YEREVAN (CoinChapter.com) — Should one buy Solana (SOL)? The cryptocurrency has been one of the best-performing crypto assets in recent weeks. Its price has surged 175% in the past month alone. Those who purchased SOL last December, when it hit a low of around $9 per token, would have seen their investment jump over 550% today.
However, despite the huge returns and great potential, there may be compelling reasons investors should be careful when investing in the token.
Five reasons Why You Shouldn’t Buy Solana (SOL)
According to Cascading_Distruption’s post, there are enough reasons to steer away from Solana. Here are the five reasons he finds convincing.
DeFi is Struggling
After the FTX meltdown, one of the cryptocurrency sectors that likely suffered the most was decentralized finance (DeFi) on the Solana blockchain.
Examining the Total Value Locked (TVL) losses in DeFi at the end of 2022 makes a case for this assertion. The FTX crash resulted in around $10 billion in losses that affected the entire ecosystem.
Solana had already suffered a blow after the Terra collapse last May. The TVL on protocols dropped by $60 billion. An additional $25 billion was lost in June due to ongoing liquidation events.
The Solana TVL in USD has crossed the $550 million mark. This is a significant rise from $300 million in early October. It’s worth noting, however, that this figure is still a fraction of Solana’s all-time high TVL, which reached $10 billion.
Also, despite the rising Total Value Locked (TVL) in dollars, the TVL in SOL is significantly lower than its all-time high. The non-USD TVL is still under 10 million SOL tokens.
This discrepancy, as Cascading Disruptions points out, reveals underlying weaknesses. The increase in dollar TVL is primarily driven by SOL’s price surge rather than genuine growth in the DeFi sector on Solana.
Loss of Key Supporters
The Solana token was highly dependent on the support of major venture firms and big names. Some of its biggest backers were Sam Bankman-Fried and his crypto empire.
With the FTX and Alameda Research now defunct, other venture capitals have also moved away from SOL. This has left a huge void that has deprived the token of necessary capital and support.
With the influence warning away, SOL must find favor among major investors to regain its footing. Until then, the recent surges in the Solana price may not be sustained in the long run.
Bankruptcy Estate Selling/Dumping
On Oct. 5, roughly 17.6 million SOL were unstaked in epoch 512. Approximately 7 million SOL out of 17.6 million SOL unstacked belongs to the venture capital firm a16z. Furthermore, two other distinct accounts unstacked 4.5 million and 3 million SOL, respectively.
While users speculated the accounts would dump these ahead of Sam-Bankman Fried’s trial, it didn’t come to pass.
The impending sale or dumping of the over 70 million SOL, representing 17% of its circulating supply, poses a substantial risk. Such a large-scale offloading of tokens could lead to significant price depreciation.
Unsustainable Economics
Solana’s network revenue is minimal compared to its valuation, failing to cover basic network maintenance costs.
This financial imbalance necessitates reliance on token inflation to pay validators, making the network’s economic model unsustainable without speculative price support.
Complex and Experimental Design
Solana’s architecture has led to repeated technical instabilities, including several outages. Its experimental nature has resulted in operational challenges, impacting the network’s reliability and user trust.
While outage issues have persisted with Solana, one should take what Cascading Disruptions says with a pinch of salt. Reading many of his posts, he does seem to be quite opposed to Solana. He has called SOL a “shitcoin” before.
So, while Solana can be a good investment, it is worth considering some of the points critics raise against it as a long-term investment.
