Solana's Struggle: Analyzing On-Chain Activity and the Impact of Network Outages
Tough times for Solana, will the blockchain ever regain its top spot?
In the last week, there’s been a lot of discussion around Solana, following the latest network outage on Feb. 25th. This should be the 8th or 9th time that this happen since the chain launched in 2020.
This is only the last of a series of unfortunate events by Solana, which already suffered massively after the demise of FTX and Alameda. In fact, the network outage comes at a moment Solana had to prove that it could be a top 5 chain even without its patrons.
This short piece provides an overview of how Solana is really doing at the moment, leveraging on-chain protocol analytics. The blockchain doesn’t lie!
Why does Solana suffer from network outages?
An official Twitter account associated with the blockchain cited an issue during a software upgrade as prompting the need for the restart. The time before it was “a misconfigured node”, and the time before before the “result of a lack of new blocks being produced”.
This is purely a thought exercise so don’t get nasty at me: the recurrent issues may be because the Solana code base is really complex, and the fact that there are thousands of validators means testing new updates is very complex, and in order to speed development they might have some issues when deployed. Furthermore, as shared by DBCryptoX on Twitter, Solana handles consensus on-chain, which might contribute to the issue.
Of all the TPs on Solana, only about 10% are real transactions (in purple), the rest is validator communication.
SolanaFM provides accurate numbers for Solana TPS:
This creates huge amounts of data for full nodes, who have to store all chain history and deal with millions of useless validation messages.
Tying consensus to on-chain activity is therefore deemed not beneficial.
Seems almost like a meme, but when the chain is down and validators can’t communicate they resort to Discord, where they take decisions on how to get back up based on a 66% majority.
An interesting statement on the matter is that of one of Solana core devs:
This may make some react as below…
Aside from network outage issues, let’s look at the on-chain activity and if it confirms the moment of difficulty lived by Solana.
Low Development Activity
We take into account four main metrics in our on-chain analysis:
Daily Active Addresses and Daily (Non-Voting) Transactions:
we can observe a decline in both charts. The daily active users have never fully recovered from the 2022 bear market, while the trend was slowly picking up pace and growing like the rest of the market in December 2022, the failure of FTX and Alameda has proved to be a negative catalyst, which instead further reduced usage. The decrease in users is clear in observing the chart of Daily Transactions, which are now sitting close to an all-time low.
TVL in DeFi: a healthy TVL is a good level of health for a chain, especially an L1; at the moment there is only $257m in TVL on Solana, putting it in the 12th place compared to other chains. The TVL has decreased tenfold since June 2022;
Unique Contracts Deployed: this is a very important indicator. The level of development is fundamental to assessing the activity going on in a blockchain.
By comparison with Avalanche (in red) and Fantom (in blue), the chart speaks more than a thousand words.
The on-chain activity seems to confirm the general sentiment that Solana activity is decreasing. If new users and projects won’t come, what about existing ones?
Lots of Projects Leaving
In a sort of vicious cycle, the issue suffered by Solana put pressure on the ecosystem and affect the operations of cryptocurrency projects, which are increasingly choosing to move to other chains.
The most notable example of doing so are the DeGods and y00ts, the leading NFTs projects on Solana that have declared their move to Ethereum and Polygon.
The magnitude of this news was probably downplayed: when the top project leaves your chain, the signal sent is pretty clear.
At the same time, there’s been a lot of community-driven initiatives that have tried to compensate for all the negative events that have impacted the market. Notably, the ABC community and Hades have purchased the Solana Monkey Business, the first Solana blue-chip NFT that rose to prominence.
Food for Thought
Disclaimer: only because I have an Eth PFP it does not mean that I am a maxi or I hate Solana: I own Solana tokens and NFTs and have previously contributed and written content for the ecosystem. I’d like to see Solana getting back on its feet with renewed governance after SBF;
The slowdown of activity in Solana is worrying for the ecosystem: what will happen if move projects move away?
Solana is still one of the fastest blockchains. What will the future of Solana be, will it be able to regain its place as top 5 blockchains? Or will the market eventually move on toward newer deployments and Solana will end up as the 2017 EOS?
Solana’s tainted reputation can be a problem to attract talent and projects. What was once perceived as the Eth competitor, is now compared to an old PC, where you solve issues by closing and restarting it.
There are only so many mistakes that can be done… the clock is ticking!