Kyle Reidhead
GM PRO DOers!
Solana just smashed all-time-highs for monthly active wallets in May. đ
You may have seen a chart similar to the one above over the last month across Twitter or other sources, touting the massive jump in Solana users in the month of May.
This got the entire Solana community buzzing with excitement and bragging about big things coming to the ecosystem soon. đ
And at first glance, it appears they were rightâŠ
Solana had more than 3 Million new unique wallets interacting onchain in May. Thatâs more new active wallets in one month than any total month of active wallets in Solanaâs history!
That got the Web3 Academy PRO team thinking⊠What are all of these new users up to? đ€
Did Solana launch a new application thatâs taking web3 mainstream, or are the degens back to play?
So we decided to do a deep dive and, while weâre at it, take our PRO members through our journey of how we look onchain đđâïž.
Today, weâre playing detective and looking at Solanaâs onchain activity, exploring various sectors like DeFi, Gaming, and NFTs, and getting to the bottom of what happened on Solana in May. đ
This will arm us with a deeper understanding of the dynamics within the Solana ecosystem, enabling us to stay ahead of blockchain adoption trends and refine our investment strategies to capitalize on the opportunity.
So, without further ado, let's dive right in! đ
If we kick things off by scrutinizing the total transactions across Solana, we're greeted with a staggering figure of over 10 Billion in May.Â
This is a massive number compared to every other blockchain, although surprisingly, it doesn't align with the spike we expected to see in May with the advent of 3 Million new users.
One important thing to understand about Solana is that it has different security mechanisms than every other blockchain and uses something called âvoting transactionsâ for validators to reach consensus.
These transactions are not real âuserâ transactions and should be sifted out when analyzing blockchain activity or when comparing to other blockchains.
If we remove voting transactions, we actually see a downward trend in transactions since the top of the bull run back in Nov 2021.
To be fair, 718 million transactions in May is still quite remarkable (for comparison, Ethereum chalked up about 35 Million txns), yet there's no major spike to attribute to the 3 million+ influx of new wallets.
Letâs go a bit more granular and see if we can find a spike within a specific sector.
Monthly DeFi transactions on Solana are down without a hint of a spike in MayâŠ
The gaming transactions tell a similar storyâŠ
Monthly NFT marketplaces saw a big spike, however that was in June, so it doesnât explain the 3 million+ new active wallets in May.
Another avenue we can look into is something called âsystem programsâ which handle a lot of backend operations on-chain, like creating accounts, transferring funds, and paying gas fees.Â
With the rush of all of these new wallets, surely we should see a spike here.
We can see a very minor bump in May, but thatâs about it đ€·
This leads us to believe that maybe these new wallets arenât doing many transactions. It could be something like how Reddit is onboarding 400,000+ wallets per week on Polygon, but 99% of wallets only mint their avatar and take no additional onchain actions.
Letâs break down each sector by active wallets instead and see if we can uncover something else. đ
Hereâs monthly active wallets using DeFiâŠ
A slight bump, but a total of only 196,812 wallets in May, so that canât be it.
Monthly active wallets using NFT marketplaces fare even worse⊠which is particularly odd in June considering we saw such a big jump in transactions on NFT marketplaces above.
(The increase in transactions yet decrease in wallets⊠hmmm, smells like bots to me)
Monthly active wallets interacting with games on Solana is also in a consistent decline, with less than 26,500 wallets in May (ouchâŠ) đŹ
Interestingly, if we look at monthly active wallets interacting with system programs, we see the spike in May of 3.6 Million wallets!
Great, we've unearthed the source of onchain activity, but what exactly is this activity? Is it legitimate? Could it be bots, or is it something else?
Letâs continue down the rabbit holeâŠ
Since the creation of those 3 Million wallets in May, we can see that 60% of those wallets had only 1 transaction.
Typically on Solana, that figure stands at 36.6%, so it's evident that May was an outlier.
Furthermore, when examining the interactions with programs, we found that 59% of the wallets (1.8 Million) engaged with only one program and 34% with just two programs.
When we look at what programs those are, we see that approximately 99.99% of those wallets interacting with just 1 program were doing so with an unknown program called '111111...'
