<p>By many metrics, from market cap to transactions and daily active users, Solana is one of the most popular proof-of-stake blockchain networks. Staking is fundamental on it, and over 70% of SOL holders stake their tokens.<br>There are two ways to stake: the traditional “Native” way and then liquid staking which introduces more DeFi opportunities. Liquid staking has been possible on Solana since Marinade launched in August, 2021. Since then, more and more DeFi and NFT integrations have been introduced to make the liquid staking tokens more attractive to use than regular SOL tokens.</p><h2><br>How liquid staking works on Solana</h2><p>Liquid staking tokens on Solana follow a rewards-bearing mechanism. This means the staking rewards received by the protocols received each epoch (2-3 days) are added into the price of the liquid staking token vs. SOL price. Because liquid staking tokens rise over time vs. SOL, they make for particularly interesting collateral to supply and borrow against to use in DeFi.</p><p>Because each liquid staking token originally minted at different times, they have had variable durations to compound rewards into the LST price. For example, mSOL is the highest price because it was the first one minted.<br>Liquid Staking protocols have a “delayed unstake” function that allows the LST holder to claim their SOL back shortly after the next epoch ends (on average about 2.25 days long).</p><p>A recent development in the Solana staking ecosystem is the vast improvement of dynamic liquidity for all liquid staking tokens. While Marinade’s mSOL has traditionally had the highest TVL and market liquidity for swaps and instant unstaking, Jupiter’s new connected liquidity function has enabled all liquid staking tokens to utilize each other’s market liquidity, creating a deeper reserve of available liquidity for swaps. In many market conditions, it’s possible to swap for 1,000 SOL with less than 0.1% price impact vs. delayed unstaking.</p><p>Using tools like <a target="_blank" rel="noopener noreferrer" href="https://Unstake.it">Unstake.it</a> and Marinade, anyone can swap out of a native staked position instantly by moving to unlocked SOL or deposit the stake for a liquid staking token without unstaking.</p><h2>How much can I earn liquid staking SOL?</h2><p>Solana’s chain inflation began at 8%, decreasing 15% per year until reaching a 1.5% terminal rate. Current inflation on Solana as of August, 2023 is 5.90%. Validators can still earn as high as 8% APY through compounding, performance and staked supply. High-performance stake pools, each of whom have different validator sets, are currently averaging around 7% APY.</p><p>An analysis of stake pool APYs show that the leading pools all typically have similar APY performance over time. While MEV (Maximum extractable value) is being explored by validators on Solana, it is in its infancy and does not produce the number of rewards compared to the slower transaction architecture on Ethereum that has a mempool. The big differences between the pools are what integrations are supported and how they choose their validator set. Other considerations are if there is a governance token to participate in and for those wanting to supply liquidity, how much volume there is to earn fees.</p><p>There are over a dozen liquid staking tokens on Solana, but for this guide we will focus on the four main stake pools on Solana that are open-source, audited and continuing to build and grow both censorship resistance and asset liquidity in the ecosystem.</p><figure class="image"><img alt="2023-10-13 16.54.36.jpg" src="https://tidy-ball-c49dc59f59.media.strapiapp.com/2023_10_13_16_54_36_e51452f4e1.jpg"></figure><figure class="image"><img></figure><h2>Marinade Finance</h2><p>Funded via grants at the 2021 Solana hackathon, <a target="_blank" rel="noopener noreferrer" href="https://marinade.finance/?utm_source=staking-rewards&amp;utm_medium=article&amp;utm_campaign=staking-rewards&amp;utm_id=solana-lst">Marinade’s</a> mSOL was the first liquid staking token to go live on Solana in August, 2021. The latest Marinade 2.0 dApp release comes with a robust set of tools for stakers, including a validator dashboard and its own liquidity pool for instant unstaking operations. Most recently they introduced <a target="_blank" rel="noopener noreferrer" href="https://docs.marinade.finance/getting-started/what-is-marinade-native?utm_source=staking-rewards&amp;utm_medium=article&amp;utm_campaign=staking-rewards&amp;utm_id=solana-lst">Marinade Native</a>, a first-of-its-kind staking product that allows stakers to use the Marinade delegation strategy natively without the liquid, smart-contract element. mSOL has the most trading volume and integrations of all the LSTs on Solana, which includes one-click leveraged staking on Super Stake SOL (built by Drift) and Solend. It is also available on central exchanges like Coinbase and Kraken.