Author: 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 highly online and process blocks quickly and accurately. Other considerations include the validator's ethical behavior, response to hard forks, and contribution to the Solana ecosystem.
The reasonable distribution of 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 when you stake?
There are two forms of staking on Solana: native staking and liquidity staking. Currently, 94% of staked SOL uses native staking, so this article will focus on this form and briefly introduce liquidity staking later. For native staking, users can operate through a variety of platforms, including multi-signature fund management tools (such as Squads), popular wallets, and dedicated staking websites. The process of native staking is relatively simple: users only need to deposit their tokens into a staking account and then delegate them to the validator's voting account. A single user can create multiple staking accounts, and each account can flexibly choose to delegate to the same or different validators.
Above: A single staker delegates to multiple validators
Each staking account has two key permissions: staking permission and withdrawal permission. These two permissions are automatically set by the system when the account is created and are assigned to the user's wallet address by default. Each permission has its own clear responsibilities. Withdrawal permission has higher control over the account. It has the right to remove tokens from the staking account and allows users to update the allocation of staking permissions.
The most important time unit in staking is the epoch. Each Solana epoch lasts for 432,000 slots, which is about two days. Whenever a new epoch is opened, the system will automatically issue staking rewards to the corresponding stakers. This process does not require manual operation by the stakers, who will see their account balance increase at the end of each epoch. In addition, users can directly receive MEV rewards through the Jito website (more on this 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 an epoch, there may be a cool-down period of up to two days before they can withdraw. If they withdraw at the end of an epoch, the process will be almost instant, with no additional waiting.
Similarly, starting staking also requires a warm-up period, which may last two days or be almost instant, depending on when the user starts the staking account. During this process, users can check the Solana block browser to track the progress of the current epoch.
How do operators make profits?
Validator operators make money in three main ways:
- Issuance/Inflation: Issuance of new tokens
- Priority Fees: Users send SOL to validators to prioritize their transactions
- MEV Rewards: Users pay Jito tips to validators for including transaction packages
The validator's income is all denominated in SOL, and the size of its income is directly linked to its staked amount. Operating costs are mostly fixed and denominated in a mixture of SOL and fiat currency.
Above: Solana validator total staking rewards (data source: Dune Analytics, 21.co)
Token issuance
Solana issues new SOL tokens regularly according to an inflation plan and distributes these tokens to validators as staking rewards at the end of each epoch. Currently, Solana's inflation rate is 4.9%, and this rate will decrease by 15% each year until it finally stabilizes at a long-term inflation rate of 1.5%.
The amount of staking rewards a validator receives depends mainly on the number of points it receives by correctly voting to become a block node on the chain. If a validator is down or fails to vote in time, the points it receives will be reduced. With an average number of points, a validator with 1% of the total staked amount is expected to receive a reward of approximately 1% of the total inflation.
In addition, the validator's staking rewards are further broken down and distributed based on the size of the delegation of its stakers. In the process, the validator can charge a certain percentage of the total inflation rewards earned by its stakers as a commission. This commission rate is usually 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 current block builders receive 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. Previously, validators could receive 50% of the base fee and 50% of the priority fee, and the rest was destroyed. With the passage of SIMD-96, this fee structure is coming, and block producers will be allowed to receive 100% of the priority fee.
By paying a priority fee, you can ensure that your transaction is prioritized in the block. This mechanism is particularly important in a variety of scenarios, including arbitrage, liquidation, and NFT minting, which often have extremely high requirements for transaction speed. Since complex transactions require more computing power, they usually require higher priority fees. Generally speaking, accounts with popular tokens that are in high demand require higher priority fees.
Compared to the priority fee, the basic fee contributes relatively little to revenue, but it plays an indispensable role in preventing spam. In order to maintain the security and stability of the network, the Solana system fixes the basic fee to 0.000005 SOL (5000 lampors) per signature to reduce the risk of malicious transactions and network congestion.
MEV (Jito) Rewards
Currently, validators operating the Jito validator client account for more than 90% of the total SOL staked. Jito introduces an off-protocol block space auction mechanism that occurs off-chain and allows searchers 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 in addition to priority fees and base fees.
