The Solana (SOL) declined sharply on Thursday morning as investors reflected on the latest hack in one of its DeFi protocols. SOL is trading at $97.80, which is about 14% below its highest level this week. Its price has crashed by about 62% from its highest level in 2021, bringing its total market cap to about $31 billion.
Solana faces challenges
Solana is a fast-growing and well-funded blockchain project that seeks to become an ideal platform for developers.
It aims to achieve this by solving some of the biggest challenges that exist in the Ethereum blockchain. For example, it is well-known for the low speed and high transaction costs. It handles less than 50 transactions per second (tps), while the average cost of a transaction is over $30.
Solana, on the other hand, is a proof-of-stake network that is incredibly fast since it can handle 2,000 tps. The average cost of transactions in its network is less than $0.001.
However, while Solana has seen spectacular growth recently, its network has been susceptible to challenges. For example, last year, the network went offline for about 3 days. At that time, it was impossible to use apps built within its ecosystem. The same thing happened this year.
On Thursday, the Solana price declined after hackers stole about $120 million worth of cryptocurrencies from Wormhole. Wormhole is a communication bridge between Solana and other blockchain platforms.
SOL price retreated as investors worried about the security features of Solana’s ecosystem. In all fairness, a hack in an app built by Solana does not mean that the blockchain project has vulnerabilities. Besides, hacks have happened in apps built by other blockchain projects like Ethereum and Binance Smart Chain (BSC).
Solana ecosystem growth
The Solana price has declined in the past few months even as its ecosystem growth has continued. Today, there are hundreds of powerful projects built using the platform. These include apps in all industries like decentralized finance (DeFi), non-fungible tokens (NFT), lending protocols, and Web 3.0.
Some of the biggest DeFi apps built on Solana are Orca, Saber, and Serum. According to DeFi Llama, there are now about 50 apps in the network that have a combined total value locked (TVL) of over $7.6 billion. As a result, it is the sixth biggest platform in the industry like Ethereum, Terra, BSc, Avalanche, and Fantom.
Other well-known projects powered by Solana are Audius, Brave Browser, and Apricot Finance among others.
Still, the Solana price faces a number of challenges going forward. First, there is the fact that its industry is getting competitive. For example, while it can handle about 2,000 transactions per second, others like NEAR and Kadena can process an excess of 100k tps.
Second, like all cryptocurrencies, there is the risk posed by the Federal Reserve and other central banks. The Fed has hinted that it will start hiking interest rates while the Bank of England (BOE) is expected to implement its second straight rate hike on Thursday.
Solana price prediction
The daily chart shows that the SOL price has been under pressure in the past few months. Subsequently, the coin has managed to decline below the 61.8% Fibonacci retracement level. The downward trend is being supported by the 25-day and 50-day moving averages (MA). It has also formed what looks like a bearish flag pattern.
Therefore, there is a likelihood that the Solana price will continue its bearish trend in the coming months as bears target the key support at $70.