</p><p><strong>Delegation Strategy:</strong> 60% is determined by a scoring strategy factoring performance and decentralization that awards stake to the top 100 validators by Marinade score. The other 40% is determined by community votes. Holders of locked MNDE vote on 20% of the stake pool, while mSOL stakers can also vote to direct their stake to a validator of their choice for the remaining 20%. The game theory of these directed stake votes has made Marinade an attractive option for validators, some of whom like <a target="_blank" rel="noopener noreferrer" href="https://solanacompass.com/staking/turbo-staking">Solana Compass</a> have even added extra incentives to stakers to direct MNDE or mSOL votes their way.</p><h2>Lido</h2><p>While its origins as a staking protocol are on ETH, Lido was the second liquid staking protocol (stSOL) to deploy on Solana, and like Marinade did so with its very own smart contract. Lido DAO operates stake pools on multiple chains and controls a the largest amount of liquid ETH stake via stETH. Early on, stSOL liquid stakers could farm the LDO governance token in a variety of protocols, but in 2023 there has been less mining available on Solana pools. stSOL has historically had the second highest market share of Solana LSTs, as well as the second most DeFi integrations to Marinade.</p><p>In October 2023, the Lido DAO voted to sunset operations on Solana. The <a target="_blank" rel="noopener noreferrer" href="https://snapshot.org/#/lido-snapshot.eth/proposal/0x37c958cfa873f6b2859b280bc4165fbdf15b1141b62844712af3338d5893c6c8">proposal</a> calls for no new staking operations by mid October, and halting support for the front end by February, 2024.&nbsp;</p><p><strong>Delegation Strategy:</strong> Lido’s pool is managed by the LNOSG group part of Lido DAO, who review applications and determine which validators should receive stake and how much. This group approves validators to receive stSOL stake. A bot then distributes the stake uniformly across the pool. Lido typically stakes to the fewest number of validators among the Solana stake pools. These validators are generally long-time Lido partners with larger, multichain operations. Smaller and newer Solana validators typically do not receive Lido stake.</p><h2>Jito</h2><p>Jito is a Solana-focused project launched in 2022 with two core offerings:</p><ol><li>Jito Labs’ validator client</li><li>Jito Foundation’s Solana liquid staking pool</li></ol><p>Jito Labs received a $10 million investment from Solana-focused venture capital firm Multicoin Capital, who have expressed their bullishness on the future of MEV on Solana as the chain grows in adoption. Jito Labs is focused on Solana MEV opportunities through its validator client, and to date it already validates over 30% of SOL stake. These validators also receive stake from pools like Marinade and Blaze who can share MEV rewards with their holders. Contributors at Jito have teased potential governance token airdrops or points throughout 2023 and recently announced a points campaign incentivizing JitoSOL stakers, and use of their LST across Solana DeFi.</p><p><strong>Delegation Strategy: </strong>Jito’s stake pool utlizes the Solana Labs stake pool contract and its delegation strategy is designed to support the Jito Validator client and network decentralization through geography, stake weight, while not delegating to the Superminority. Currently, validators must apply through the Jito Foundation to be considered and the stake bot is closed source, but a permissionless delegation with an open-source bot is on the foundation’s roadmap.</p><h2>BlazeStake</h2><p>BlazeStake is a smaller, community-focused stake pool on Solana that launched in May, 2022 that has enjoyed momentum in 2023 through the release and airdrop of its own governance token, BLZE. Like Jito it also uses the main Solana Labs stake pool smart contract. There are plans to burn the keys to this smart contract and make it non-upgradable.