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Solana Network Congestion Highlights Ethereum’s Improvements, Community Eyes SOL Price Reaction

Last Updated April 8, 2024 12:07 PM
Valdrin Tahiri
Last Updated April 8, 2024 12:07 PM

Key Takeaways

  • The Solana network is experiencing network congestion over the past few days, leading to failed transactions.
  • SOL reached its all-time high price against Ethereum on March 13, but it has been decreasing since.
  • Is the network congestion a result of Solana’s shortcomings or is it because of increased network activity?

More than 75% of Solana transactions have failed over the past few days, raising concerns about the blockchains ability to handle a higher network load. The community is split on what this means for Solana’s future as a leading Layer-1 blockchain.

The SOL price has lost ground against Ethereum increase reaching its all-time high in March. Its network issues could further sharpen this divide, allowing the ETH price to make up some of the ground it lost in the first half of 2023.

Why is Solana Experiencing Congestion?

Over the past week, users on Solana’s popular Phantom wallet have noticed long transaction times and failed transactions. This happened after a surge in network activity, linked to memecoins and liquid staking in Solana Decentralized Exchanges (DEX).

Matt Sorg, a product leader at the Solana Foundation clarified that the number of failed transactions is not a bug. Rather, it is a feature of the network put in place to protect users. He noted that over 80% of the failed transactions have the error code “0x1771 “, the code for exceeding slippage amount.

When executing a transaction, a user sets their acceptable slippage amount. This means that if the price of an asset deviates for more than the slippage amount by the time the transaction is complete, the transaction will fail.

To put simply, failed transactions occur as users attempt to profit from volatile memecoins, which at times are priced differently in various Solana DEXes. If the price swings by more than the set slippage amount, the transaction will fail. As explained, this is an intended feature of the network.

Instead of failed transactions, Mr. Sorg notes that the real issue lies with dropped transactions. These occur when a transaction is not included in the final block for any reason.

Developers at Anza are working in a fix, with several patches being projected to release this week. According to them, the issue lies with a Solana validator client called “Agave”,  and how it handles large requests. The release of software v1.18  which will integrate priority fees will also assist in this regard.

The community is split regarding the implications of this congestion on Solana’s future. Dan Gambardello , founder of CryptoCapitalVenture raised his skepticism about Solana’s high transaction failure rate. According to him, Cardano is a much better solution.

However, strategy lead at Solana Austin Federa suggests that this is instead a testament to the increased activity on Solana. He reminds the community that Ethereum experienced the same issues when CryptoKitties first launched. Interestingly, the SOL price reached an all-time high against Ethereum on March 18.

How Does Solana Compare Against Ethereum?

SOL reached its all-time high price relative to Ethereum of 0.059 ETH per 1 SOL on March 18. However, the price has fallen since (red circle), decreasing below the main resistance of 0.052. Bearish divergences in the RSI and MACD precede the decrease (green lines).

When combined with a completed five-wave increase since the start of 2023, it is possible that SOL has reached its top relative to ETH. The closest horizontal support area is at 0.032.

Solana Reaches All-Time High Against Ethereum
SOL/ETH Weekly Chart | Credit: TradingView

Despite the network congestion, Solana transactions still greatly outpace those of Ethereum. Even though Ethereum’s Dencun upgrade greatly reduced fees on its Layer-2 solutions, there has not been an increase in Ethereum transactions.

Ethereum still leads on revenue due to its higher fees.  Ethereum average transaction fees  have hovered between 0.0015 – 0.0075 ETH since February 2024. Finally, Ethereum completely dwarfs Solana in Total Value Locked (TVL) with a difference of $52.7 to $4.5 billion.

Solana and Ethereum Transactions
Solana & Ethereum Transactions | Credit: Artemis

However, when it comes to the number of daily transactions Solana has been ahead for the past two years. Yesterday, there were 25.6 million transactions on Solana while only 1.2 million on Ethereum. At its all-time high in December 2021, Solana processed 57 million daily transactions, while Ethereum has never surpassed 2 million.

Solana Network Congestion

While there have been a significant percentage of failed transactions on the Solana blockchain, a number of them have been caused by spam transactions attempting to profit from arbitrage opportunities.

The number of transactions on Solana is more than twenty times higher than Ethereum transactions. Nevertheless, it is possible the SOL price has reached a top against ETH.

 

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