Written by: Lostin, Helius
Compiled by: Glendon, Techub News
Do you hold SOL tokens and want to stake them, but don’t understand how Solana’s staking works? Don’t worry, this guide will provide you with a comprehensive overview of SOL staking, covering the most common questions and all key areas. Let’s get started!
Why stake SOL?
Staking SOL is not just about earning rewards - it is also critical to the decentralization and security of Solana. By staking, SOL token holders can contribute to the stability and governance of the network. In this process, it is important to choose a suitable validator to stake. Delegating tokens to a validator is like voting in a representative democracy, which reflects the trust that the validator can stay online at a high rate and process blocks quickly and accurately. Other considerations include the validator's ethical behavior, response to hard forks, and contribution to the Solana ecosystem.
Reasonably distributing staking rights among reputable validators can further promote network decentralization and effectively prevent any single well-funded entity from manipulating consensus decisions for personal gain.
What happens after you stake?
There are two forms of staking on Solana: native staking and liquid staking. Currently, 94% of staked SOL uses native staking, so this article will focus on this form and briefly introduce liquid staking later. For native staking, users can operate through various platforms, including multi-signature fund management tools (like Squads), popular wallets, and dedicated staking websites. The process for native staking is relatively simple: users simply deposit their tokens into a staking account and then delegate them to a validator's voting account. Individual users can create multiple staking accounts, each flexibly choosing to delegate to the same or different validators.
The above image: Individual stakers delegating to multiple validators.
Each staking account has two key permissions: staking permission and withdrawal permission. These permissions are automatically set by the system at the time of account creation and are defaulted to the user's wallet address. Each permission has its own specific responsibilities. The withdrawal permission has higher control over the account, allowing it to remove tokens from the staking account and enabling the user to update the allocation of the staking permission.
The most important time unit in staking is the epoch. Each epoch in Solana lasts for 432,000 slots, approximately two days. Whenever a new epoch begins, rewards are automatically distributed to the corresponding stakers. This process does not require manual operation by stakers, who will see their account balance increase at the end of each epoch. Additionally, users can directly harvest MEV rewards through the Jito website (more details on this will be provided later).
When you stake SOL natively, your tokens will be locked for the duration of the current epoch. If a user unstakes at the beginning of the epoch, they may need to go through a cooling period of up to two days to withdraw. If they withdraw at the end of the epoch, the process will be nearly instantaneous without additional waiting.
Similarly, starting staking also requires a warm-up period, which may last for two days or be almost instantaneous, depending on when the user starts the staking account. During this process, users can consult the Solana block explorer to track the progress of the current epoch.
How do operators profit?
Validator operators primarily profit in three ways:
Issuance/Inflation: Issuing new tokens
Priority fees: Users send SOL to validators to prioritize their transactions.
MEV rewards: Users pay Jito tips to validators to include transaction bundles.
The income of validators is entirely priced in SOL, and their income scale is directly linked to their staking amount. Operating costs are mostly fixed and priced in a mixture of SOL and fiat currency.
The above image: Total staking rewards for Solana validators (data source: Dune Analytics, 21.co)
Token issuance
Solana regularly issues new SOL tokens according to its inflation plan and distributes these tokens as staking rewards to validators at the end of each epoch. Currently, Solana's inflation rate is 4.9%, which will decrease by 15% annually until it stabilizes at a long-term inflation rate of 1.5%.
The amount of staking rewards received by validators mainly depends on the number of points they earn by becoming on-chain block nodes through correct voting. If a validator experiences downtime or fails to vote in a timely manner, their points will decrease. Under average point conditions, a validator with 1% of the total staking amount is expected to receive rewards accounting for about 1% of the total inflation amount.
Additionally, the staking rewards of validators are further subdivided and allocated based on the scale of their stakers' delegation. In this process, validators can charge a certain percentage of commission on the total inflation rewards their stakers receive. This commission rate is typically a single-digit percentage but can be any number between 0% and 100%.
The above image: Solana inflation timeline
Priority fees
In the Solana network, validators selected as the current block builders collect fees from each transaction processed, which are divided into two types: base fees and priority fees. These fees are immediately credited to the validator's identity account. Before this, validators can earn 50% of both base fees and priority fees as rewards, while the remaining portion is burned. With the passage of SIMD-96, this fee structure will soon change, allowing block producers to receive 100% of the priority fees.
By paying priority fees, users can ensure that their transactions are prioritized in blocks. This mechanism is particularly important in various scenarios, including arbitrage, liquidation, and NFT minting, which often require high transaction speeds. Since complex transactions require more computational power, they typically need to pay higher priority fees. Generally, accounts for popular tokens in high demand require higher priority fees.
