Just half a year ago, the story was primarily about Solana, mainly due to the huge popularity of its SOL token which had hit a staggering $253 on 9 Sep 2025 with an unprecedented amount of transactions processed in that month compared to any other blockchain network, and witnessing a memecoin supercycle which pushed the Pump.Fun platform to become one of the most successful DApps in crypto.
The noise was clear, the numbers didn't lie and questions surrounding whether Solana could compete with Ethereum were now whether it already had.
At present, the SOL token is trading at about $83 and has not been able to push back above $89 for two weeks. During the crash on 6 February there was also a dip below $67.60 which hasn't prompted any sign of momentum either way since. The 67% decline from its peak value to its current valuation has spread far beyond its achievable pricing; further impacts can be seen in derivatives positioning, DApp revenue, institutional flows, and an increase in the number of people discussing what exactly Solana's ecosystem looks like once all of the retail heat has dissipated.
That term being used by some is "death spiral," It is worth looking at whether or not this term has any truth behind it, and what would need to take place for it to not become true (death spiral).
The most noticeable aspect of Solana’s present market is not the price action itself, but rather the cost of being short Solana. The SOL futures funding rates have gone substantially negative, with traders who are betting against Sol requiring to pay an annualized funding rate of 20% in order to hold their short positions.
This is an extreme degree of commitment to shorting Solana at these levels and with such a prolonged duration (over one week) of negative funding rates; this shows that bearish traders are sufficiently confident in the ongoing price decline to incur a meaningful amount of capital to retain their exposure to Solana’s continued downside price movement. This is not simply an attempt to take advantage of the current weakness in the price of Solana, it represents a serious, highly costly long-term bearish position on its ongoing decline in value.
The disparity between Ethereum (ETH) and Solana (SOL) is apparent. The ETH 1% funding rate on Wednesday was below the neutral funding rate of 6% and indicates a slight bearish sentiment compared to the remarkably bearish SOL. In addition, the Ethereum derivatives market is exhibiting caution while there is a clear bearish sentiment within the Solana derivatives market.
Adding to the bearish sentiment is that the SOL futures market has lost 75% of the open interest compared to its high of $13.5 billion five months ago. Open interest typically dropping with price is a sign of leveraged long positions being removed from the market with the closure of positions, margin calls, etc.
However, while this information does not automatically indicate a bearish position, it can signal the potential to build a stronger base for future growth. The information does support the conclusion that the leverage which contributed to SOL's growth has now largely disappeared.
Simply having low pricing does not make an asset (or token) go into a downward price spiral — that is a bearish market that leads to structural concerns. Declining prices result in the ecosystem that created the foundational value of that asset becoming eroded, which will then become problematic for the network. The current Solana DApp revenue has become uncomfortable.
Solana DApp revenue has seen a substantial decline in earnings to $22.83 million. This is the lowest weekly DApp revenue figure since October 2024. Pump.fun (the memecoin launchpad) represented $9.1 million dollar (40% of total weekly DApp revenue generated on Solana) of the overall revenue. Because of this, we see that DApp revenues on Solana are presently concentrated in one speculative industry (memecorn launchpad) that has virtually no relationship to any other industry on cryptocurrency market.
This is one of the most sensitive to speculation — having suffered the largest declines during previous cycles.
Ethereum's revenue comparison is rather unique when compared to Solana, though it ranks considerably lower in absolute terms (ie, $22.8 million for Solana vs. $16 million for Ethereum). The redeeming quality of Ethereum's $16 million is that the sources of that revenue can all be classified as infrastructure level, meaning they are not going anywhere (i.e., the services provided are being utilized by institutional and sophisticated retail users regardless of whether or not there is a meme token mania). The use case for generating Ethereum revenue is by far the least affected by whether the retail onboarding cycle is 'hot' or 'cold.'
On the other hand, Solana's revenue source is almost exclusively dependent on retail user activity, particularly with respect to meme coins.
