Experts say blockchain could face strategic challenges as S-token prices drop and yield-driven users emerge.
Layer 1 Blockchain Sonic, formerly known as Fantom, is tackling a sharp decline in total locked values (TVL) across its ecosystem, raising questions about the sustainability of its growth strategy.
According to Defillama, Sonic’s TVL has dropped from $1.1 billion in May to $367 million today. Because of the context, Fantom previously hit a TVL high of around $9 billion in early 2022.
The drop coincided with the end of a five-year agreement with Sonic’s market maker WinterMute, highlighting how difficult it is for the new blockchain to keep users and funds active on the network. At the time, Sonic’s Chief Strategy Officer wrote to X:
Sonic CEO Michael Kong said in a comment shared with the rebels that while TVL is an important indicator, “it doesn’t always speaks all.” He added that Sonic aims to achieve the same TVL as Fantom once.
“Given the unstable nature of Crypto, it’s natural that TVL fluctuates over time,” Kong said. “We are also planning to create US ETFs and NASDAQs, focusing on lasers in system-scale construction. [digital asset treasury]. ”
Earlier this month, Sonic passed a proposal to form Sonic USA. Sonic USA will fund ETFs and DATs by deploying S-tokens worth $150 million.
“Double-edged sword”
However, other experts say the network is facing strategic choices. “We’re committed to providing a range of services to our customers,” said Mike Maloney, CEO and Founder of IncyT. “new [Layer 1s] Trying to serve Defi cannot compete with Ethereum (and Solana’s) organic volume and must bring about the “edge” of private market manufacturers. ”
According to Defilama, Ethereum is currently the world’s largest blockchain (DEFI) by TVL in decentralized finance (DEFI), with nearly $110 billion currently in deposit. Meanwhile, Solana boasts a $14 billion TVL.
Maloney calls it a “double-edged sword,” and market makers bring in volume and tighter spreads, but they’ve also earned fees that would “remove a large range of liquidity and trading volume after term ends.”
“Sonic is currently at a crossroads and has to make difficult choices. He struggles by relying on professional market makers to create an efficient market or creating something truly decentralized with long tail recruitment issues,” concluded Maloney.
“The surrender is the mercenary.”
Meanwhile, Glider co-founder and CEO Brian Huang highlighted the challenge of relying on yield-driven capital.
“The surrender is the mercenary. A new chain (though Sonic was a brand) starts with a heavy incentive, but none of that TVL can be maintained when the incentive is gone.
He said the changes to Sonic’s TVL are in close agreement with the $s price, which is currently down about 69% at $0.30, currently trading at $0.30, at $0.30.30, according to Defiant’s price page.
“Sonic was paying incentives with $s tokens. For example, you’re getting an additional 10% APY with $s on your deposit,” Huang explained. “But when the price of $s drops, that 10% APY looks like a 5% APY and then it starts to become a 2% APY.”
He noted that this makes the return less attractive anymore. At the same time, the token price drops even further as people who receive the $s reward are selling them.
“TVL is only useful if you have a borrower who can generate a lender’s yield,” Huang says. “We need to see if Sonic can stimulate more borrowing in that ecosystem rather than simply relying on temporary incentives.”