Written by: Lostin, Helius
Compiled by: Glendon, Techub News
If you hold SOL tokens and want to stake them but do not understand Solana's staking mechanism? 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 equally crucial for the decentralization and security of Solana. By staking, SOL token holders can contribute to the network's stability and governance. In this process, choosing a suitable validator for staking is very important. Delegating tokens to a validator is akin to voting in a representative democracy, reflecting trust in the validator's ability to remain highly online and process blocks quickly and accurately. Other considerations include the validator's ethical behavior, response to hard forks, and contributions to the Solana ecosystem.
Reasonably distributing staking rights among reputable validators can further promote the decentralization of the network 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 is done through 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 straightforward: users simply deposit their tokens into a staking account and then delegate them to the validator's voting account. Individual users can create multiple staking accounts, each flexibly choosing to delegate to the same or different validators.
Above: Individual stakers delegating to multiple validators
Each staking account has two key permissions: staking permissions and withdrawal permissions. 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. Withdrawal permissions have higher control over the account, allowing the removal of tokens from the staking account and permitting users to update the distribution of staking permissions.
The most important unit of time in staking is the epoch. Each epoch in Solana lasts for 432,000 slots, which is approximately two days. Every time a new epoch begins, the system automatically distributes staking rewards to the corresponding stakers. This process does not require manual operation by the stakers; they will see their account balance increase at the end of each epoch. Additionally, users can directly earn MEV rewards through the Jito website (this will be detailed later).
When you stake SOL natively, your tokens will be locked for the duration of the current epoch. If users unstake at the beginning of the epoch, they may have to endure a cooling-off period of up to two days to withdraw. However, if they withdraw at the end of the epoch, the process will be almost instantaneous, with no additional waiting.
Similarly, starting staking also requires a warm-up period, which may last two days or be almost instantaneous, depending on when the user initiates the staking account. During this process, users can check 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 for priority processing of their transactions.
MEV rewards: Users pay Jito tips to validators to include transaction bundles.
Validator income is entirely denominated in SOL, and the scale of their income is directly linked to the amount they stake. Operating costs are mostly fixed and are denominated in a mix of SOL and fiat currency.
Above: Total staking rewards for Solana validators (data source: Dune Analytics, 21.co)
Token Issuance
Solana issues new SOL tokens regularly according to its inflation schedule 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 earned by correctly voting to become on-chain block nodes. If a validator experiences downtime or fails to vote in a timely manner, their earned points will decrease. Under average point conditions, a validator with 1% of total staking volume is expected to receive rewards that account for about 1% of total inflation.
In addition, the staking rewards of validators will be further subdivided and allocated based on the scale of their stakers' delegations. 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%.
Above: Solana Inflation Timeline
Priority Fees
In the Solana network, validators selected as the current block builders charge fees from each transaction they process, which are divided into two types: base fees and priority fees. These fees are immediately credited to the validators' identity accounts. Prior to this, validators could earn 50% of both base and priority fees as rewards, with the remainder being burned. With the passage of SIMD-96, this fee structure is set to change, allowing block producers to receive 100% of the priority fees.
By paying priority fees, users can ensure that their transactions are processed with priority in blocks. This mechanism is particularly important in various scenarios, including arbitrage, liquidation, and NFT minting, where operations often demand high transaction speeds. Complex transactions typically require more computational power and therefore tend to pay higher priority fees. Generally speaking, accounts for popular tokens with high demand require higher priority fees.
Compared to priority fees, base fees contribute relatively less to income but play an indispensable role in preventing spam. To maintain the security and stability of the network, Solana's system has fixed the base fee at 0.000005 SOL (5000 lamports) per signature, reducing the risk of malicious transactions and network congestion.
MEV (Jito) Rewards
Currently, validators operating Jito validator clients account for over 90% of the total SOL staked. Jito 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 often 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 revenue has grown from negligible to a major revenue source for validators. For validators, they can set and charge their MEV commissions using mechanisms similar to issuance rewards. Stakers also allocate remaining fees based on their relative sizes of delegations to block builders.
Above: Data quantifying priority fee and Jito tip growth. Data source: Blockworks Research
Where does APY come from?
Annual Percentage Yield (APY) is an important metric that measures the annual compound percentage return that stakers can earn by staking for a full year at the current rate. This yield is influenced by a variety of complex factors, including but not limited to the network's current issuance rate, validator performance and uptime, user tips to validators, and the current staking rate (i.e., the proportion of staked SOL to the total). Currently, several 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 allocate staking rewards based on the scale of their stakers' delegations. When allocating rewards, validators charge a service commission, which ranges from 0% to 100%. Additionally, the rewards that validators receive depend not only on the scale of their stakers' delegations but are also closely related to their voting performance. Each successful vote earns points for the validator, which are the 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 their consensus participation, they may earn fewer points.