Therefore, as retail investor sentiment turns, Solana revenue will follow suit with respect to SOL price. This is an example of the downward price 'death spiral' that concerns many. Falling SOL prices lower the incentive to hold SOL, reducing both meme coin activity and launchpad activity, reducing network revenue, and decreasing the fundamental justification to hold SOL, ultimately causing more downward price pressure on SOL.
The problems occurring with SOL are not isolated events; they occur within an environment where the entire cryptocurrency market is struggling as well. Of particular concern is Solana's relative underperformance (against total cryptocurrency market capitalisation) of 11% for the last 30 days. As such, the relative underperformance caused by these two factors (a rising tide and SOL's performance) suggests that they are independent of one another; therefore, there are other factors outside of just these two variables creating increased selling pressure than would normally exist based solely upon market conditions (e.g., threats to memecoin revenue concentration for SOL, loss of leverage for SOL, decline in institutions participating in SOL market).
In terms of market cap, SOL is still considered one of the top seven cryptocurrencies. The network isn't breaking, with still high throughput of transactions, a full validator infrastructure, and continuing development. However, market cap rankings are based on both retrospective accumulation as well as forward expectations, and all derivative, revenue and relative performance metrics point to much dimmer forward expectations.
ETF flows are one indicator of the institutional confidence gap. There are six asset managers (Bitwise, Fidelity, Grayscale, 21Shares, CoinShares, and REX-Osprey) that provide SOL ETFs despite Solana being 2nd by volume transacted and 2nd by total value locked in DeFi. These three have not attracted comparable investor capital flow to Ethereum's.
ETF AUM for SOL is$2.1B or -86% less than Ethereum's $15.8B. The AUM gap between Ethereum and Solana is not only a function of the age of each of their respective products, nor primarily of regulatory timing. More accurately, they reflect the types of assets that institutions are allocating to and have confidence in. Institutionally allocated Ethereum has historically been associated with DeFi infrastructure, liquid staking, and settlement layers that have been developed with real-world utility and are therefore less correlated to retail investor base sentiment cycles than Solana has experienced.
Institutions may have a higher sense of confidence in the ongoing growth and long-term viability of the Solana DApp ecosystem if its concentration of revenue amongst the respective DApps was in excess of 40% with respect to a meme-coin starter type of application.
While the structural challenges Solana encounters are real, they are not insurmountable. There are real technical advantages of Solana, such as: high transaction throughput; low transaction fees; and a vibrant developer community that continues to build even though the price has fallen. The question that remains is: Can these technical advantages be turned into sustainable revenue (i.e., use cases that will not disappear when retail investor enthusiasm wanes)?
Two potential areas that have been identified as possible drivers of growth for Solana are in AI infrastructure and prediction markets as both of these represent high growth areas and Solana's existing high throughput and low latency architecture has a meaningful competitive advantage relative to competing blockchains. AI agents need to conduct fast and inexpensive on-chain transactions, and prediction markets with multiple, high frequency contracts would be better able to operate on the Solana network than Ethereum's current fee structure allows.
Both are competing early-stage stories within a buzzing market with some significant intersection between them. In addition to both having an L2 ecosystems based on Ethereum, Hyperliquid has been built as a purpose specific L1 and alternative L1s are being built and finding their own users.
Success in both areas will be difficult for Solana unless execution and ecosystem development can happen at the same time as Solana has its last major revenue source (a memecoin launchpad) working at its lowest level of weekly revenue in four months.
The three metrics that will decide if Solana's weakness (right now) is just a cyclical trough or something much worse, i.e., long-term structural decline are: 1) whether DApp revenues start to move away from memecoin dependence into other areas like AI applications; 2) if Solana's ETF flows will get closer to Ethereum's ETF flows or not; and 3) whether the February 67.60 low holds and/or gets tested and broken. A break below February’s 67.60 low could shift the narrative from “correction” to “structural bear.”
While there is enough uncertainty at the moment about the potential for a “death spiral,” there are equally good reasons why Solana may surprise investors in both directions (i.e., either to the upside or downside). As such, we will need to wait until the next few months until we see which version of this story plays out.
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