Derivative data shows that Solana (SOL) has reached a short-term high

Solana (SOL) hit an all-time high (ATH) of $ 216 on September 9, after rising 508% since August. That bull run has some analysts forecasting a target of $ 500, which would push market cap to $ 150 billion.

It’s worth noting that the Ethereum network’s average transaction fee exceeded $ 40 during the SOL rally. The growing interest in the NFT market, which has led investors to switch to the Solana network, was also fueled by the NFT market launch of the FTX exchange on September 6th.

Solana, avalanche and cosmos. Price charts | Source: TradingView

The graphic above shows the two-month performance of SOL against Avalanche (AVAX) and Cosmos (ATOM). Both are fighting for the same, similar user base of decentralized applications (dApp), which offers faster and cheaper transactions than Ethereum (ETH).

Major players in the industry are also investing in Solana’s ecosystem because of its potential to compete with Ethereum. In June, Andreessen Horowitz and Polychain Capital led a $ 314 million financing round at Solana Labs, also funded by venture capital firm Andreessen Horowitz, Polychain Capital and Alameda Research.

Will outages affect SOL prices?

Solana founder and CEO Anatoly Yakovenko said at the SALT 2021 conference that the network “is optimized for a specific use case: a limited central online order book, a trading method used by traders. The exchange matches the bid with the offer. It was developed for market makers who have to send millions of trades every day. “

“There was an effective Pareto compromise (win-win). If I optimize for hash power security, it means I can’t have a lot of TPS. You have to choose between the two. “

On September 14, there was an outage of more than 12 hours on the Solana network. The team explains that the massive spike in transaction volume to 400,000 per second has overloaded the network and created a denial-of-service (DoS) situation that is causing validators to start branching out.

Open Interest for Solana Futures | Source: Bybt.com

Despite this breakdown, Open Interest (OI) futures are at $ 1 billion, up 640% in two months. That number makes Solana’s derivatives market the third largest after Bitcoin (BTC) and Ether. This data confirms the interest of investors, but cannot be considered bullish as all long (buy) and short (sell) orders are executed at all times.

Futures market towards equilibrium

To answer this question, we need to analyze the funding rate. Perpetual contracts, also known as inverse swaps, have an embed fee that is typically billed every eight hours. This fee ensures that there is no exchange rate risk imbalance. A positive funding rate indicates that long positions are the ones that need more leverage.

However, the reverse situation occurs when short positions require more leverage and this causes the funding rate to go negative.

Financing rate 8 hours Solana Perpetual Futures contract | Source: Bybt.com

As noted above, the 8-hour embed fee peaked at 0.12% on September 5, which is 2.5% weekly. That spike came when SOL faced extreme volatility on September 7th, after peaking at $ 195, SOL price fell 35% in 9 hours, liquidating leveraged positions, creating a current equilibrium between long and short.

The data shows no evidence that investors have built leveraged long positions despite the current $ 1 billion open interest. Furthermore, given the 410% increase over the past two months, traders have reason to fear further downward movements, as Bitcoin has not broken the psychological barrier of USD 50,000 and has yet to confirm whether the recent drop below USD 40,000 is a short-term one Is low point.

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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

Mr. Teacher

According to Cointelegraph

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