Bybit and SolanaFM report warns Solana DeFi ecosystem lacks innovation

Rick Steves

Cryptocurrency trading platform Bybit and Solana FM have released a report on the blockchain network’s performance in Q1 2022.

The report shows a rising trend in the 30-day rolling mean of daily active unique addresses, with Solana dApp projects having a substantially larger amount compared to those on competitor chains.

According to data from DappRadar and Solfm, the Daily transaction count on Solana projects superseded the transactions on alternative projects on other chains: Serum took the lead, followed by Mango Markets, Raydium and Magic Eden. The report found that activity on Solana is higher as compared to other chains such as BNB Chain, Fantom, and Polygon.

Activity on Solana is higher than BNB Chain, Fantom, Polygon

The report also examined the Solana ecosystem by daily transactions per unique active address in order to examine if said activity is dominated by bots or actual users:

– Mango market average 220.85 transactions per daily active users — not something that is not humanly possible — highly likely to be dominated by trading bots;
– Serum average at 42.67 transactions per daily active users — likely to be a good combination of retails traders and trading bots;
– Raydium average at 9.86 transactions per daily active users — least number of bots present;
– Magic Eden has an average of 0.38 transactions per daily active users — indication that activity on Magic Eden is in line with user growth — which is a very healthy signal;
– Benchmarking against OpenSea that is averaging at 1.87 transactions per daily active users, this indicates that NFT is trending strongly on Solana with more organic growth;
– Also noting that Magic Eden overtook Serum in daily active unique addresses towards the second half of the quarter.

TVL outflow

Bybit and SolanaFM also took a look at Solana’s DeFi ecosystem. “We have witnessed a substantial amount of TVL leave the network over the past few months since its peak in December 2021. Currently, Solana network’s TVL sits at $4.8 billion, more than 68% down from its all-time high of $15.08 billion”.

The Solana DeFi ecosystem is powered by a few key applications that provide a variety of on-chain services such as decentralized exchanges, on-chain orderbooks, liquid staking derivatives, yield aggregation, as well as permissionless money markets.

Based on TVL dominance alone, the top 5 dApps, Solend, Tulip Protocol, Marinade Finance, Serum & Raydium, make up for about 51% of all the TVL in the network. The biggest money market protocol, Solend, dominates the network at $984.5 million TVL, 20.52% of the whole chain. Taking a look at just the price performance of their respective tokens, the top 5 dApps are mostly about ~90% down from their all-time high, according to the report.

Liquidity and capital move to higher yields

What may have caused such outflow of TVL? Bybit and SolanaFM found that, despite providing highly efficient products and services, lackluster token price performance could be attributed to outdated token value accrual designs and misaligned incentives.

“From the top five dApps alone, we can see token designs similar to that of the first few DeFi applications that kickstarted Ethereum’s DeFi Summer in 2020”, said the report.

“With most if not all of Solana’s alternative ecosystem tokens 80-90% down from its all-time high, it is evident that there is a lack of innovation when it comes to token value accrual and tokenomic designs. In other blockchain ecosystems like Ethereum and Avalanche, many protocols are implementing incentive mechanisms to align token holders to hold for the long-term.
These token designs come in the form of protocol fee redirection like SushiSwap’s xSUSHI model, time-locking and gauge votes popularized by Curve Finance’s veCRV, or even boosted yield farming rewards through longer locking like Platypus Finance’s vePTP model, all of which aid in the prevention or disincentivization of capital flight”.

“In a capitalistic free market like crypto, one recurring problem is that liquidity and capital is highly mercenary and will move to wherever yields the most lucrative rewards. The lack of token mechanisms to incentivize long-term token locking could be one of the main reasons why significant amounts of capital have fled from the ecosystem to other networks where yields are bountiful.
Despite having an active growing developer base producing highly efficient and innovative products, we think that the Solana ecosystem as a whole still has more room to mature in creating a closed-loop ecosystem where capital flight is disincentivized. It will be interesting to see how the ecosystem pivots in the near term”.

Read this next


Fed Policymakers Navigate a Delicate Path Amidst Inflation and National Debt Concerns

The Federal Reserve’s monetary policy has been a subject of debate in Western markets, especially regarding its approach to interest rates.

Institutional FX

PhillipCapital extends trade surveillance partnership with Eventus

“PhillipCapital has seen first-hand how Validus can scale to meet any capacity requirements as clients grow, as well as our team’s expertise in not only our customizable technology but the market and regulatory challenges facing the industry.”

Market News

Why Yellow Metal Prices are Plummeting

Gold prices have been steadily declining after failing to surpass the resistance zone at $1,650. The current price is at its lowest point in seven months. Strong economic data from the US has triggered a meltdown in the gold market.

Industry News

Nuvei enters China following licenses in Australia, Singapore, and Hong Kong

The expansion into China represents more than just a geographic milestone for Nuvei. It also adds an essential component to the company’s comprehensive suite of alternative payment methods (APMs), which currently counts 634 different options. These APMs play a crucial role in catering to local market preferences, thereby enhancing Nuvei’s value proposition for businesses looking to penetrate new markets within the APAC region.

Institutional FX

LiquidityBook launches LBX PMS 2.0 after acquiring Messer

With this rollout, LiquidityBook aims to meet the diverse requirements of its clientele, ranging from startup hedge funds and asset managers to broker-dealers and outsourced trading desks.

Institutional FX

Celoxica enters Australia to offer low latency market data and execution services in APAC

“There is a significant opportunity to deliver fast and efficient market access to APAC financial market participants, including trading firms, brokers, exchanges, and service providers. I am eager to extend our reach in this crucial market.”

Institutional FX

Cboe to launch four new Credit Volatility Indices (Credit VIX)

“The Credit VIX Indices are expected to provide new clear signals on bond market sentiment, and act as a new barometer of corporate credit risk in North America and Europe.”

Executive Moves

TradeZero hires Leo Ciccone as Chief Compliance Officer (CCO) for TradeZero Canada

“Leo brings to TradeZero broad and comprehensive experience coupled with deep business and regulatory relationships that will assist us in ensuring we meet and exceed industry best practices and to further our growth initiatives going forward,”

Institutional FX

Apex launches fractional fixed income trading for retail investors

“The ability for people – and not just high net-worth investors – to easily add fixed-income and diversify their portfolios is a game-changer.”