...And then when we look at those interacting with just 2 programs, most are between the â111111â and another unknown program called â3Kr1RâŠâ
Ok, so what the heck does all of this mean? Are these real interactions or not?
Unfortunately, it seems as though they are fake or potentially run via a bot. This program '3Kr1' appears to engage in a pattern of fund transfers to newly created wallets, which are then sent back and forth without any real purpose or further interaction.
The interaction with '3Kr1' follows a specific pattern:
Wallet A funds Wallet B with $SOLÂ
Wallet B interacts with '3Kr1' which then sends 50% of $SOL to Wallet C.
Wallet B sends the remaining $SOL back to Wallet A
and Wallet C sends all of its $SOL back to Wallet A as well.
As both the creation of wallets and the movement of funds involve interaction with '1111âŠ' it artificially generated txs and active wallets, with new wallets interacting with both programs (11111 & 3Kr1) repeatedly.Â
However, none of these interactions were organic, as there was no genuine use case, only the continuous movement of funds, creation of new wallets, and repetitive interactions with both contracts.
This tells me that the âall-time-highsâ in active wallets on Solana in May is false and it's likely that 2.8 Million of the 3.5 Million newly active wallets on Solana are fake.
Itâs unclear at this point if these were simply just used to test something or if they are a scam by someone or were made to âinflateâ numbers to make the chain look more active.
Regardless, this analysis underscores the importance of digging beneath the surface. Surface-level numbers can be deceptive, and it takes an in-depth on-chain examination to unravel the real story.
I have been a supporter of Solana and its ecosystem for a long time.
I believe the technology has potential to be an incredible breakthrough in scaling blockchain technology. I also believe that Solanaâs founders and core team are top notch. đ„
What stood out to me in today's PRO report and deep dive into the onchain activity on Solana is that Solana is often marketed as this highly used chain with extreme scalability.
While the scalability remains undebatable - processing hundreds of millions of non-vote transactions per month at minimal gas fees - the authenticity of its user base and actual activity is extremely questionable.â
In June, Solana reportedly had 1.1 Million unique active wallets. But if we break down the numbers sector-wise, it paints a different picture:
Wallets interacting with DeFi in June = 177,000
Wallets interacting with NFT marketplaces in June = 68,500
Wallets interacting with games in June = 25,000
While there are other niche sectors on blockchains, these are 3 biggest use cases which Solana is âknownâ for. The total active wallets for Solanaâs biggest use cases are 270,000.
From our PRO report last month on âHow Many Humans Are Using Web3?â, we estimated that across the top 10 blockchains, about 33% of active wallets are unique humans (if that).
If we apply that formula here then weâre looking at about 89,000 real users this month on Solana. Layer 2s on Ethereum like Arbitrum and Optimism have numbers much higher than that.
After realizing this, my thought process was, this canât be true. Maybe there is more activity outside of these 3 sectors that we are missing. So we decided to pull the top programs on Solana to see if we were missing anything.
However, aside from "system programs", the top-ranking programs on Solana were DeFi and NFT marketplaces - already included in our analysis.
This leads me to believe that the âhypeâ around Solana activity and its big user base is just that⊠hype!
This isnât to say that Solana is dead or wonât thrive in the future, itâs just to say that currently, there isnât much happening on Solana, although headlines and Twitter may have you believe otherwise.
We will continue to monitor the activity on Solana as well as other chains and keep you all posted on where the action happens.Â
Additionally, we are still believers in Solana and thus will be releasing a PRO report breaking down the tokenomics of $SOL and exploring whether $SOL is a viable investment now and during the coming bull market.
That report will be out in a few weeks, so stay tuned for that.
In the meantime, remember to dig as deep as you possibly can in the world of web3. Hype and surface-level information can be deceptive and you need to do your due diligence when weâre not around to do it for you.
Hopefully, this report gave you a better understanding of how you can do that to stay ahead of the curve and capitalize on the opportunity.Â
Thatâs it for today, frens! I really hope you can join us in Discord next Tuesday (the 11th of July) for our Eyes On Chain PRO-only event, where weâll debunk the top 5+ charts in web3 right now.
See you then! âïž
Kyle Reidhead
Founder of Web3 Academy and Impact3
Find him on Twitter
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
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