Solana's [SOL] fees generation statistics are deceptive; here's an explanation!

Solana's High Blockchain Fees Ain't Guaranteeing a Price Rally

Solana's struggle to make a strong move in the marketSOL's decent 24-hour gain might not save its weekly downtrend

Over the past week, Solana (SOL) has been struggling to make any impressive ground in the market with a minuscule 3% drop on the charts. Despite the slight uptick in the last 24 hours, it hasn't done much to shake off SOL's bleak outlook.

A closer look at the situation suggests that SOL could continue its downward spiral from the previous week.

Solana's Hefty Fee Generation - A Cause for Celebration?

Solana generated the highest fees among all blockchains over the past 24 hours, with a whopping $1.4 million in fees generated from activity on the chain.

But here's the kicker: analysis suggests that the fee hike isn't necessarily a good sign. Instead, it's likely due to increased selling activity, as indicated by negative net flows data.

Solana's chain netflows turned negative, signaling an uptick in sellers in the market.

Source: Artemis

Active Addresses and Transactions Tanked

Moreover, on-chain data indicates that traders have become significantly less engaged, as both the number of daily active addresses and the daily transaction count have dropped noticeably.

The number of daily active addresses fell to a staggering 3.2 million.

Source: ArtemisDaily transaction count plummeted to 97.3 million.

If this decreased demand persists, it could drive SOL even lower in the coming days, possibly repeating the 4th of March's downtrend.

Liquidity Outflows from Protocols

There has also been a significant outflow of liquidity from Solana-based protocols, as Total Value Locked (TVL) declined.

TVL is a metric that measures the amount of staked SOL across protocols and serves as a valuation metric for the network's ecosystem.

At the time of writing, the TVL dropped from its May high of $8.039 billion to $7.825 billion. This implies that during this period, $214 million worth of SOL was unlocked and entered the market.

Such a large unlock puts added pressure on SOL's price by increasing supply and reducing demand.*

SOL might experience further downturns if these liquidity outflows from protocols combined with the drop in trader activity continue.

Put simply, Solana's high fee generation isn't always a bullish sign

High fee generation can typically be a positive indicator of network utility and user adoption. But in the case of Solana, it's essential to consider the context of the broader ecosystem challenges: negative net flows, declining activity, and significant liquidity outflows from protocols.

If these factors are not addressed, it could further impact SOL's price in the coming days and weeks. Keep a close eye on these developments for insights into SOL's potential moves.

The increased fees on Solana's blockchain might not signify a bullish trend, as the surge could be due to increased selling activity.Despite Solana generating the highest fees among all blockchains, the network is facing challenges such as negative net flows, decreased trader activity, and significant liquidity outflows from protocols.The high fee generation on Solana's blockchain, while typically indicative of network utility and user adoption, needs to be considered in context, as it might only be a temporary response to the current challenges unfolding in its ecosystem.