Solana's Fee Generation Surges 14% Despite 3% Price Drop

Solana’s recent high fee generation figures have been a topic of interest, but a closer examination reveals that these figures may not be as indicative of a bullish trend as they initially appear. Over the past week, Solana has struggled to make significant market movements, with the asset falling by nearly 3%. Despite a slight uptick in the last 24 hours, this increase had minimal impact on SOL’s overall performance. Further analysis suggests that the asset is likely to continue its downtrend from the previous week.

Solana generated the highest fees in the market over the last 24 hours, with data revealing that $1.4 million in fees were generated from activity on the chain. Typically, fee generation is influenced by factors such as transaction costs and the number of transactions on the network. However, analysis indicates that the increase in fees was likely driven by selling activity, as evidenced by negative netflows data. In the last 24 hours, Solana’s chain netflows turned negative, placing the network among the top five chains with the highest number of withdrawals. These withdrawals suggested that more sellers were active in the market, accounting for $1.9 million worth of SOL being sold during that time. This context helps clarify why Solana’s high fee generation isn’t necessarily a bullish signal.

On-chain data also revealed a significant decline in trader engagement, as activity across the network has weakened. For instance, both the number of daily active addresses and the daily transaction count dropped noticeably in the last 24 hours. The number of daily active addresses plunged to 3.2 million, which could indicate that traders sold their Solana from the previous day and bridged to other networks. It might also point to a broader decline in demand for SOL. The daily transaction count followed a similar path, falling to 97.3 million on the charts. If this lack of demand persists, it could drive SOL even lower this week, potentially replicating the downtrend seen on 4 March.

Additionally, there has been a noticeable outflow of liquidity from Solana-based protocols, as the Total Value Locked (TVL) declined. TVL measures the amount of staked SOL across protocols and serves as a valuation metric for the network’s ecosystem. At the time of writing, the TVL had plunged from its May high of $8.039 billion to $7.825 billion, implying that during this period, $214 million worth of SOL was unlocked and redistributed into the market. Such a large unlock puts additional pressure on SOL’s price by increasing supply and reducing demand. SOL could face more downside in the days ahead if these liquidity outflows from protocols, coupled with the drop in trader activity, continue.