Solana Memecoin Exposure Becomes a Major Risk for the Network

• Solana’s metrics grew increasingly reliant on memecoins. 
• Top memecoins suffer declines, revealing Solana’s vulnerability. 
• Fresh competition in memecoins introduces even greater risks. 

The Solana blockchain has been a hub for memecoin trading over the past year. Thanks to its low fees and ease of use, memecoin traders flocked to Solana, becoming a significant network traffic source. 

Recently, however, major memecoins on Solana experienced prolonged losses. This, in turn, has revealed significant risk for the chain and overreliance on the volatile memecoin market. 

Decline in Memecoin Activity Shakes Solana’s Blockchain

A recent memecoin slump has shown just how exposed Solana has become to these volatile assets. 

On Thursday, August 27, major Solana memecoins recorded a double-digit price drop. The top three memecoins, DogWifHat (WIF) ,  BONK , and Popcat , were down 32.96%, 28.14%, and 27.53%, respectively. This price performance accompanied significant reductions in trading activity on Solana. 

The declining activity is shown in the drop in the total daily fees on the Solana blockchain. On August 26, fees dropped to $486k , the lowest figure since March 14. Currently, total fees on Solana are more than ten times lower than their all-time high of 4.95 million on March 18. 

Source: DefiLlama

The drop in network fees accompanied a drop in network volume, although this effect was less pronounced. Total volume in August was $33.3 billion compared to $56.8 billion in July. This suggests that 

Source: DefiLlama

These figures highlight how much of Solana’s network traffic relies on memecoins, which institutional investors use to gauge its overall performance. 

Risks of Solana’s Memecoin Exposure

Solana’s recent struggles highlight the significant risks associated with its reliance on memecoins to drive network activity. For one, after the memecoin slump, Solana saw significant institutional outflows. According to a CoinShares report, Solana lost $39 million in institutional investment in just one week. 

Memecoins are inherently volatile assets, relying largely on market hype and speculative trading. This means that a slump in the memecoin market, which is bound to happen, will significantly impact Solana. Moreover, Solana is under increasing pressure from competition in this market. 

One of the reasons for lower memecoin trading could be the emergence of TRON’s SunPump platform. Like Solana’s Pump.fun, the platform makes creating memecoins extremely easy and has quickly gained traction. Its total fees are quickly approaching those of Solana’s Pump.fun, at $303k compared to $500k on August 26.

Solana’s reliance on memecoins put it in a difficult position. The inherent volatility of the memecoin market, as well as increasing competition, can substantially hurt the metrics investors look at when assessing Solana’s performance. 

On the Flipside

• There is no guarantee that SunPump’s rapid rise will be sustainable. Furthermore, TRON’s core user base is in Asia, making potential expansion more difficult. 
• Solana has a stronger presence and name recognition in the West, especially among celebrities. 

Why This Matters

The latest figures in Solana’s performance highlight the significant impact memecoins have on its ecosystem. The growth of memecoins, while beneficial in the expansion stage introduces new risks for Solana. 

Read more about Solana’s take on memecoins: 
Solana Founder Sneers at Claims of Memecoin Scaring Builders

Read more about Telegram’s CEO arrest: 
Telegram CEO’s Arrest is Not Political, Claims French President: Tech Leaders Disagree