Compared to priority fees, base fees, although contributing relatively less to income, play an indispensable role in preventing spam. To maintain the security and stability of the network, the Solana system has fixed the base fee at 0.000005 SOL (5000 lamports) per signature, thereby reducing the risk of malicious transactions and network congestion.
MEV (Jito) rewards
Currently, validators operating the Jito validator client account for over 90% of the total SOL staked. Jito has introduced an off-protocol block space auction mechanism, where block space auctions occur off-chain, allowing seekers and applications to submit groups of transactions called bundles. These bundles typically contain time-sensitive transactions such as arbitrage or liquidation. To incentivize block builders to prioritize these transactions, each bundle comes with a 'tip.' This provides validators with an additional source of income beyond priority fees and base fees.
In 2024, Jito's MEV income has grown from negligible to a major source of income for validators. For validators, they can set and charge their MEV commissions using mechanisms similar to those for inflation rewards. Stakers are also allocated the remaining fees based on the relative size of their delegation to block builders.
The above image: Data on quantifying priority fees and Jito tip growth. Data source: Blockworks Research
Where does APY come from?
Annual Percentage Yield (APY) is an important indicator that measures the annual compound percentage return a staker can earn by staking at the current rate for a full year. This yield is influenced by various complex factors, including but not limited to the current issuance rate of the network, validator performance and uptime, user tips to validators, and the current staking rate (i.e., the proportion of staked SOL to the total supply). Currently, multiple websites provide lists of validators ranked by APY, with StakeWiz being one of the most comprehensive.
Specifically, the sources of APY are mainly divided into two major parts: issuance rewards and MEV rewards.
Issuance rewards
In the Solana network, validators distribute staking rewards based on the scale of their stakers' delegation. When distributing rewards, validators charge a certain percentage as a service commission, ranging from 0% to 100%. Additionally, the rewards a validator receives depend not only on the scale of their stakers' delegation but also on their voting performance. Each successful vote earns points for the validator, which are an important basis for them to obtain rewards.
Based on the following factors, well-managed validators will generate higher rewards:
Minimum downtime: Validators do not earn points during downtime because they cannot participate in voting.
Timely voting: If validators consistently lag in consensus participation, they may earn fewer points.
Accurate voting: Points are only earned for voting on subsequently confirmed blocks.
MEV (Jito) rewards
MEV rewards play an increasingly important role in the composition of staking rewards. The growing on-chain trading volume and the resulting arbitrage opportunities drive this growth. Recently, Jito MEV tips accounted for about 20-30% of total rewards, significantly enhancing the earnings for stakers. Similar to issuance rewards, the commissions charged by validators on MEV tips range from 0% to 100%. Additionally, Jito charges a 5% commission on all MEV-related income as a platform service fee.
Other considerations
However, when choosing validators, stakers do not only focus on commission rates. Although low-commission validators may yield higher direct returns, many still prefer to choose high-commission validators like Coinbase, driven by factors such as vendor lock-in and regulatory arbitrage. For example, funds using Coinbase Custody typically must be staked specifically on Coinbase's validators. On the other hand, centralized exchanges also benefit from retail users prioritizing convenience over yield optimization. For off-chain users, they may be indifferent to returns below standard, giving exchanges greater flexibility in the rewards they offer.
Finally, the new protocol mechanism (e.g., SIMD-123) is designed to allow validators to share block rewards directly with stakers. If successfully implemented, this would provide an additional source of income for stakers.
Key participants in the Solana staking ecosystem
Solana validators can be divided into several categories.
Ecosystem Team
Many well-known Solana applications and infrastructure teams operate validators that complement their core business. For example, Helius runs a validator to support its RPC services.
Example:
Helius
Mrgn
Jupiter
Drift
Phantom
Centralized exchanges
Centralized exchanges are among the validators with the highest staking rates for Solana, providing one-click staking solutions for off-chain trading customers.
Example:
Kraken
Coinbase
Binance
Upbit
Institutional solution providers
These companies specialize in providing customized staking services for institutional clients. They support multiple blockchains to meet a wider range of client needs.
Example:
Figment
Kiln
Twinstake
Chorus One
Independent Teams
Solana's validator ecosystem includes many independently operated medium and long-tail validators. Some validators have been active since the network's inception, contributing to the ecosystem through education, research, governance, and tool development.
Example:
Laine
Overclock
Solana Compass
Shinobi
Private validators
The network also has over 200 private validators. Their staking is self-delegated and may be controlled by operating entities. These validators typically have a commission rate of 100% and do not have publicly available identity information on block explorers and dashboards.
