Solana Suffers Sharp Volatility After Network Becomes Flooded With Transactions


Solana prices have suffered some sharp ups and downs today. Photographer: Gabby Jones/Bloomberg

© 2021 Bloomberg Finance LP

Solana’s sol token experienced some sharp price fluctuations today, falling more than 15% after the Solana blockchain network went down and then recouping much of those losses.

The digital asset dropped to as little as $142.86 today, according to Messari data.

At that point, the cryptocurrency had fallen more than 16% after reaching an intraday high of $171.48 close to 5 a.m. ET, additional Messara figures show.

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Further, it had fallen more than 33% from the all-time high of $214.36 it reached on September 8.

After declining to this level, the digital currency started recovering, trading at $161.60 at the time of this writing.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Technical Difficulties

Much of today’s price action took place after the Solana network went down, a development that was reported on this morning by Decrypt.

Shortly before 8 a.m. ET, this network produced its last block, according to Solscan data reported on by Decrypt.


A few hours later, around 11 a.m., Anatoly Yakovenko, founder and CEO of Solana, posted a tweet stating that:

“Bots during a raydium ido are flooding the network at 300k txs per second.”

When he mentioned “ido,” he was referring to an initial decentralized exchange (DEX) offering, which was taking place on Raydium, an automated market maker and liquidity provider that was built on top of Solana.

Roughly four hours later, at 3 p.m., the Solana Status Twitter account posted an update, which said:

“1/ Solana Mainnet Beta encountered a large increase in transaction load which peaked at 400,000 TPS. These transactions flooded the transaction processing queue, and lack of prioritization of network-critical messaging caused the network to start forking.”

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Analysts Weigh In

When explaining sol’s latest price movements, several market observers spoke to these difficulties.

While the token lost value earlier today, it had been trending lower before the Solana network went down.

As a result, analysts also pointed out the key role that profit taking played in placing downward pressure on prices.

“I see today’s price action indeed as a mix between standard profit taking and impact of recent technical events,” said Loan Venkatapen, cofounder and managing partner of Blocklabs Capital Management.

John Iadeluca, founder & CEO of multi-strategy fund Banz Capital, offered a similar assessment.

“I would say Solana’s price drop was a combined result of widespread market profit-taking due to its mainnet crashing today,” he stated.

Iadeluca noted that “SOL’s price continued trending upwards last week as Bitcoin fell sharply, during which SOL’s RSI signaled an overbought indicator.”

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After the token rose to this overbought level, it started declining, which was likely driven by profit taking, he noted.

“The network crash was concerning, and I don’t think the market’s reaction has been fully priced in yet,” Iadeluca noted.

Nick Spanos, cofounder of Zap Protocol, also emphasized the importance of this unfortunate event, stating that “profit-taking may also be partly responsible for some of the decline, but the outage is certainly the bigger factor.”

Early Days

In spite of this unfortunate development, more than one analyst offered an optimistic take on the project’s future prospects.

“The outage of Solana’s network will have undoubtedly played a part in the decline of sol’s price, but it can bounce back provided the network is restored swiftly and investors remain confident in the project long term and don’t get too unnerved by the incident,” said Spanos.

At the same time, he stated that “they need to get it running fast, and if they do not, and people do not know how long it is going to be, then that is a problem for perception.”

Venkatapen also weighed in on the matter.

“Solana’s long term potential is not affected. Ethereum during their early years also experienced similar issues that have since been largely corrected.”

“What’s important in this kind of situation is not the bug but how the network community is actually able to come together and bring a solution. This is exactly what we are seeing today with Solana.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.

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Author: Charles Bovaird, Senior Contributor

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