You have SOL. You know you should stake it, but you're not sure how to go about staking. No worries, let us help you! This concise explainer provides a comprehensive overview of SOL. We've answered the most common questions and covered all the key areas. We also provide optional resources for those who want to explore further.
Why Stake SOL?
SOL is not just about earning - it's crucial for the decentralization and security. By , SOL token holders contribute to the network's resilience and governance. Choosing the right validators to with is crucial. Delegating tokens to validators is akin to voting in a representative democracy, as it reflects trust in their ability to maintain consistent uptime and vote quickly and accurately. Other considerations include the validators' ethical conduct, response to hard forks, and contributions to the ecosystem.
Reasonably distributing across reputable validators enhances the network's decentralization. This makes it harder for any single, well-funded entity to manipulate consensus decisions for personal gain.
At , our goal is to grow the ecosystem. We are also committed to providing the best value for our . We have high trust, top-notch technical expertise, and complementary operations, enabling us to offer the best rewards for .
What Happens When You Stake?
On , there are two forms of : native and . Currently, <94% of SOL is native , which is the primary focus of this article. The later sections will discuss . Users can through many platforms for native . These include multi-signature treasury management tools like , popular wallets, and dedicated websites. To do native , users need to deposit their tokens into a account. This will be delegated to a validator's voting account. Individual users can create multiple accounts. Each account can be delegated to the same or different validators.
Image: A single delegating to multiple validators
Each account has two key permissions: permission and permission. The system defines these permissions when creating the account and defaults them to the user's wallet address. Each permission has different responsibilities. The permission has greater control over the account. It can remove tokens from the account and update the permission.
In , the most important time unit is an . 's last 432,000 , which is about two days. The system distributes at the start of a new . This process is automatic; will see their balances increase each . Users can directly harvest MEV rewards through the website (more on this later).
When you do native of SOL, you lock up the tokens until the current ends. If users unstake at the start of an , they may face a cooldown period of up to two days before they can withdraw the tokens. If they withdraw at the end of an , the process can be nearly instantaneous.
Similarly, activating requires a warmup period that can last two days or be nearly instant, depending on when the user initiates the account. Users can refer to the block explorer to track the progress of the current .
How Do Operators Make Money?
Validator operators can earn money in three ways:
Issuance/Inflation: The creation of new tokens
Priority Fees: Users paying SOL to validators to prioritize their transactions
MEV Rewards: Users providing Jito tips to validators to include transaction bundles
A validator's revenue is entirely in SOL, which is directly proportional to their amount. Operating costs are primarily fixed, in a mix of SOL and fiat.
Image: Total Rewards for Validators (Data source: , 21.co)
Issuance
distributes each by creating new SOL tokens according to the schedule. The current rate is 4.9%, which gradually decreases by 15% annually, ultimately reaching 1.5%.
A validator's are based on their earned credits. Validators earn credits by becoming part of the chain's block production through accurate voting. Validators that experience downtime or fail to vote on time earn fewer credits. Generally, a validator holding 1% of the total should receive around 1% of the total rewards.
The validator's are distributed among their proportional to their delegated amounts. Validators can charge a commission as a percentage of the total rewards issued to all their . Commission fees are typically a single-digit percentage, but can be any number from 0% to 100%.
Image: Schedule
Priority Fees
The validator designated as the current block builder will collect fees from each transaction they process. There are two types: base fees and priority fees. These payments are immediately credited to the validator's identity account. Previously, the reward distribution was 50% base fees and 50% priority fees, with the remaining fees burned. With the passage of SIMD-96, this structure will soon change to allow 100% of the priority fees to go to the block producer.
Users pay to prioritize the processing of their transactions. In many cases, ensuring priority is crucial, including for arbitrage, liquidations, and NFT minting. Complex transactions require more computational power, so they pay higher priority fees. Hot token accounts with strong demand require higher priority fees.
Base fee revenue is far less significant than priority fees, but is necessary to prevent spam. The system fixes the base fee at 0.000005 SOL (5000 lamports) per signature. Most transactions require only one signature.