In 2024, Jito's MEV revenue has grown from negligible to the main source of income for validators. For validators, they can use a mechanism similar to inflation rewards to set and collect their MEV commissions. And stakers also share the remaining fees based on the relative size of their delegation to block builders.
Above: Data quantifying the growth of priority fees and Jito tips. Data source: Blockworks Research
Where does APY come from?
Annualized Percentage Yield (APY) is an important indicator to measure the annualized compound percentage rate that a staker can obtain when staking at the current interest rate for a full year. This rate of return is affected by a variety of complex factors, including but not limited to the current issuance rate of the network, the performance and uptime of the validator, the rewards given to the validator by users, and the current staking rate (that is, the proportion of staked SOL to the total amount). Currently, multiple websites provide a list of validators ranked by APY, of which StakeWiz is one of the most comprehensive websites.
Specifically, the sources of APY are mainly divided into two parts: issuance rewards and MEV rewards.
Issuance Rewards
In the Solana network, validators distribute staking rewards based on the size of their stakers’ delegation. When distributing rewards, validators will charge a certain percentage of service commission, ranging from 0% to 100%. In addition, the rewards received by validators are not only determined by the size of their stakers’ delegation, but also closely related to their voting performance. Each successful vote will earn validators points, which are an important basis for them to obtain rewards.
Well-managed validators will generate higher rewards based on the following factors:
- Minimum downtime: Validators do not earn points during downtime as they cannot participate in voting.
- Timely voting: If validators consistently lag behind in consensus participation, they may receive fewer points.
- Accurate voting: Points are only awarded if you vote on subsequently confirmed blocks.
MEV (Jito) Rewards
MEV rewards play an increasingly important role in the composition of staking rewards. This growth is driven by growing on-chain transaction volume and the resulting arbitrage opportunities. In the near term, Jito MEV tips account for about 20-30% of total rewards, greatly improving the returns of stakers. Similar to issuance rewards, validators charge commissions ranging from 0% to 100% on MEV tips. In addition, Jito also charges a 5% commission on all MEV-related income as a platform service fee.
Other considerations
However, stakers do not focus solely on commission percentage when choosing a validator. Although low-commission validators may bring higher direct returns, many still tend to choose high-commission validators such as Coinbase, driven by factors such as vendor lock-in and regulatory arbitrage. For example, funds using Coinbase Custody must usually be staked exclusively on Coinbase's validators. On the other hand, centralized exchanges also benefit from retail users' behavior of prioritizing convenience over yield optimization. For off-chain users, they may not be sensitive to sub-par returns, which gives exchanges greater flexibility in the rewards they offer.
Finally, new protocol mechanisms such as SIMD-123 are designed to allow validators to share block rewards directly with stakers. If successfully implemented, this will provide an additional source of income for stakers.
Key Players in the Solana Staking Ecosystem
Solana validators can be divided into several categories.
Ecosystem Team
Many notable Solana application and infrastructure teams run validators that complement their core business. For example, Helius runs a validator to support its RPC service.
Example:
- Helius
- Mrgn
- Jupiter
- Drift
- Phantom
Centralized Exchanges
Centralized exchanges are among the Solana validators with the highest staking rates, providing a one-click staking solution for off-chain exchange customers.
Example:
- Kraken
- Coinbase
- Binance
- Upbit
Institutional Solution Provider
These companies specialize in providing customized staking services for institutional clients. They support multiple blockchains to meet a wider range of customer needs.
Example:
- Figment
- Kiln
- Twinstake
- Chorus One
Independent Team
Solana’s validator ecosystem includes many independently operated mid-sized and long-tail validators. Some validators have been active since the genesis of the network and contribute to the ecosystem through education, research, governance, and tool development.
Example:
- Laine
- Overclock
- Solana Compass
- Shinobi
Private Authenticator
The network also has over 200 private validators. Their stake is self-delegated and may be controlled by an operating entity. These validators are characterized by a 100% commission rate and no public identity information on block explorers and dashboards.
