Meta Description: Discover the top 5 Solana liquid staking platforms for high rewards and maximum returns in the DeFi market.
Solana is one of the many blockchains using the PoS (Proof-of-Stake) consensus mechanism to verify and secure transactions. The users running this consensus mechanism on the blockchain network are called ‘Validators.’
The Solana blockchain also allows users to lock up some of their $SOL (Solana Native Token) with the Validators directly. These users who lock up their SOL tokens are called Stakers. They use their locked tokens as collateral to support the blockchain’s consensus mechanism.
This lockup process is known as Staking. When users stake their SOL tokens, they get staking rewards and earn yields. The staking rewards come as additional SOL tokens, and the number of extra tokens you will get as rewards depends on the amount of SOL you staked and your staking duration.
There are two types of Staking processes on the Solana blockchain network.
2.Solana Native Staking
In this article, we will explore the depths of Solana Liquid Staking, the platforms you can use to access this staking process, and its associated risks and benefits.
What is Solana Liquid Staking?
Solana Liquid Staking is a staking method that allows users to enjoy the rewards and yield of staking $SOL tokens without locking them.
Solana Liquidity Staking solves the liquidity problem faced by users who stake their $SOL tokens using the native staking process. Liquidity staking allows users to use their $SOL even when they stake their tokens.
$SOL holders who use the liquidity staking process do not stake tokens directly to one of the network’s validators. They stake their $SOL tokens to a staking pool or smart contract.
Participants in the liquidity staking process receive a different kind of token as a reward. The new token is called the Liquid Staking Token (LST), and participants can trade it on exchanges, use it in DeFi apps, or even transfer it while earning more LST from their staked $SOL tokens.
In summary, Solana liquidity staking gives $SOL stakeholders liquidity and flexibility in their staked tokens.
How Does Liquid Staking Work?
In this staking method, users deposit native currencies of a Proof of Stake (PoS) blockchain with a staking service protocol.
The staking provider then delegates the staked or deposited assets to one of the validators involved in its consensus mechanism.
After the delegation, the staking service protocol gives a liquid synthetic token as a receipt for the staked tokens.
Liquid staking is an improvement of the traditional staking method. The former allows the PoS blockchain native coin holders to get utility from their deposited assets without stopping them from using the assets for other purposes.
In the traditional staking method, stakers can only use or trade their staked token after a staking period ends because the staking service providers lock these tokens.
However, the case for liquid staking is different. Stakers can use their tokens for other activities while getting staking yields and rewards.
Hence, liquid staking, the improved version of the traditional staking method, gives stakers more possibilities with their assets. You can now enjoy staking rewards without sacrificing your asset liquidity.
A Brief History of Solana
Solana is a layer-1, secure, and censorship-resistant blockchain network that provides high throughputs and fast transaction processing times. Solana’s speed has also made it one of the fastest-growing blockchain networks in the ecosystem.
Anatoly Yakavenko founded the Solana blockchain in 2017. The founder designed the blockchain network to deliver a similar experience to the Ethereum network.
However, there are significant improvements like low transaction fees (<$0.01 for each transaction) and almost instant transactions.
The Solana native token ($SOL) transfers value and settles transaction or gas fees in the Solana ecosystem. Solana's blockchain network houses thousands of user-friendly and solid payments, DeFi (Decentralized Finance), gaming, and NFT apps.
The fantastic features of the Solana blockchain give it the open infrastructure it needs for mass adoption, making it a good option for DApps (Decentralized Applications).
Solana Native Staking
Solana Native Staking involves directly locking up your $SOL with your chosen Solana network validator. When users stake their $SOL tokens using the Solana native staking process, they cannot transfer, spend, or trade the tokens.
In February 2021, validators on the Solana network voted for the inflation of the Solana native tokens and to enable staking rewards.
This activity allows regular users who held $SOL to stake their tokens with validators of their choice for transaction verification and the network’s security.
In return, the stakers will earn staking rewards and yields depending on the amount of $SOL staked and their staking duration.
Aside from staking amount and duration, there are other factors that affect yields. They include :
1.The current rate is $SOL.
2.The total $SOL amounts staked across validators on the blockchain network.
3.The commission during the staking period.
4.The performance of your chosen validators.
The starting inflation rate for Solana was 8%. Solana decreases this inflation rate by 15% yearly to help it achieve a 1.5% yearly inflation rate for the long term.
Currently, the Solana blockchain has over 1,500 active validators on its network. In addition, users have staked more than 60% of the total Solana token supply.
Top Solana Liquid Staking Platforms
Various DeFi protocols and providers offer Solana liquid staking solutions. These platforms differ in their functionalities and features. However, here are the top 5 liquid staking providers for Solana.
