Analysis of the Performance of DeFi Projects in the Solana Ecosystem

Recently, the Solana ecosystem has shown a strong growth trend, with the price of SOL approaching the $100 mark on December 22. The trading volume on Solana's decentralized exchanges once surpassed that of Ethereum, sparking heated discussions in the market. Meanwhile, Ethereum is facing various doubts, especially as DeFi projects that led the liquidity mining trend in the previous bull market are no longer viewed favorably. So, how are the DeFi projects in the Solana ecosystem performing? Are the established projects truly reviving? Let's take a look at the specific situation of each sector.

Liquidity Staking

Liquid staking is an important growth area within the Solana ecosystem. Staking itself locks up funds which is beneficial for the rise in SOL prices, while various liquid staking tokens (LST) can be used in other Decentralized Finance projects. The wealth effect and incentives from new project airdrops also encourage continued growth in funds participating in liquid staking.

Marinade Finance and Jito are the two largest liquid staking projects on Solana. As of December 22, their total value locked (TVL) reached $1.05 billion and $626 million, respectively, ranking them in the top two in the Solana ecosystem by TVL.

Although Marinade's dollar-denominated staking funds are only 57% of their historical peak, the number of staked SOL (11.15 million SOL) has reached a new high. In addition to providing staking services, Jito has also developed MEV infrastructure. Thanks to an unexpectedly large airdrop, Jito has gained widespread support. Recently, Jito has started to encourage the use of JitoSOL in DeFi projects, leading to a rapid increase in its staking quantity, which has now reached 6.42 million SOL.

Decentralized Exchange

In the field of decentralized exchanges (DEX), Raydium and Orca remain the two most important projects, and no new standout performers have emerged. Both projects have developed centralized liquidity features based on their original foundations, but their market positions have changed.

For DEXs, liquidity and trading volume are the two most critical indicators. Raydium's highest liquidity once reached $2.21 billion and is currently at $113 million, only 5.1% of its peak. Orca's highest liquidity once reached $1.41 billion and is currently at $184 million, which is 13% of its peak.

Recently, the trading volume on Solana's DEX has surpassed that of Ethereum, becoming the focus of market attention. According to the data, Solana's trading volume has been higher than Ethereum's, whether in the past 24 hours or over the last 7 days. Although some have questioned whether this might be due to the repeated calculation of trading volumes from aggregators, given that Solana relies more on trading aggregators (like Jupiter) compared to Ethereum (like 1inch), the trading volumes calculated separately for each DEX still show that Solana has indeed outperformed Ethereum.

Another indicator worth paying attention to is the DEX trading volume/TVL ratio, which reflects the efficiency of capital utilization. This ratio for Raydium and Orca is 4.81 and 2.87, respectively, far exceeding the levels of major DEXs on Ethereum. This means that with the same principal, the returns from providing liquidity on Solana are much higher than on Ethereum, which could attract more capital into the Solana ecosystem.

Decentralized Finance

The decentralized lending sector has undergone significant changes. Among the once large lending protocols, only Solend remains at the forefront, but it has also been surpassed by emerging projects. TVL is crucial for lending protocols as it represents the remaining amount of funds in the protocol (deposits minus loans). The more remaining funds there are, the more deposits there are.

Solend's TVL once peaked at $910 million, currently standing at $187 million, which is 20.5% of its high point. Solend suffered a heavy blow during the FTX collapse in November 2022, with its TVL plummeting 90% from $280 million at the beginning of the month. Other established lending protocols performed even worse, with Port Finance, Larix, and Apricot Finance all experiencing significant declines in their TVL.

However, a number of new competitors have emerged in this field. The TVL of marginfi and Kamino has reached 348 million USD and 204 million USD, respectively, and has been growing rapidly recently. These new projects have not yet issued governance tokens, but have launched point systems that allow users to earn points through deposits and loans. Driven by airdrops from projects like Pyth and Jito, funds are continually pouring in, and various LSTs are supported on these platforms, with liquid staking projects potentially providing additional incentives for these funds.

Yield Aggregator

Projects in the yield aggregator sector have almost been eliminated by the market. Due to the already low transaction fees on Solana, the advantages of investing through yield aggregators for automatic reinvestment and avoiding personal operation fee expenditures are no longer significant.

The once most well-known project in this field, Sunny, has seen its TVL drop from a peak of $3.4 billion to the current $4.02 million. Sunny is usually used in conjunction with Saber, and it has been revealed that the developers behind these two projects are the same person, who faked 11 identities to develop different projects, artificially inflating Solana's TVL by billions of dollars.

In addition to simple aggregation mining functions, some yield aggregators also provide lending and leveraged mining features. However, due to the decline in mining yields, the performance of these projects has not been satisfactory. For example, Francium's TVL dropped from $430 million to $20.89 million, and Tulip's TVL fell from $1.07 billion to $21.41 million.

Perpetual Contracts

Compared to various perpetual contract projects on Ethereum Layer 2, Solana's performance in this field is not particularly outstanding.

Currently, Drift is a project with strong comprehensive strength in the field. Drift mainly adopts an order book trading model similar to dYdX, with a maximum leverage of 20 times. Currently, the project's TVL has reached a new high of $105 million, and the trading volume of SOL-PERP in the past 24 hours was $43 million. The project also offers spot margin trading functionality.

Mango is a well-established project in the field, with its TVL dropping from a peak of $210 million to $10.47 million. It previously suffered from a market manipulation-style hack, after which the hacker was prosecuted and arrested. Mango primarily uses lending and leveraged trading models, requiring borrowed funds for trading through Jupiter. Recently, Mango has also added perpetual contract trading functionality, but the trading volume for SOL-PERP in the past 24 hours was only $520,000.

Another competitor in this field is Jupiter's JLP, which adopts a model similar to GMX V1. The funding cap for JLP is set at $23 million, and the trading volume for SOL-PERP in the past 24 hours reached $101 million, even surpassing Drift.

Decentralized Stablecoin

Solana has always lacked outstanding projects in the field of Decentralized Finance stablecoins.

The UXD Protocol once completed financing with a valuation of nearly $2 billion, but its TVL peaked at only $42 million and has now dropped to $11.19 million. The project initially used a delta-neutral strategy to hedge SOL collateral, but has now also shifted to a model that mints USDC 1:1.

In addition, there are two stablecoin projects that use over-collateralization for minting, but their development is also not optimistic. The TVL of Parrot Protocol has dropped from a peak of $476 million to the current $8.61 million; Hubble's TVL has decreased from a peak of $39.83 million to the current $8.06 million.

Summary

In the Solana ecosystem, various DeFi projects are showing different development trends. Liquidity staking projects have led to the growth of Solana's TVL, and the application of various LSTs in other projects has further promoted ecological development. Although the liquidity in the DEX sector still lags behind that of Ethereum, trading volumes have surpassed Ethereum at certain times, driven by the extremely high capital efficiency of DEXs on Solana, which may further attract capital inflows. Emerging projects in the decentralized lending sector, such as marginfi and Kamino, are performing well, and the market has high expectations for their potential airdrops. In the perpetual contract sector, Drift and JLP are in a growth phase. However, there have yet to be any standout projects in the yield aggregator and stablecoin sectors.