Tom Wan, an analyst at digital asset company 21.co, believes that liquidity staking is an untapped potential in the decentralized finance (DeFi) field of Layer 1 blockchain Solana and has the potential to increase its total locked value (TVL) by 15 billion to US$17 billion.

Tom Wan pointed out on the In comparison, Ethereum has 32% of staking coming from liquidity staking.

Tom Wan believes that the reason for this difference is whether there is an in-protocol delegation mechanism. He said that Solana provides SOL token stakers with an easy way to natively delegate SOL, and the liquidity staking platform Lido is one of the few early methods to delegate Ethereum (ETH) to earn staking rewards.

Overview of Solana's Liquid Staking Market(/7) pic.twitter.com/ZZeeiJ4TYL

— Tom Wan (@tomwanhh) May 6, 2024

Solana Liquidity Staking Market Overview

Tom Wan said that the market share of Solana’s liquid pledged tokens (LSTs) is more balanced than that of Ethereum. On Ethereum, 68% of the market share comes from Lido, while the LSTs on Solana are even more oligopolistic, with the top three LSTs accounting for a total market share of 80%.

Source: Tom Wan

Tom Wan mentioned that the Solana liquidity staking market was divided early by Lido’s stSOL (33%), Marinade’s mSOL (60%) and Sanctum’s scnSOL (7%). The total market value of LSTs on Solana is less than $1 billion. He believes that the lack of adoption of liquidity staking can be attributed to marketing and integration, there were not many high-quality DeFi protocols supporting LSTs at the time, and the market focus was not on liquidity staking.

However, with the Solana ecological liquidity staking protocol Jito launching the liquidity staking token jitoSOL in November 2022, it took them about 1 year to flip stSOL and mSOL, and became the most important on Solana with a market share of 46% Liquidity staked tokens.

Source: Tom Wan How to scale the Solana Liquidity Staking Market?​

Tom Wan believes that the most important factors for the success of Solana’s liquid pledged tokens include liquidity, DeFi integration and partnerships, and chain expansion is also one of the options. He pointed out that LSTs promote the development of the Ethereum DeFi ecosystem and can also help Solana’s TVL grow significantly.

Tom Wan, for example, said that 40% of the TVL of the Ethereum lending protocol AAVE v3 comes from wstETH (wrapped stETH), which can be used as collateral to generate revenue and unlock more potential for DeFi like Pendle, Eigenlayer, Ethena, etc.

He also made several predictions for the growth of Solana’s liquidity staking rate over the next one to two years (based on current valuations):

  • Base case: 10%, $1.5 billion more liquidity available in DeFi

  • Bullish case: 15%, $5 billion more liquidity available in DeFi

  • Long-term bullish case: 30%, with similar liquidity staking ratio to Ethereum, $13.5 billion more available liquidity in DeFi

Tom Wan concluded:

“Top DeFi teams are working together to bring more pledged SOL capital into DeFi, with Drift Protocol, Jupiter, marginfi, BONK, Helius, sanctum and Solana Compass all launching their own liquid pledged tokens. As a DeFi user "It is always better to have competition and new innovations in the market, which is why I am optimistic about the future of Solana DeFi."

7/ Top DeFi Teams are working together to onboard more Staked SOL Capital to DeFi@DriftProtocol, @JupiterExchange, @marginfi, @bonk_inu, @heliuslabs, @sanctumso, @SolanaCompass all launched their liquid staking tokens. As a DeFi user, it is always better to have competition… pic.twitter.com/LymCpIN9qK

— Tom Wan (@tomwanhh) May 6, 2024

This article 21.co Analyst: Solana liquidity staking is yet to be developed and could push TVL up to $1.5 billion to $17 billion first appeared on Zombit.