MEV (Jito) Rewards
Validators running the Jito validator client account for >. Jito introduces an off-protocol block space auction. happen off-chain. They allow searchers and applications to submit a set of transactions called a bundle. Each bundle comes with a "tip" for the block builder. This provides validators with an additional revenue stream separate from priority fees and base fees.
By 2024, Jito MEV revenue is expected to grow from a negligible amount to become a primary source of validator income. Jito charges a 5% fee on all tips. Validators can use a mechanism similar to rewards to charge their own MEV commission. are allocated the remaining fees proportional to their delegation to the block builder.
Image: Data quantifying the growth of priority fees and Jito tips. Data source:
Synergistic Business
Helius validators charge a 0% commission on issuance and MEV rewards; our stakers enjoy the highest native yields. Our goal is to increase the total amount staked and improve transaction speed for our customers. Connecting with staked SOL helps us reduce congestion and improve the performance of our core business.
Our previous article analyzed the costs and revenues of running a validator in more detail.
Where does the APY come from?
The Annual Percentage Yield (APY) represents the compounded annual percentage return for stakers who stake for a full year at the current rate. Multiple factors influence this rate, including the network's current issuance rate, the performance and uptime of validators, the prevalence of user tips to validators, and the current staking rate (i.e., the proportion of SOL staked). Multiple websites list validators ranked by APY, with StakeWiz being one of the most comprehensive.
Specifically, the APY comes from two main sources: issuance and MEV rewards.
Issuance
Validators distribute staking rewards among their delegators based on the size of each delegator's stake. Validators charge a commission ranging from 0% to 100% for their services. These rewards depend on the validator's voting performance. Each successful vote earns credits. Running a Solana validator is technically demanding, and this difficulty is increasing as the chain's speed continues to improve.
Well-managed validators generate higher rewards due to the following factors:
Minimal downtime: Validators cannot participate in voting during downtime and thus do not earn credits.
Timely voting: If a validator consistently lags in consensus participation, it may earn fewer credits.
Accurate voting: Credits are only earned for votes on blocks that are subsequently confirmed.
MEV (Jito) Rewards
MEV rewards are playing an increasingly important role in the composition of staking rewards. The rise in on-chain transaction volume and the resulting arbitrage opportunities have driven this growth. Recently, Jito MEV tips have accounted for 20-30% of total rewards, significantly boosting stakers' earnings. Similar to issuance rewards, validators charge a commission ranging from 0% to 100% on MEV tips. Jito also charges a 5% commission on all MEV-related revenue.
Other Considerations
While low-commission validators have the potential for higher returns, many still choose high-commission validators, such as Coinbase. This is due to factors like supply lock-ups and regulatory arbitrage. For example, funds using Coinbase Custody must be specifically staked on Coinbase's validators. Centralized exchanges benefit from retail users prioritizing convenience over yield optimization. Offline users are less sensitive to lower returns, allowing exchanges to be flexible in offering rewards.
Finally, new protocol mechanisms, such as SIMD-123, aim to allow validators to directly share block rewards with their delegators. If implemented, this would provide an additional income source for stakers.
Who are the key participants in the Solana staking ecosystem?
Solana validators can be categorized into several groups.
Ecosystem Teams
Many prominent Solana applications and infrastructure teams operate validators that are complementary to their core businesses. For example, Helius runs a validator to support its RPC service.
Examples:
Helius
Mrgn
Jupiter
Drift
Phantom
Centralized Exchanges
Centralized exchanges are among the largest Solana validators, providing one-click staking solutions for their off-chain exchange customers.
Examples:
Kraken
Coinbase
Binance
Upbit
Institutional Solution Providers
These companies focus on customized staking services for institutional clients. They support multiple blockchains to meet the broader needs of their customers.
Examples:
Figment
Kiln
Twinstake
Chorus One
Independent Teams
Solana's validator ecosystem includes many independently operated mid-sized and long-tail validators. Multiple validators have been active since the network's genesis, contributing to the ecosystem through education, research, governance, and tool development.
Examples:
Laine
Overclock
Solana Compass
Shinobi
Private Validators
There are also over 200 private validators on the network. Their staking is self-delegated and may be controlled by operating entities. These validators are characterized by a 100% commission rate and a lack of publicly available identity information on block explorers and dashboards.
