermore, the vast majority of organic users are rapidly losing money to malicious actors. We are currently in a mania phase where general inflows still exceed outflows, creating a façade of positivity. Once users become exhausted by continued losses, these metrics will quickly collapse.
As mentioned above, SOL also faces a number of fundamental headwinds that will surface once sentiment turns. Any price increase will exacerbate inflationary pressures and unlocking.
Ultimately, I believe SOL is overvalued from a fundamental perspective, and while existing sentiment and momentum may drive prices higher in the short term, the long-term outlook is more uncertain.
Disclaimer: While I have held SOL at various times in the past, I do not currently hold any material position in SOL. Many of the views I have mentioned above are my own speculative opinions and are not factual. I may be wrong in my assumptions and conclusions. Please always do your own research - this is not investment advice.
The article comes from the Internet:After the meme craze, will Solana be the fragile house of cards?
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