Layer 1 blockchain network Solana (CRYPTO: SOL) is many things to many different investors. But over the past week, Solana's token price has absolutely rocketed higher, surging 11.2% since Friday close as I write this.
This move led Solana to become the best-performing asset among the top 20 crypto projects this past week, and also resulted in Solana reaching a record high versus competing layer 1 proof-of-stake ecosystem Ethereum (CRYPTO: ETH) this week.
There are a number of factors which drove this rally, but it's clear that most investor attention has been paid to the AI meme coin rally we're seeing play out in the crypto sector. Let's dive into what to make of this rally, and whether it could be sustainable moving forward.
Developers are building on Solana
What's interesting about the rise of AI meme coins is how disproportionately this surge in interest in this niche has benefited Solana. A number of such projects, including Goatseus Maximus (trading under the ticker GOAT), have achieved massive market capitalizations recently as investors look to invest in the latest trend of AI agents pushing meme coins, many of which happen to be developed on Solana.
Solana's plethora of meme coins that have seen impressive gains in the past, including Bonk and Dogwifhat, have led many investors toward this particular layer 1 network for speculation. However, with increased investment has come increased network revenue from transaction fees, which broke through the $4 million mark this past week, setting a new record and achieving levels that are around 10 times what they were at September lows.
That's a rather dramatic move, and one which investors appear to believe can continue from here. Of course, much of this investing thesis relies on the idea that AI-driven meme coins can continue to surge, and that's up for debate.
Is this move sustainable?
What's interesting about this week's move in Solana is that there are certainly fundamental metrics investors can use to back up the idea that this project should be worth roughly $8 billion more than it was last week.
However, it's also true that the key driver of this week's surge has been meme-coin-related. We've seen how other bubbles have ended, so the question many are asking right now is how far along the hype curve are we on this trend.
I'll leave debate of that question to speculators. But one thing that's clear to me is that development activity remains high, transaction-driven fee revenue is also strong, and inflationary pressures are abating for Solana, with around 15% of newly issued tokens being burned, according to data from Blockworks. These factors do suggest to me that this trend could be sustainable, if AI meme coins are eventually replaced with the next new technology, so long as developers continue to choose Solana as the base layer to build upon.
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Chris MacDonald has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
