Three factors contributing to the rise in Solana (SOL) price this week

Solana (SOL) saw a 20% increase in price from Sept. 28 to Oct. 6, raising the question of whether this surge is linked to Bitcoin (BTC) movements or influenced by other elements. Before this price surge, or possibly its recovery, SOL encountered a challenging phase following a U.S. court’s approval for the liquidation of $1.3 billion in SOL from the insolvent exchange FTX.

Solana daily price index, USD. Source: TradingView

The bankruptcy court has implemented measures to ensure that the liquidation of FTX assets does not adversely affect the crypto market, mandating that the sale be conducted through an investment adviser in weekly increments according to established guidelines.

After the initial fallout, which pushed Solana’s price down to a two-month low of $17.34 on Sept. 11, some level of optimism among bulls returned as it regained the $20 support on Sept. 29. This movement coincided with a successful upgrade to version 1.16, which propelled the SOL token by 16% over the following week.

Solana’s price rally was further bolstered by an increase in decentralized applications (Dapps) usage and a rise in nonfungible token (NFT) transactions. Currently, Solana is striving to establish a $23 support level and solidify its position as the fifth-largest cryptocurrency (excluding stablecoins) by market capitalization, surpassing Cardano’s $9.22 billion.

Solana’s DApp and NFT market activity surges

In evaluating networks focused on Dapp execution, the number of active users should be prioritized. Thus, one should start by measuring the addresses interacting with smart contracts, which act as an indicator of user engagement.

Solana Dapps active addresses, 7-days. Source: DappRadar

It is noteworthy that the rise in activity was uniform across various sectors, including NFT marketplaces, decentralized finance (DeFi), collectibles, social, and gaming. Additionally, Solana’s active addresses engaging with Dapps surpassed those of Ethereum during the same timeframe, which were limited to 55,230.

Solana has been gaining momentum in the NFT sector due to its cost-effective and scalable solution, as data is compressed and stored off-chain. This facilitates more feasible production in larger volumes, as they incur lower minting fees, allowing creators to reach broader audiences.

NFT sales per blockchain, 7-days. Source: Cryptoslam

In the past week, the Solana network outperformed Polygon (MATIC) in NFT sales, amassing $6.8 million in value according to Cryptoslam. In September, the roles were reversed, with Solana totaling $23.9 million, while the Polygon network achieved $31 million in NFT sales.

Network upgrade enhances privacy and eases the stress on validators

A potential factor contributing to Solana’s recent 20% price increase was the network upgrade to version 1.16 on Sept. 28, which introduced a “gate system” to ensure the gradual implementation of new features on the network. This approach aids in maintaining network stability and averting complications from abrupt changes.

Another significant alteration in this update is “confidential transfers,” which utilize zero-knowledge proofs to encrypt transaction details, thereby enhancing user privacy. The release also includes enhancements in RAM usage for validators, resizable data accounts, and a mechanism for identifying corrupted data.

Overall, this update enhances efficiency, privacy, and security within the Solana blockchain, marking a crucial advancement in its evolution.

Stiff competition from Ethereum layer-2 solutions

Despite Solana’s rivalry with other blockchain networks, it is evident that Ethereum layer-2 solutions have gained more traction in terms of total value locked (TVL) and activity. For example, Arbitrum holds $1.73 billion in TVL, and Optimism has another $637 million, both significantly exceeding Solana’s $326 million, according to DeFiLlama.

Even as Solana continues to advance in privacy, scalability, and security, external factors beyond the FTX bankruptcy situation are influencing the market, making the $23 resistance more challenging to overcome than expected.

Ultimately, investors remain primarily focused on the Ethereum ecosystem, as it continues to lead in terms of developers and consolidated decentralized applications.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.