Solana has recently surpassed Ethereum in key metrics, including daily transactions and decentralized exchange (DEX) volumes.
However, a new report by the pseudonymous researcher Flip Research, published on July 30, suggests that much of Solana’s impressive performance may be driven by bot activity rather than genuine user engagement.
Uncovering the Bot Activity on Solana
https://t.co/RAIZUwREKM
— Flip Research (@Flip_Research) July 30, 2024
On July 26, Solana recorded an average of 217 transactions per user across 1.3 million active addresses, a stark contrast to Ethereum’s fewer than three transactions per user across 376,300 active addresses.
Flip Research attributes this discrepancy to a high amount of miner extractable value (MEV) and wash trading on Solana.
The report critically examines the bullish narrative surrounding Solana ($SOL), suggesting that its perceived strengths might be misleading.
According to Blockworks Research, Solana’s total fees for the week of July 22 reached $25 million, surpassing Ethereum’s $21 million.
Additionally, Solana led the industry in 30-day DEX volume, with Raydium topping the list at $6.078 billion in trading volume, followed by Orca and Phoenix.
Despite high user numbers and transaction volumes, the report indicates an abnormally high transaction-to-user ratio, likely inflated by non-organic activities such as wash trading and rug pulls.
For instance, Solana reported 282.2 million transactions versus 1.3 million daily active users, translating to an improbable 217 daily transactions per user.
In comparison, Ethereum had 1.1 million transactions versus 376,300 users or approximately 2.92 transactions per user daily. This discrepancy points to potential manipulation within Solana’s ecosystem.
Solana’s decentralized exchange (DEX) volumes appear artificially inflated by bots and fraudulent projects.
For example, in the last 24 hours on Raydium, there were over 50 rug pulls with a combined volume of more than $200 million and $500,000 in fees.
These activities highlight a pattern where bots conduct thousands of transactions to create fake volumes before rug-pulling investors.
Network Congestion and Community Response
The pervasive bot activity has not only inflated Solana’s metrics but also impacted the network’s functionality.
In February, Solana’s monthly stablecoin volume surpassed $643 billion, driven predominantly by bot transactions on the Phoenix DEX.
Although developers responded to network congestion with a mainnet update in April, bot activity remains rampant, leading to many failed transactions.
According to Dune Analytics, Solana experienced a peak in failed transactions on April 4, with 75% of non-vote transactions failing.
These non-vote transactions, which refer to SOL transactions within the network, have drawn significant criticism from the cryptocurrency community.
Helis CEO Mert Mumtaz explained that these failed transactions are primarily due to bots spamming the network, resulting in legitimate user transactions being dropped.
rough TL;DR of what’s happening:
– the networking stack (QUIC) on Solana is implemented poorly and does not handle spam well
– if everyone spams, a lot of connections get dropped since a block leader can only handle so many connections at once
– bots spam better than humans,…
— mert | helius | hSOL (@0xMert_) April 4, 2024
He noted that simply raising transaction priority fees would not resolve the issue, as spam occurs before the scheduling process.
The problem of bots has been speculative before now, but this recent report quantitatively sheds more light on the allegations.
Amidst these developments, Solana’s native token, Solana’s price, has dropped by 4% in the past 24 hours to $178, amid a broader 3% market decline.
The drop followed the SEC’s decision to amend its legal complaint against Binance, which means the court will not rule whether Solana and nine other tokens are securities.
At the same time, this decline was also due to the Celebrity Solana meme coin market’s recent dramatic price drops, with many investors experiencing significant losses.
Analysts report that out of 30 celebrity meme coins launched in June, half have plummeted by 99%, seven others are down at least 90%, and even the best performers have seen drops of at least 70%.
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