A new report raises serious questions about the true health of the Solana SOL/USD ecosystem, suggesting that its meteoric rise may be built on a foundation of sand.
What Happened: The report by Flip Research, titled “SOL- The Emperor’s New Clothes,” suggests that up to 93% of Solana’s trading activity may be non-organic, fueled by wash trading, rug pulls, and exploitative MEV practices.
Despite Solana’s claims of surpassing Ethereum ETH/USD in daily active users and transaction volumes, the investigation uncovers a darker reality of inflated numbers, rampant scams and an ecosystem that may be unsustainable in the long term.
Benzinga has reached out to Solana for a comment.
At the heart of the investigation lies a startling discrepancy in user activity.
While Solana boasts 1.3 million daily active users compared to Ethereum’s 376,300, the transaction patterns raise red flags.
“On Friday 26th July, ETH had 1.1M txs vs 376.3k DAUs, roughly 2.92 daily transactions per user. However SOL had 282.2M txs vs 1.3M DAUs, a massive 217 daily transactions per user,” Flip Research notes.
This anomaly led the researcher to dig deeper, uncovering a disturbing trend of wash trading and rug pulls on Solana-based decentralized exchanges (DEXs).
“In the last 24hrs on Raydium’s standard LPs, there were over 50 rugs with >$2.5M vol, which in total generated more than $200M volume and over $500K in fees,” the report states.
Also Read: SEC Charges BitClout Founder With $257M Crypto Fraud Scheme
Why It Matters: The implications of these findings are far-reaching.
“Considering both the abnormally high transaction-to-user ratio, and amount of wash trades/rugs onchain, it appears that the vast majority of trades are non-organic,” the analyst stated.
The analyst goes so far as to estimate that “over 93% of the trades (and by extension, fees) on Solana are non-organic.”
The report also highlights concerns about Solana’s Miner Extractable Value (MEV) dynamics.
Unlike Ethereum, Solana’s unique structure has created an environment where “the vast majority of tokens traded are ultra high volatility, low liquidity meme coins, where traders often set slippages of >10% for their trades to execute successfully.”
This situation has led to significant value extraction from retail traders.
Adding to the network’s woes, the researcher points out several fundamental issues, including “Poor chain stability, with numerous outages,” “High rates of failed transactions,” and an “Unreadable explorer.”
Perhaps most damning is the assessment of Solana’s long-term prospects.
“Once users are fatigued from ongoing losses, many of these metrics will collapse quickly,” the report warned.
“Ultimately I believe that SOL is overvalued from a fundamental perspective, and while existing sentiment + momentum may well drive price increases in the short term, the longer term picture is far more uncertain,” the report states.
What’s Next: As the cryptocurrency market continues to evolve, these findings about Solana’s potentially inflated metrics and market manipulation will be a key topic of discussion at Benzinga’s Future of Digital Assets event on Nov. 19.
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