Bybit and SolanaFM report warns Solana DeFi ecosystem lacks innovation

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According to data from DappRadar and Solfm, the Daily transaction count on Solana projects superseded the transactions on alternative projects on other chains: Serum took the lead, followed by Mango Markets, Raydium and Magic Eden.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.

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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”.