What is Liquid Staking?
Liquid staking allows users to diversify risk across multiple operators by staking through staking pools, enabling the issuance of liquid staking tokens (LSTs) that represent ownership of the underlying staked accounts.
LSTs are yield-bearing assets that accrue rewards based on the APY of the underlying staked account. With native staking, rewards increase the staked SOL balance with each Epoch. In liquid staking, the token quantity remains constant, but its value appreciates relative to the SOL token.
LSTs enhance the capital efficiency of staking by unlocking DeFi opportunities. A classic example is depositing LSTs as collateral on lending platforms. This allows users to borrow while still earning staking rewards.
Helius has launched our own LST (hSOL) through a popular LST launch platform, Sanctum. Our token is backed by a single-validator staking pool. Helius stakers can use Sanctum's platform to convert their existing stakes to hSOL, with a 0% fee interface for this conversion process.
Currently, only 7.8% of staked SOL is liquid-staked, but this portion is growing rapidly. Liquid staking represents 32 million SOL, up 88% from 17 million at the start of 2024. JitoSOL is the most popular, accounting for 36% of all Solana LSTs. Other notable options include Marinade (mSOL) and JupiterSOL (jupSOL), representing 17.5% and 11% of the market, respectively.
In many jurisdictions, treating staking rewards as token issuance is viewed as a taxable event (similar to stock dividends) and taxed as income upon receipt. However, LSTs allow users to earn rewards without such taxable events. Their wallet balances remain unchanged; only the value increases. Always consult a financial professional for guidance specific to your situation.
Is Staking SOL Secure?
With native staking, stakers maintain full control and custody of their SOL. If a validator goes offline or underperforms, non-custodial stakers can freely unstake and switch to other validators. In the event of network outages, staked positions are unaffected. Once network activity resumes, the positions remain intact.
Liquid staking is also widely regarded as a secure option. Nine audits have been conducted by five reputable firms on the staking pool programs, ensuring their robustness. During adverse market conditions or black swan events, LSTs may temporarily trade below their underlying value. While these deviations are typically short-lived, investors should consider tail risks, especially when using LSTs as collateral.
Slashing is a penalty mechanism that reduces delegated stakes to deter malicious or harmful behavior. Solana currently does not implement slashing, but it is being considered and may be introduced in the future.
Finally, stakers should follow best practices to securely manage their private keys to prevent loss or theft.
How is Staking SOL different from Staking ETH?
Solana and Ethereum have different staking mechanisms. Solana has integrated delegated Proof-of-Stake (dPoS) directly into its core protocol, allowing for delegation without relying on external solutions. Ethereum, on the other hand, has transitioned from Proof-of-Work to Proof-of-Stake, primarily relying on third-party platforms like Lido and Rocket Pool for delegation and liquid staking. Solana's staking participation rate is 67.7% of the total supply, while Ethereum's is 28%.
On Ethereum, the only native staking option is solo staking. This self-custody option requires technical expertise and dedicated hardware. Validators must stake at least 32 ETH and ensure their hardware remains online and properly maintained. The network of thousands of solo stakers contributes to Ethereum's reputation as a highly decentralized blockchain.
A few major platforms dominate liquid staking on Ethereum. Lido holds a market-leading position, controlling over 28% of the staked ETH supply. Lido issues stETH, a yield-bearing token that appreciates as rewards accrue. Ethereum is an older network with lower inflationary rewards. Staking ETH through Lido provides a 2.9% annual yield, significantly lower than the returns from Staking SOL. Lido charges a 10% fee on staking rewards. stETH, like all LSTs, carries risks, including smart contract vulnerabilities and the potential for stETH to trade at a discount to ETH.
Finally, Ethereum includes a slashing mechanism to penalize validator misbehavior, although slashing events are quite rare.
Conclusion
This article has explored the concept and mechanics of Staking on Solana. Whether you are an experienced participant or a new member of the ecosystem, understanding Staking is crucial for making informed decisions as a long-term SOL holder. Staking is a way to earn competitive returns and a fundamental mechanism for supporting the network's security and decentralization.
