Solana (SOL) has recently experienced a significant price decline, reaching a five-month low of $131.90 on February 25, 2025. This downturn led to the liquidation of over $129 million in leveraged long SOL futures positions. Despite a brief recovery to the $140 range, SOL has depreciated by 17% since February 22, while the broader altcoin market saw a 10% decline.
Declining On-Chain Activity
A notable factor contributing to SOL’s underperformance is the reduction in on-chain activity. Decentralized exchange (DEX) volumes on the Solana network have decreased by 30% over the past week, hitting their lowest levels since October 2024.
Platforms such as Meteora and Raydium experienced activity drops of 48% and 28%, respectively. In contrast, Ethereum’s DEX volumes increased by 40% during the same period, indicating a shift in trader preference.
Staking Yields and Inflation Concerns
Solana’s staking yields are also under scrutiny. While the native staking offers a 9.5% yield, an anticipated 10% annualized inflation rate—due to the scheduled unlocking of over 16.1 million SOL tokens between February and May 2024—effectively results in a negative return for stakers during this period. This inflationary pressure may deter potential investors and stakers, further impacting SOL’s price stability.
Weak Demand in Derivatives Market
The derivatives market reflects a diminished demand for leveraged long positions on SOL futures, reaching its lowest levels in over a year. On February 24, SOL futures entered backwardation, indicating increased demand for short positions. The total open interest on SOL futures contracts decreased by 8.5%, from 31.6 million SOL to 28.9 million SOL, suggesting traders’ reduced confidence in a near-term price rebound.
Outlook for SOL Recovery
Given the decline in on-chain activity, inflationary pressures, and weak demand in the derivatives market, Solana’s price recovery may lag behind Bitcoin and other altcoins. Investors are advised to monitor these factors closely, as they play pivotal roles in influencing SOL’s market performance.