Marinade Finance
The Marinade Finance is Solana’s first liquid staking platform. When you stake your $SOL tokens on Marinade, you will get mSOL tokens as rewards. The value of $SOL you staked affects the amount of mSOL tokens you will receive .
Stakers can use their mSOL token for DeFi activities on exchanges that support it. When you stake your $SOL tokens on this platform, you can earn up to 7% liquid staking APY.
Since the inception of this project, Marinade has witnessed staked $SOL tokens worth over $1.2 billion. It has also witnessed over 150,000 $SOL staking across its Solana native and liquid staking.
Marinade has a native token ($MNDE). The holders of MNDE govern the Marinade DAO (Decentralized Autonomous Organization). The native token is the driving force of the protocol’s directed stake. This feature allows stakers on the Marinade protocol to share some of their SOL stakes directly with chosen network validators.
Participants can unstake their rewards (mSOL) when a Solana epoch ends without paying fees. Typically, a Solana epoch lasts 2-3 days. The Marinade protocol also charges a 6% commission fee on rewards.
In addition, Solana liquid stakers can unstake their $SOL tokens whenever they want before the end of an epoch. However, this option attracts a 0.1% to 9% fee based on the amount you wish to to unstake and the total liquidity available when unstaking.
Jito
Jito has a Solana staking pool exclusively delegated to the validators running the JitoSOL validator client. These exclusive staking pools help increase MEV's benefits, like additional profits and network efficiency.
In addition, they reduce MEV’s negative effects, including failed transactions and spam trades.
Maximal Extractable Value (MEV) refers to the highest value amount a transaction validator can get by excluding, including, or changing transaction orders when transaction block production occurs.
Hence, MEV contains a validator’s rewards via gas fee payments and other gains they can make by controlling transaction orders.
When users stake through the Solana liquidity staking process using Jito, they earn JitoSOL LST. This token is also yield-bearing. In other words, JitoSOL accrues MEV and staking rewards in the long term.
Jito redistributes a part of the maximal extractible value that Jito validators capture from searches directly to stakers. This action creates a Solana ecosystem that is beneficial to every participant.
Blaze
Blaze is a protocol that offers various Solana ecosystem utilities, such as a liquid staking pool, token minter, and $SOL faucet. Since the launch of the liquid staking platform, users have staked over 2.3 million Solana tokens.
This Solana liquid staking protocol rewards stakers with BlazeStake Staked SOL (bSOL) tokens. Users can use or trade bSOL on other DeFi platforms like Orca, Solend, and Raydium.
With Blaze, you can choose specific validators for your SOL staking. This feature lets users enjoy extra benefits, including staking to validators that charge 0% commission.
On the other hand, you can delegate your stake to Blaze. This staking feature allows Blaze to share stake SOL tokens across their validator network.
Stakers on Blaze enjoy up to 7% staking APY. In addition, Blaze offers a reward program called BlazeReward.
The program gives extra $BLZE (Blaze native token) to users who contribute to the SolBlaze ecosystem by staking their $SOL or using their bSOL in Decentralized Finance (DeFi) protocols.
Marginfi
This liquidity staking provider is a DeFi protocol built on the Solana blockchain. The platform offers multipurpose features allowing users to participate in liquid staking, get the YBX stablecoin, and perform crypto lending.
Marginfi allows users who hold $SOL tokens to mint its LST and enjoy other additional staking rewards. This protocol generates yields primarily by staking directly to validators, who get Maximal Extractable Value (MEV) rewards.
The protocol allows users to earn yields by staking their $SOL tokens directly to validators who do not charge commissions. Since the inception of this liquid staking protocol, users have minted LST worth over $100 million.
Stakers can trade their Marginfi LST (Liquid Staking Tokens) on supported exchanges. They can use them to provide liquidity, lend them, and borrow against them on lending platforms.
Marginfi does not charge stakers extra fees for using its liquid staking protocol, offering up to 8% staking APR.
Sanctum
This Solana liquidity staking platform deserves special mention because of its unique features. Sanctum offers a joint LST pool through its Infinity Pool.
This pool contains LSTs that are already in existence and will contain LSTs that protocols may create in the future.
Sanctum believes that an LST's power is tied to sufficient liquidity. Hence, the protocol wants to provide liquidity by pooling various LSTs. Users can swap between LSTs on Sanctum at any time without slippage.
The liquid staking protocol uses an automated LST pricing system. It considers the actual SOL staking amount in each LST staking pool and then uses Oracle to determine the floor price of LSTs in its Infinity Pool.
Sanctum uses this method to fix the fair price of LSTs in its Infinity Pool and allow users to cross-swap them freely and easily.
The liquidity staking protocol gives stakers $INF as staking rewards. The amount of INF each staker receives depends on the $SOL tokens staked on the platform. Stakers can use INF on DeFi protocols like other LSTs in Sactum’s liquidity pool.
