Written by: Lostin, Helius; Compiled by: Glendon, Techub News

If you hold SOL tokens and want to stake them, but don’t understand Solana’s staking mechanism? Don’t worry, this guide will give you a comprehensive overview of SOL staking, covering the most common questions and all key areas. Let's get started!

Why stake SOL?

Staking SOL isn’t just about earning rewards – it’s also critical to Solana’s decentralization and security. By staking, SOL token holders can contribute to the stability and governance of the network. During this process, it is very important to choose a suitable validator (Validator) for staking. Delegating tokens to a validator is like voting in a representative democracy, which reflects trust in the validator to stay highly online and process blocks quickly and accurately. Other considerations include validator ethical behavior, response to hard forks, and contribution to the Solana ecosystem.

The reasonable distribution of pledge 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 pledged SOL uses native staking, so this article will focus on this form and briefly introduce liquidity staking later. For native staking, users can do so through a variety of 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 the validator’s voting account. A single user can create multiple staking accounts, and each account can flexibly choose to be delegated to the same or different validators.

Above: A single staker delegates to multiple validators

Each staking account has two key permissions: staking permissions and withdrawal permissions. These two permissions are automatically set by the system when the account is created and assigned to the user's wallet address by default. Each authority has its own clearly defined responsibilities. Withdrawal authority has higher control over the account, it has the authority to remove tokens from the staking account and allows users to update the allocation of staking authority.

The most important time unit in staking is epoch. Each Solana epoch lasts for 432,000 slots, which is approximately two days. Whenever a new epoch is opened, the system will automatically issue pledge rewards to the correspondingof pledgers. This process requires no manual action from stakers, who will see their account balance increase at the end of each epoch. Additionally, users can harvest MEV rewards directly 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, they may need to go through a cooling period of up to two days before withdrawing. And if they withdraw at the end of the epoch, the process will be almost instant with no additional waiting.

Similarly, initiating staking also requires a warm-up period, which may last two days or be almost instantaneous, depending on when the user activates the staking account. During this process, users can check the Solana block explorer to track the progress of the current epoch.

How do operators make profits?

Validator operators mainly make money in three ways:

Issuance/inflation: issuing new tokens

Priority fees: users send SOL to the validator for priority processing Their transactions

MEV rewards: Users pay Jito tips to the validator to include the transaction package

The validator's income is all denominated in SOL, and the scale of its income is directly linked to its pledge 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 regularly issues new SOL tokens according to the inflation plan and distributes these tokens as staking rewards at the end of each epoch. to the validator. Currently, Solana's inflation rate is 4.9%, and this rate will decrease by 15% each year until it eventually stabilizes at the long-term inflation rate of 1.5%.

The amount of staking rewards a validator receives mainly depends on the number of points it earns 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 earns will be reduced. At an average number of points, a validator with 1% of the total staked volume can expect to receive a reward of approximately 1% of the total inflation volume.

In addition, the validator’s staking rewards will be further subdivided and distributed based on the delegation size of its stakers. In the process, validators can take a percentage of the total inflation rewards earned by their stakers. This commission rate is usually a single-digit percentage, but can range from 0% to 100Any number between %.

Above: Solana Inflation Schedule

Priority Fees

In the Solana network, the validator selected as the current block builder receives a fee from each transaction processed. These fees are divided into two types: base fee and priority fee. These fees are immediately credited to the validator's identity account. Prior to this, validators can receive 50% of the base fee and priority fee rewards, and the remainder is burned. With the passage of SIMD-96, this fee structure is about to come, and block producers will be allowed to receive 100% priority fees.

By paying a priority fee, you can ensure that your transactions are processed first 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 consume more computing power, they typically pay higher priority fees. Generally speaking, accounts with popular coins that are in high demand require higher priority fees.

Compared to the priority fee, although the basic fee contributes relatively little revenue, 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 at 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 pledged volume. Jito introduces an off-protocol block space auction mechanism that occurs off-chain, allowing searchers 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 revenue stream beyond priority 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 set and collect their MEV commission using a similar mechanism to inflation rewards. The stakers also allocate the remaining fees based on the relative size of their delegation to the block builder.

Above: Data quantifying priority fee and Jito tip growth. Data source: Blockworks Research

Where does APY come from?

Annualized Yield (APY) is an important indicator that measures the annualized compound percentage rate of return that a staker can obtain when staking for a full year at the current interest rate. 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, user rewards to the validator, and the current staking rate (i.e. staking SOL as a proportion of the total). Currently, multiple websites offer lists of validators ranked by APY, with StakeWiz being one of the most comprehensive.

Specifically, the source of APY is 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 staker delegations. When the validator distributes rewards, it will charge a certain percentage of service commission, ranging from 0% to 100%. In addition, the rewards obtained 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 points for the validator, and these points are an important basis for them to obtain rewards.

Well-managed validators will generate higher rewards based on the following factors:

Minimum downtime: Validators will not receive points during downtime because they cannot participate in voting.

Timely voting: If validators continue to lag in consensus participation, they may receive fewer points.

Accurate voting: Points are awarded only when voting 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 arbitrage opportunities that come with it. In the near term, Jito MEV tips account for approximately 20-30% of the total rewards, greatly increasing stakers’ returns. Similar to issuance rewards, validators charge commissions on MEV tips ranging from 0% to 100%. In addition, Jito also charges a 5% commission on all MEV-related revenue as a platform service fee.

