Derivatives data suggests Solana has peaked in the near term

Solana (SOL) hit an all-time high of $ 216 on September 9 after a 508% rally since August. The bull run has led some analysts to project...


Solana (SOL) hit an all-time high of $ 216 on September 9 after a 508% rally since August. The bull run has led some analysts to project a $ 500 target which would translate into a market capitalization of $ 150 billion.

It should be noted that by the SOL rally, the Ethereum network’s average transaction fees had exceeded $ 40. Growing interest in the NFT market has accelerated investors’ transition to Solana, which has been spurred by Launch of the FTX NFT market September 6.

Solana, Avalanche and Cosmos prices at Binance. Source: TradingView

The graph above shows the performance of SOL over two months compared to Avalanche (AVAX) and Cosmos (ATOM). Both are fighting for the same user base of decentralized applications and offer faster and cheaper transactions compared to Ethereum (ETH).

Major industry players have also invested in Solana’s ecosystem due to its potential against Ethereum. In June, Andreessen Horowitz and Polychain Capital conducted a Funding of $ 314 million round at Solana Labs, which was also funded by venture capital firm Andreessen Horowitz, Polychain Capital and Alameda Research.

Does the Solana outage weigh on the price of SOL?

At the SALT 2021 conference, the founder and CEO of Solana Anatoly Yakovenko told Cointelegraph that the network “is optimized for a specific use case: the central online limited order book, a trading method used by exchanges that matches bids with bids. It was designed for market makers who have to submit millions of trades a day. “

Yakovenko then added, “There are tradeoffs in Pareto efficiency. If I optimize hash power security, it means I can’t have a lot of TPS. You have to choose one or the other. . ”

Curiously, on September 14, the Solana network experienced a breakdown which lasted over 12 hours. The team explained that a sharp increase in transaction load to 400,000 per second overwhelmed the network, creating a denial of service that caused validators to start branching off.

Futures contracts on Solana combine open interest. Source: Bybt.com

Despite the recent setback, the cumulative open interest in Solana’s futures markets stands at $ 1 billion, an increase of 640% in two months. This figure makes Solana’s derivatives market the third largest, behind Bitcoin (BTC) and ether. This data confirms investor interest, but it cannot be considered bullish because futures buyers (long) and sellers (shorts) are paired at all times.

Derivatives markets point to a balanced situation

To answer this question, we have to analyze the financing rate. Perpetual contracts, also known as reverse swaps, have a built-in rate that is typically billed every eight hours. This commission guarantees that there is no imbalance in the exchange risk. A positive finance rate indicates that the longs (buyers) are the ones asking for more leverage.

However, the reverse situation occurs when shorts (sellers) require additional leverage, causing the finance rate to turn negative.

8 hour forward finance rate on Solana perpetual futures contracts. Source: Bybt.com

As pictured above, the eight-hour charge peaked at 0.12% on September 5, which equates to 2.5% per week. This momentary spike was quickly triggered as SOL faced extreme volatility on September 7th. After peaking at $ 195, the SOL price collapsed 35% in 9 hours and liquidated the leveraged positions, leading to the current balance between long and short positions.

The data shows no evidence that investors are rushing to add leveraged long positions despite the current open interest of $ 1 billion. Additionally, given the 410% gain over the past two months, traders have reason to fear a further decline as Bitcoin has also failed to break through the psychological barrier of $ 50,000 and it remains to be confirmed. if the recent decrease of less than $ 40,000 was the short-term background.

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