Since the inception of the Sanctum liquid staking protocol, users have staked more than 2 million SOL tokens on its platform. Stakers on the Sanctum liquid protocol earn between 7.9% and 11% staking APR.
Benefits of Solana Liquid Staking
Here are some of the benefits of using the liquid staking method.
Special Staking Reward Opportunities
The Solana native staking method allows stakers to earn rewards by contributing their assets solely for transaction verification.
However, with liquid staking, you will receive staking rewards for verifying transactions and additional yields when you use your staked tokens on other DeFi platforms.
Unlocked Liquidity
Unlike the native staking method, liquid staking allows users to unlock their staked tokens' inherent value. They achieve this by trading or using them as collateral for loans in DeFi platforms.
Infrastructure Requirements Outsourcing
Liquid staking allows users to share in staking rewards without building and maintaining any complex infrastructure.
For instance, if you do not have the minimum amount of $SOL required to become an independent validator, you can still participate in block rewards via liquid staking.
Defi Composability
You can use receipts for your staked tokens to perform various actions in different protocols across the Decentralized Finance ecosystem. These activities include trading on prediction markets, borrowing against your staked assets, and contributing the assets to lending pools.
Risks Of Liquid Staking
Like every crypto investment, liquid staking has various risks. Below are some of the risks associated with this staking method.
Vulnerabilities of Smart Contracts
One notable risk that LSTs suffer is the exploitation of their smart contracts. Since smart contracts govern SOL deposits, withdrawals, and new token minting, users can lose all their funds if anyone exploits them.
Some of the exploitations that can occur to smart contracts governing LSTs include unauthorized staked asset withdrawals and minting excess LSTs.
Slashing
Validators secure the networks of PoS (Proof of Stake) blockchains. Slashing is a method of punishing validators who do not adhere to the blockchain’s rules. The punishment is majorly the confiscation of the validator’s stake.
Some violations that can lead to slashing include direct network manipulation, elongated downtime, and double signing. When users opt for a liquid staking solution that does not require them to select their validators, they can suffer the effect of slashing.
For liquid staking methods where you do not choose a validator, the protocol delegates your staked tokens to various validators across its network based on its strategy.
If the protocol delegates some of your stakes to a validator who later suffers slashing, you could lose that portion of your staked assets.
Depegging
The primary reason stakers prefer liquid staking over native staking is that they do not have to wait for an unstaking period to swap between LSTs and their base assets.
Normally, LSTs and their base assets trade in tandem. For instance, when we wrote this article, 1 mSOL (Marinade LST) was worth around 1.2 SOL.
The figures show that the ratio of SOL to mSOL is not 1:1. The ratio should continue increasing because it contains liquid staking accrued rewards.
However, when the market experiences high volatility, an LST may drop from its expected price. This phenomenon is called DEPEGGING. At this point, swapping LSTs for base assets will lead to severe losses.
Losses are worse for LSTs with reduced liquidity supplies. Using your LST as loan collateral during depegging, you could suffer total asset liquidation if your collateral value drops below the designated value threshold.
mSOL witnessed a major depegging in December 2023. The mSOL/SOL dropped to 1.01 from 1.14. This depegging was because of a massive sale and swap from mSOL to SOL. The large selling-off led to insufficient mSOL liquidity.
However, mSOL recovered in one day because arbitrageurs saw the depegging event as an opportunity to buy mSOL tokens at a low price. The reactionary massive buy drove mSOL back to the expected price.
Regulations
Liquid staking is a cryptocurrency investment process. The entire crypto ecosystem still has some regulatory concerns which affect LSTs. If regulatory bodies take adverse actions against crypto, it will affect liquid staking services and their tokens.
Unstaking: Redeeming Your SOL Tokens
Redeeming your staked or locked SOL tokens may take time. However, if you want to redeem immediately, you can explore Solana's other multiple unstaking solutions.
These solutions allow you to swap liquid staking tokens (LSTs) for other base assets, including stablecoins like USDC. Please note that these alternatives may require extra or additional charges.
Final Thoughts
The Solana Decentralized Finance (DeFi) ecosystem is growing rapidly, and one of its propelling forces is its liquid staking program. Although the Solana staking program is still in its early stages, it has the potential for expansion and further development.
Some developments include restaking protocols like the Mantis Games, a Picasso Network vault solution, and bringing the restaking primitive to the ecosystem.
In this article, we have reviewed the protocols we consider the top 5 Solana liquidity staking platforms in the ecosystem. These staking platforms are just some of the protocols in the Solana liquidity ecosystem.
Hence, you can further research and choose the protocol that suits your investment style and needs. However, consider the APY/APR, staking duration, and fees of liquid staking protocols before selecting any.
Finally, we have written this article for educational purposes only. Hence, do not consider it as financial advice.
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