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Solana has recently outperformed Ethereum in significant metrics, such as daily transactions and decentralized exchange (DEX) volumes.
Nonetheless, a recent report from the anonymous researcher Flip Research, released on July 30, indicates that a considerable portion of Solana’s remarkable performance may be attributed to bot activity instead of authentic user interaction.
Revealing Bot Activity on Solana
https://t.co/RAIZUwREKM
— Flip Research (@Flip_Research) July 30, 2024
On July 26, Solana documented an average of 217 transactions per user across 1.3 million active addresses, which starkly contrasts with Ethereum’s fewer than three transactions per user across 376,300 active addresses.
Flip Research links this difference to a significant amount of miner extractable value (MEV) and wash trading occurring on Solana.
The report critically analyzes the optimistic narrative surrounding Solana ($SOL), suggesting that its perceived advantages might be deceptive.
As per Blockworks Research, Solana’s total fees for the week of July 22 reached $25 million, exceeding Ethereum’s $21 million.
Moreover, Solana led the sector in 30-day DEX volume, with Raydium at the forefront, achieving $6.078 billion in trading volume, followed by Orca and Phoenix.
Despite the high number of users and transaction volumes, the report points out an unusually high transaction-to-user ratio, likely inflated by non-organic activities such as wash trading and rug pulls.
For example, Solana reported 282.2 million transactions compared to 1.3 million daily active users, resulting in an improbable 217 daily transactions per user.
In contrast, Ethereum had 1.1 million transactions against 376,300 users, or roughly 2.92 transactions per user daily. This disparity suggests potential manipulation within Solana’s ecosystem.
Solana’s decentralized exchange (DEX) volumes seem artificially enhanced by bots and fraudulent projects.
For instance, in the last 24 hours on Raydium, there were over 50 rug pulls with a total volume exceeding $200 million and $500,000 in fees.
These activities reveal a trend where bots execute thousands of transactions to fabricate fake volumes before rug-pulling investors.
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Network Congestion and Community Reaction
The widespread bot activity has not only inflated Solana’s metrics but also affected the network’s performance.
In February, Solana’s monthly stablecoin volume exceeded $643 billion, primarily driven by bot transactions on the Phoenix DEX.
Although developers addressed network congestion with a mainnet update in April, bot activity continues to be prevalent, resulting in numerous 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 pertain to SOL transactions within the network, have attracted considerable criticism from the cryptocurrency community.
Helis CEO Mert Mumtaz clarified that these failed transactions are mainly due to bots overwhelming the network, causing legitimate user transactions to be 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 mentioned that merely increasing transaction priority fees would not solve the issue, as spam occurs prior to the scheduling process.
The issue of bots has been speculative until now, but this recent report quantitatively provides more insight into the claims.
In light of these developments, Solana’s native token has seen a 4% decrease in the past 24 hours, dropping to $178, amidst a broader market decline of 3%.
This decline followed the SEC’s decision to revise its legal complaint against Binance, which means the court will not determine whether Solana and nine other tokens are securities.
Simultaneously, this drop was also influenced by the recent sharp price declines in the Celebrity Solana meme coin market, with many investors facing significant losses.
Analysts report that out of 30 celebrity meme coins launched in June, half have fallen by 99%, seven others are down at least 90%, and even the top performers have experienced declines of at least 70%.
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