What is Liquidity Staking?
Liquidity staking allows users to diversify their staking exposure across multiple operators through staking pools, which are able to issue Liquidity Staking Tokens (LSTs) which represent a user’s ownership share in the underlying staking account.
LSTs
LSTs are a yield asset that accumulates rewards based on the annualized yield (APY) of the underlying staking account. In native staking, each epoch reward directly increases the staked SOL balance. Unlike native staking, in liquidity staking, the number of LSTs remains constant, but its value relative to the SOL token increases over time.
LSTs improve the capital efficiency of staking by unlocking DeFi opportunities. A typical example is depositing LSTs as collateral on a lending platform, which enables users to perform lending operations while maintaining their positions and still receive staking rewards.
Current Status of Liquidity Staking
Currently, although only 7.8% of SOL staking is done in the form of liquidity staking, the growth rate of this part is very rapid. Data shows that liquidity 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 liquidity staking token in Solana LSTs with its 36% market share. Other notable options include Marinade (mSOL) and JupiterSOL (jupSOL), accounting for 17.5% and 11% of the market respectively.
Tax advantages
In fact, liquidity staking also brings tax advantages to users. In many jurisdictions, staking rewards issued in the form of tokens are considered taxable events (similar to stock dividends) and are taxed as income when received. However, due to the mechanism of LSTs, the user's wallet balance remains unchanged, only the value increases, so users do not trigger a taxable event every time a reward is issued.
Is SOL staking safe?
Native staking provides a direct and secure way for stakers to participate in the network validation process. In this way, stakers always control and keep 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 validators with better performance. In the event of a network outage, the positions of native stakers will not be affected and will remain unchanged once network activity resumes.
Similarly, liquidity staking, as another option, also provides security in its own unique way. Currently, the staking pool program has been audited nine times by five reputable companies to ensure its robustness. Nevertheless, investors still need to pay attention to market volatility and potential risks when using liquidity staking. During adverse market conditions or "black swan events", LSTs may trade temporarily below their underlying value. While these deviations are usually short-lived, investors should consider tail risks, especially when using LST as collateral.
Penalty Mechanism
Slashing is a penalty mechanism that reduces delegated stake to deter 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 follow best practices and securely manage their private keys to prevent loss or theft.
How is staking SOL different from 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 has resulted in Solana’s staking participation rate as high as 67.7%, a significant proportion of the total supply, much higher than Ethereum’s 28%. In contrast, Ethereum’s transition from proof of work to proof of stake has relied more on third-party platforms such as Lido and Rocket Pool to provide delegation and liquidity staking services.
On Ethereum, on the other hand, home staking is the only native staking option, which requires validators to have high technical proficiency and dedicated hardware. Validators must stake at least 32 ETH and ensure that their hardware is always online and fully maintained. This self-custodial approach has earned Ethereum a reputation as a highly decentralized blockchain, and thousands of home stakers have formed the foundation of this network.
Although home staking occupies an important position on Ethereum, liquidity staking has also been widely used through some major platforms. Among them, Lido has a leading position in the market, controlling more than 28% of the ETH supply of staking. Lido enables investors to enjoy staking rewards while maintaining ETH holdings by issuing yield tokens stETH. However, like all liquidity staking tokens, stETH also faces some risks, including smart contract vulnerabilities and stETH price deviations from ETH. More importantly, Ethereum's inflation returns are relatively low, and the annual interest rate for staking ETH with Lido is only 2.9%, which is much lower than the yield of staking SOL. In addition, Lido charges a 10% fee on staking rewards, which further reduces the actual return of investors.
Finally, it’s worth noting that Ethereum includes a slashing mechanism to penalize validators for misbehavior, but slashing events are rare.
in conclusion
This article comprehensively explores the concept, mechanism and importance of Solana staking. Whether it is experienced participants or newcomers to the Solana ecosystem, a deep understanding of staking is crucial. Staking not only provides a way for long-term SOL holders to obtain competitive returns, but also is a core element that supports the basic mechanism of Solana network security and decentralization.