Other considerations

However, stakers don’t just focus on commission ratio when choosing a validator. Although low-commission validators may lead to higher direct returns, many people still prefer to choose high-commission validators such as Coinbase, which is driven by factors such as vendor lock-in and regulatory arbitrage. For example, funds using Coinbase Custody typically must be staked exclusively on Coinbase’s validator. On the other hand, centralized exchanges also benefit from retail users prioritizing convenience over revenue optimization. For off-chain users, they may not be sensitive to sub-par returnsSense, which gives the exchange greater flexibility in the rewards it offers.

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 revenue stream for stakers.

Key players in the Solana staking ecosystem

Solana validators can be divided into several categories.

Ecosystem Teams

Many prominent Solana application and infrastructure teams run validators that complement their core businesses. For example, Helius runs a validator to support its RPC service.

Example:

Helius

Mrgn

Jupiter

Drift

Phantom< /p>

Centralized Exchange

Centralized exchange is one of the Solana validators with the highest pledge rate, providing one-click staking solutions for off-chain exchange customers.

Example:

Kraken

Coinbase

Binance

Upbit

Institutional solution Solution Providers

These companies specialize in providing customized staking services to institutional clients. They support multiple blockchains to meet a wider range of customer needs.

Example:

Figment

Kiln

Twinstake

Chorus One

Stand-alone The Team

Solana’s validator ecosystem includes many independently operated mid-sized 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 the operating entity. These validators feature a 100% commission rate and no public identifying information on the block explorer and dashboard.

What is liquidity staking?

Liquidity staking allows users to spread their staking exposure across multiple operators through staking pools, which are able to issue Liquidity Staking Tokens (LSTs) that represent users’ holdings in the underlying staking account. Ownership Share.

LSTs

LSTs are a form of incomeAssets that accumulate 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 the same, but their value relative to the SOL token increases over time.

LSTs increase the capital efficiency of staking by unlocking DeFi opportunities. A typical example is depositing LSTs as collateral into a lending platform, which enables users to perform lending operations while maintaining their positions and still receive staking rewards.

The current situation of liquidity staking

Currently, although only 7.8% of SOL pledges adopt the method of liquidity staking, this part is growing very rapidly. 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 is the most popular liquidity staking token among Solana LSTs with a 36% market share, and other notable choices include Marinade (mSOL) and JupiterSOL (jupSOL), which account for 17.5% and 11% of the market respectively. .

Tax Advantages

In fact, liquidity staking brings tax advantages to users. In many jurisdictions, staking rewards issued in the form of tokens are considered a taxable event, (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 and only the value increases, so the user does not trigger a taxable event every time a reward is issued.

Is SOL staking safe?

Native staking provides stakers with a direct and secure way to participate in the network verification process. In this way, stakers always control and keep custody of 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 outage, native stakers’ positions will also remain unaffected and will remain unchanged once network activity resumes.

Similarly, liquidity staking is another option that also provides security in its own unique way. Currently, five reputable companies have audited the staking pool program nine times to ensure its robustness. Nonetheless, investors still need to be aware of market fluctuations and potential risks when using liquidity staking. During adverse market conditions or "black swan events", LSTs may temporarily trade at a discount to their underlying value. While these deviations are typically short-lived, investors should consider tail risk, especially when using LST as collateral.

Punishment Mechanism

Slashing is aPunishment mechanism to curb malicious or harmful behavior by reducing delegated pledges. Although Solana has not currently implemented a reduction mechanism, web 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 integrates Delegated Proof of Stake (dPoS) directly into its core protocol, eliminating the need to rely on external solutions to enable delegation. This design allows Solana’s staking participation rate to be as high as 67.7%, accounting for a significant proportion of the total supply, much higher than Ethereum’s 28%. In contrast, as Ethereum transitions from proof-of-work to proof-of-stake, it relies 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, and it requires validators to have high technical proficiency and specialized hardware. Validators must stake at least 32 ETH and ensure their hardware is always online and fully maintained. This self-custody approach has earned Ethereum a reputation as a highly decentralized blockchain, with thousands of home stakers forming the basis of the network.

While home staking plays a prominent role on Ethereum, liquidity staking is also widely used through some major platforms. Among them, Lido occupies a leading position in the market, controlling more than 28% of the pledged ETH supply. Lido enables investors to enjoy staking rewards while maintaining ETH holdings by issuing the yield token stETH. However, like all liquid staking tokens, stETH is subject to some risks, including smart contract vulnerabilities and stETH price deviation from ETH. More importantly, Ethereum’s inflation return is relatively low, and the annual interest rate for staking ETH using Lido is only 2.9%, which is much lower than the return rate for staking SOL. Furthermore, Lido charges a 10% fee on staking rewards, further reducing investors’ actual returns.

Finally, to its credit, Ethereum includes a slashing mechanism to punish validator misbehavior, but slashing events rarely occur.

Conclusion

This article comprehensively explores the concept, mechanism and importance of Solana staking. An in-depth understanding of staking is crucial for both experienced participants and newcomers to the Solana ecosystem. of. Staking not only provides a way for long-term holders of SOL to obtain competitive returns, but is also a core element supporting the basic mechanism of Solana network security and decentralization.