What is liquid staking?
Liquid staking allows users to diversify their staking exposure among multiple operators through staking pools, which can issue liquid staking tokens (LSTs) that represent users' ownership shares in the underlying staking accounts.
LSTs
LSTs are a yield-bearing asset that accumulates rewards based on the annual percentage yield (APY) of the underlying staking account. In native staking, each epoch's rewards directly increase the staked SOL balance. In contrast to native staking, in liquid staking, the number of LSTs remains unchanged, but their value relative to SOL tokens appreciates over time.
LSTs enhance the capital efficiency of staking by unlocking DeFi opportunities. A typical example is using LSTs as collateral in lending platforms, allowing users to borrow while maintaining their positions and still earning staking rewards.
The state of liquid staking
Currently, although only 7.8% of SOL staked uses liquid staking, this portion is growing rapidly. Data shows that liquid staking has accumulated 32 million SOL, up from 17 million at the beginning of 2024, with an annual growth rate of 88%. JitoSOL, with a 36% market share, has become the most popular liquid staking token in Solana LSTs, with other notable options including Marinade (mSOL) and JupiterSOL (jupSOL), accounting for 17.5% and 11% of the market, respectively.
Tax advantages
In fact, liquid staking also offers users tax advantages. In many jurisdictions, staking rewards issued in token form are considered taxable events (similar to stock dividends) and are taxed as income upon receipt. However, due to the mechanism of LSTs keeping users' wallet balances unchanged, only the value increases, thus users do not trigger taxable events upon each reward distribution.
Is staking SOL safe?
Native staking provides stakers with a direct and secure way to participate in the network's validation process. In this way, stakers always control and hold their SOL. If a validator goes offline or performs poorly, non-custodial stakers have the right to unstake at any time and freely switch to other better-performing validators. In case of network disruption, the positions of native stakers are also unaffected, and once network activity resumes, the positions will remain unchanged.
Similarly, liquid staking, as another option, also provides security guarantees in its unique way. Currently, five reputable companies have conducted nine audits of staking pool plans to ensure their robustness. Nevertheless, investors should be mindful of market fluctuations and potential risks when using liquid staking. During unfavorable market conditions or 'black swan events,' LSTs' trading prices may temporarily fall below their underlying value. While these deviations are generally short-lived, investors should consider tail risks, especially when using LSTs as collateral.
Slashing mechanism
Slashing is a penalty mechanism that reduces delegated stakes to curb malicious or harmful behavior. Although Solana has not yet implemented a slashing mechanism, network developers are actively considering this option and may introduce it in the future.
Finally, stakers should adhere to best practices and securely manage their private keys to prevent loss or theft.
What is the difference between staking SOL and staking ETH?
Solana and Ethereum differ in their staking methods. Solana has integrated Delegated Proof of Stake (dPoS) directly into its core protocol, allowing delegation without relying on external solutions. This design allows Solana's staking participation rate to reach 67.7%, accounting for a significant proportion of the total supply, far exceeding Ethereum's 28%. In contrast, Ethereum's transition from proof of work to proof of stake has relied more on third-party platforms like Lido and Rocket Pool to provide delegation and liquid staking services.
On the other hand, on Ethereum, home staking is the only native staking option, which requires validators to have a high level of technical proficiency and dedicated hardware. Validators must stake at least 32 ETH and ensure their hardware is always online and well-maintained. This self-custodial method has earned Ethereum a reputation for being a highly decentralized blockchain, with thousands of home stakers forming the foundation of the network.
Although home staking occupies an important position on Ethereum, liquid staking has also been widely utilized through some major platforms. Among them, Lido leads the market, controlling over 28% of the staked ETH supply. Lido allows investors to enjoy staking rewards while maintaining their ETH holdings by issuing yield tokens like stETH. However, like all liquid staking tokens, stETH faces some risks, including smart contract vulnerabilities and price deviations from ETH. More importantly, Ethereum's inflation returns are relatively low, with the annual interest rate for staking ETH using Lido being just 2.9%, far below the yield for staking SOL. Additionally, Lido charges a 10% fee on staking rewards, further reducing investors' actual returns.
Finally, it is worth noting that Ethereum includes a slashing mechanism to punish validator misconduct, but slashing events are rare.
Conclusion
This article comprehensively explores the concept, mechanism, and importance of Solana staking, which is crucial for both experienced participants and newcomers to the Solana ecosystem. Staking not only provides a way for long-term holders of SOL to earn competitive returns but is also a core element supporting the security and decentralization mechanisms of the Solana network.
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