</p><p><strong>Delegation Strategy:</strong> Blaze combines an automated scoring system with directed stake voting. For the scoring, it utilizes a formula that combines decentralization and performance metrics to select the Top 50 validators based on its criteria and rebalances each epoch. Blaze’s directed stake is currently used with bSOL, plus 10% of the remainder of the stake pool that did not direct stake. Unlike Marinade, validators who receive bSOL votes will always maintain a minimum 1:1 vote ratio. BlazeStake’s governance token, BLZE, also plans to introduce gauges at a later date.</p><p>The amount of SOL these 50 validators receive is then determined by the total SOL staked through Blaze minus how many stakers are using their bSOL to direct stake to a validator. The upcoming governance mechanics of BLZE as well as bSOL will determine how much stake validators will receive from the community.</p><h2>Solana Liquid Staking Risks</h2><p>Before using LSTS in DeFi, learn the risk mechanisms in play for the protocol to understand what might cause a liquidation or loss of principal.</p><ol><li>While each of these four liquid staking protocols are open source with multiple audits, they use a smart contract that performs multiple functions. There has never been a smart contract exploit of Solana LSTs despite over $1 billion TVL in LSTs at its peak.</li><li>LSTs used in DeFi also introduce another layer of smart-contract vulnerability, especially when dealing with vault strategies, leverage, or other contracts that rely on oracles that can cause liquidation.</li><li>During the FTX collapse in November, LSTs suffered a <a target="_blank" rel="noopener noreferrer" href="https://www.coindesk.com/business/2022/11/09/staked-sol-tokens-falter-as-solana-traders-stakers-rush-for-exits/">brief depegging event</a> due to a lack of instant swapping liquidity. This liquidity has improved since Jupiter introduced its new dynamic LST liquidity pools, and utilizing protocols’ delayed unstake always returns the expect SOL amount at the end of the epoch (every 2-3 days).</li></ol><h2><strong>Solana Liquid Staking outlook</strong></h2><p>With Solana DeFi still looking to rebuild its TVL back to levels prior to the FTX-Alameda collapse, many in the ecosystem point to the growth of liquid staking as a primary driver. Some potential catalysts for LSTs on the horizon include:</p><ul><li>Extending the “unbonding” times of staked SOL longer than 2-3 days.</li><li>Introduction of a “slashing” mechanism on Solana</li><li>Solana Foundation supporting LSTs through its 70M SOL staking delegation program</li><li>Further SOL token unlocks and distribution from early VCs</li><li>Project token launches that drive further liquidity and use cases in DeFi</li><li>The proliferation of bribe markets for validators and stakers</li><li>Simple liquid staking integrations into leading Solana wallets like Phantom</li><li>Support for LSTs in leading NFT marketplaces like Tensor or Magic Eden</li><li>Further Lindy Effects and smart contract maturity of liquid staking and Solana DeFi protocols</li></ul><h2>More tools for Solana stakers</h2><ul><li><a target="_blank" rel="noopener noreferrer" href="https://solanacompass.com/stake-pools">Solana Compass Solana Stake Pool stats</a></li><li><a href="StakeWiz: unique validator scoring system by Laine" target="_blank" rel="noopener noreferrer">StakeWiz: unique validator scoring system by Laine</a></li><li><a target="_blank" rel="noopener noreferrer" href="https://cogentcrypto.io/Validators">Cogent Crypto Validator Leaderboard</a></li><li><a target="_blank" rel="noopener noreferrer" href="https://marinade.finance/app/validators/">Marinade Validator Dashboard</a></li></ul><h2>Solana liquid staking: key stats</h2><ul><li>Active validators: 1,979</li><li>Nakamoto Coefficient: 31</li><li>Liquid staking TVL: 10.4 million SOL &amp; liquid staking TVL of SOL stake: 2.8%</li><li>Liquid Staking avg. APY: 7.09%</li></ul><h2>Where to use LSTs in Solana DeFi</h2><ul><li>Use LSTs as collateral: Solend, Hubble, MarginFi</li><li>Supply LST Liquidity: Raydium, Orca, Meteora Kamino</li><li>Advanced LST Trading: Mango, Drift, Psy Options</li><li>LST Leveraged Staking: SuperStake SOL, Solend</li><li>Trade NFTs or lend/borrow against NFTs: Rain.Fi, Liquify NFT</li></ul><p>&nbsp;</p>

A Guide to Solana Liquid Staking

TL;DR: