Capital Outflows Shift to Ethereum and Arbitrum

Solana has experienced a significant decline in user activity, with a 40% drop in active addresses amid increasing scams and rug pulls in its memecoin sector. The resulting loss of confidence is driving capital outflows to competing blockchains such as Ethereum and Arbitrum. However, analysts suggest that this downturn could ultimately benefit Solana in the long run.

Rug pulls and insider schemes involving Solana-based memecoins have led to a decline in investor confidence and capital inflows. According to a Glassnode chart shared with Cointelegraph, the rate of monthly capital inflows into Solana and its MEME index has turned negative at -5.9%.

CryptoVizArt, a senior analyst at Glassnode, explained that the decline represents a sharp fall from the peak in December 2024, primarily due to reduced investment in memecoins. The analyst noted:

“The rate of monthly capital inflow into Solana has declined from December 2024 high to 2.5% per month, mostly due to the negative capital flow in the MEME sector. However, Solana still has some positive momentum, but it’s declining faster than Bitcoin.”

Solana Faces Price and Activity Decline

Alongside the decline in capital inflows, Solana’s price has fallen by over 29% in the past month, compared to a 15% drop in Ethereum and a 7% decline in Bitcoin, according to data.

User activity on the Solana network is also decreasing. The number of active addresses fell to a weekly average of 9.5 million in February, down from 15.6 million in November 2024. This marks a significant cooldown for the blockchain, according to Glassnode’s analyst, who stated:

“A significant cool down in Solana activity is evident. However, we are still relatively higher than the pre-bull market baseline.”

The decline in investor activity has been linked to failed Solana-based memecoin projects, particularly the Libra token, which was endorsed by Argentine President Javier Milei. The project’s insiders allegedly siphoned over $107 million in a rug pull, triggering a 94% price collapse within hours and wiping out $4 billion in investor capital.

Potential Long-Term Benefits for Solana

As confidence in Solana weakens, millions of dollars in crypto assets are being transferred to other blockchains. Data from Debridge shows that over $7.7 million worth of funds were moved from Solana to Arbitrum, while more than $6.9 million was transferred to Ethereum.

Solana’s advanced technology has drawn both legitimate projects and bad actors, leading to cases of insider corruption. However, blockchain researcher Aylo suggested in a Feb. 18 post on X that this market correction could ultimately be beneficial for Solana’s long-term growth.

“This washout will end up being a very good thing long term. Standards need to go up. Bad actors need to be removed,” Aylo stated.

He further noted that if Solana and other Layer 1 token prices are driven primarily by speculative trading and gambling activities, their valuations may remain limited in the long term.

While the recent downturn highlights ongoing challenges in the Solana ecosystem, it may serve as a necessary step towards improving the network’s credibility and sustainability.