Accurate voting: Points are only earned by 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 transaction volume and the resulting arbitrage opportunities drive this growth. Recently, Jito MEV tips accounted for about 20-30% of total rewards, significantly enhancing stakers' yields. Similar to issuance rewards, the commission that validators charge on MEV tips varies 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 higher-commission validators like Coinbase, driven by factors such as vendor lock-in and regulatory arbitrage. For example, funds using Coinbase Custody often 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 not be sensitive to below-standard returns, giving exchanges greater flexibility in the rewards they offer.
Finally, the new protocol mechanism (e.g., SIMD-123) aims to allow validators to share block rewards directly with stakers. If successfully implemented, this would provide stakers with an additional source of income.
Key Participants in Solana's Staking Ecosystem
Solana validators can be categorized into several types.
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 in Solana, providing a one-click staking solution for off-chain exchange customers.
Example:
Kraken
Coinbase
Binance
Upbit
Institutional Solutions Providers
These companies specialize in providing customized staking services for institutional clients. They support multiple blockchains to meet a broader 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 and contribute 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 are characterized by a commission rate of 100% and no publicly available identity information on block explorers and dashboards.
What is liquid staking?
Liquid staking allows users to diversify their staking exposure across multiple operators through staking pools that can issue liquid staking tokens (LSTs), representing users' ownership shares in the underlying staking account.
LSTs
LSTs are yield-bearing assets that accumulate rewards based on the underlying staking account's annual percentage yield (APY). In native staking, rewards for each epoch 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 improve the capital efficiency of staking by unlocking DeFi opportunities. A typical example is using LSTs as collateral deposited into lending platforms, enabling users to conduct lending operations while maintaining their holdings and still earning staking rewards.
The State of Liquid Staking
Currently, although only 7.8% of SOL staked is using liquid staking, this segment 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%. Among them, JitoSOL has become the most popular liquid staking token in Solana LSTs with a 36% market share, while other notable options include Marinade (mSOL) and JupiterSOL (jupSOL), accounting for 17.5% and 11% of the market, respectively.
Tax Advantages
In fact, liquid staking also provides users with tax advantages. In many jurisdictions, staking rewards issued in token form are considered taxable events (similar to stock dividends) and are taxed as income when received. However, due to the mechanism of LSTs that keeps the user's wallet balance unchanged, only the value increases, so users do not trigger taxable events each time rewards are issued.
Is staking SOL safe?
Native staking provides stakers with a direct and secure way to participate in the network validation process. In this mode, stakers always control and safeguard 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 the event of a network interruption, the positions of native stakers are also unaffected, and once network activity resumes, the positions remain unchanged.
Similarly, liquid staking, as another option, also provides security guarantees in its unique way. Currently, five reputable companies have conducted nine audits on the staking pool program to ensure its robustness. Nevertheless, investors should still be mindful of market volatility and potential risks when using liquid staking. During adverse market conditions or 'black swan events,' the trading price of LSTs may temporarily fall below their underlying value. Although these deviations are usually short-lived, investors should consider tail risks, especially when using LSTs as collateral.
Slashing Mechanism
Slashing is a penalty mechanism that curbs malicious or harmful behavior by reducing delegated staking. 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 for securely managing their private keys to prevent loss or theft.
What are the differences between staking SOL and staking ETH?
Solana and Ethereum differ in their staking methods. Solana integrates delegated proof-of-stake (dPoS) directly into its core protocol, enabling delegation without relying on external solutions. This design allows Solana's staking participation rate to reach 67.7%, a significant proportion of the total supply, far exceeding Ethereum's 28%. In contrast, Ethereum relied more on third-party platforms like Lido and Rocket Pool for delegation and liquid staking services during its transition from proof-of-work to proof-of-stake.
On the other hand, in Ethereum, home staking is the only native staking option, requiring validators to possess high technical proficiency and dedicated hardware. Validators must stake at least 32 ETH and ensure their hardware is always online and well-maintained. This self-custody method has earned Ethereum a highly decentralized blockchain reputation, with thousands of home stakers forming the foundation of this network.
Although home staking plays an important role in Ethereum, liquid staking has also gained widespread application through some major platforms. Among them, Lido holds a leading position in 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, 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 only 2.9%, far lower than 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 staking in Solana, which is crucial for both experienced participants and newcomers to the Solana ecosystem. Staking not only provides a way for long-term SOL holders to earn competitive returns but is also a core element supporting the security and decentralization of the Solana network.
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