Solana State of Liquid Staking

Jeremiah Kamama

Jul 15, 2023 • 5 min read

Over the past year, the Liquid Staking ecosystem has bloomed thanks to the switch in consensus mechanism that Ethereum underwent with the merge, which introduced a lot of advantages to space over traditional staking.

The solution gave the DeFi ecosystem capital efficiency and liquidity for tokens locked up in protocols to earn interest. Unlike Ethereum, Solana has always used Proof of Stake as its consensus mechanism since its inception.

In this article, I will highlight the state of the liquid staking ecosystem on Solana by:

Metrics: Yields and TVL
Liquid staking providers on Solana
Challenges and Opportunities.
Conclusion.

Metrics: Yields and TVL

As it stands, of the 70% of Solana’s SOL that is staked only 3% is in liquid staking protocols. Compared with Ethereum where almost 40% of staked Ether is in liquid staking protocols, Solana has a long way to go in attracting traditionally staked SOL into liquid staking protocols. The staking yield on Solana is more attractive than that of Ethereum currently at 7% for the former and 5% for the latter.

On Solana, a budding ecosystem of projects is building and flourishing in liquid staking tokens such as SOL. Marinade Finance and Lido are the leading liquid staking protocols on Solana with each holding $159M and $63M respectively in TVL.

Liquid Staking Providers

BlazeStake

The new kid on the block has managed to attain a TVL of $7.78M in a matter of 3 months. One of the main reasons for its sharp growth is its promise to distribute airdrops to stakers for just holding bSOL.

2. Jito

With Jito, SOL staked is converted to JitoSOL which enables the use to accrue both staking and MEV rewards. The protocol has witnessed meteoritic growth to a TVL of $34M and 11,553 holders since launching in December 2022.

The SOL deposited into Jito is delegated to MEV-enabled validators who auction off blockspace and receive MEV rewards hence Jito can provide extra APY to its stakers. Jito prides itself as being the first and only protocol to provide MEV-boosted staking rewards.

3. Marinade Finance

Rewards from staking with Marinade Finance are received through mSOL, its liquid staking token (LST). mSOL can be used in platforms such as Kraken, Coinbase, Orca and Raydium. Users can instantly unstake their position without waiting.

With Marinade Finance, you can be able to review the performance of all Solana validators. The platform has a scoring system that is an aggregate of a validator’s yield economics, block production and stake concentration factors.

The historic performance of any validator from their stake, APY, commission, skipped slots and uptime metrics are included here. In the performance overview, you’re also able to learn more about the stake distribution which consists of matters such as the node location, version and provider as well as how many and which stakers have delegated to a specific validator.

4. Lido

Lido is arguably the biggest liquid staking platform in the crypto space. On Ethereum alone, it accounts for about a third of staked ETH which introduced centralization risk. Aside from that contagion risk arises threatening existing DeFi platforms that accept stETH as collateral.

However, on Solana, this is not the case as it is the second-largest staking protocol with Jito not too far behind when TVL metrics are factored in. Marinade Finance is twice as big as Lido on Solana.

Users choosing Lido for their liquid staking needs enjoy DeFi integrations with over 35 platforms to choose from. However, due to the size of Lido on Ethereum, Solana users may not get as much attention from the platform.

5. SuperStake

Through SuperStake, an LST can be super staked to amplify yield through a borrow/lend flywheel of SOL/mSOL:

A user deposits mSOL and borrows SOL
The mSOL is deposited into Drift,which is a lending protocol.
The borrowed SOL can be staked to earn yield thus increasing the base mSOL that the user had.

6. JPool

The protocol has a TVL of 8.6M although it hasn’t seen significant inflows since January 2022 despite its attractive APY sitting at 11.1%.

According to Jpool, it evaluates validators through the following criteria:

Must not belong to the Top 20 by total stake
Must not be operated by a person running one of the Top 20 (by stake) validators
The validator must have a logo and a website.
The validator must have been active for at least 10 epochs.

It’s planned to release a governance and utility token for voting in project-related matters. Integration with DeFi platforms is in the works in order to deepen its reach.

7. Unstake

This product assists users in instantly unstaking their SOL and swap staked SOL from one validator to another. Currently, unstaking in Solana takes 2-3 days. Due to urgent liquidity needs or validator concerns, a user can unstake their asset without waiting for a complete epoch to be completed.

Unstake utilizes Sanctum Unstake Program which contains the Sanctum SOL Reserve Pool in order to provide liquidity for swapping from any staked SOL. It currently supports the swapping from over 10 Liquid Staking Tokens such as jitoSOL from Jito or mSOL from Marinde Finance.

Challenges and Opportunities

In a recent tweet by Solana’s founder Anatoly, he acknowledged that the percentage of SOL in liquid staking and DeFi is small and urged that community-wide effort is needed to improve the situation.

One of the challenges facing the growth of liquid staking in Solana, is smart contract risk. The difference in yield between traditional staking and liquid staking is a mere 2%. In its history, Solana’s traditional staking mechanism hasn’t faced any hacks hence the reluctance for stakers to move into untested liquid staking platforms.

This major challenge and low adoption present a chance for the liquid staking industry in Solana to grow. The DeFi ecosystem suffered reputational during the FTX fiasco but can be reinvigorated thanks to the capital efficiency brought about liquid staking.

Resources

Metrics: Yields and TVL

Liquid Staking Providers

Challenges and Opportunities

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