Introduction
As the cryptocurrency market rebounds this year, the demand for liquid staking has seen a significant surge, particularly within the Solana ecosystem. Liquid staking protocols on the “Ethereum Killer” platform have witnessed a remarkable 91% increase in total value locked (TVL) since the beginning of 2023, as reported by The Block Research. This surge is demonstrated by the cumulative holdings of Marinade Finance, Lido, Jito, JPool, and Socean, which reached a total of $187 million in staked SOL tokens by the end of June, compared to a mere $98 million at the start of the year.
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Solana’s Liquid Staking Ecosystem
These figures account for a substantial portion of the $270 million presently locked within Solana’s DeFi ecosystem, according to DefiLlama. However, it is important to note that Ethereum continues to dominate the DeFi landscape, with $26 billion out of the $44 billion locked across the industry.
Understanding Staking and Liquid Staking
Staking refers to the act of locking up cryptocurrency to provide security for a proof-of-stake blockchain network, such as Ethereum, Solana, Cardano, and others. Stakers are rewarded for their participation by receiving additional cryptocurrency over time, either in the form of newly minted coins or network fees. While staking is technically accessible to anyone on a public blockchain, many users prefer to utilize Liquid Staking Services, which alleviate the technical complexities associated with running a personal node. Even Ethereum co-founder Vitalik Buterin has acknowledged refraining from staking most of his Ether (ETH) due to the associated technical risks and complications.
Benefits of Liquid Staking
Liquid staking offers users tokens that can be redeemed on a 1:1 basis with the staked assets. For example, SOL can be exchanged for stSOL through platforms like LIDO. This mechanism enables stakers to maintain the liquidity of their staked assets while simultaneously benefiting from yield.
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Solana vs. Ethereum Staking
Experts observe that the rise in staking activity on Solana reflects a broader trend across the cryptocurrency space. Kevin Peng of The Block notes that liquid staking derivatives (LSDs) have experienced substantial growth as a category throughout the crypto industry in 2023, primarily due to evolving dynamics in Ethereum staking. However, this increased demand has also extended to the Solana ecosystem.
Ethereum introduced staking in September 2022 and has rapidly emerged as the most popular staking network, with over 20% of its Ether supply already staked. According to data from Staking Rewards, Solana currently offers staking yields of approximately 6.89% APY, surpassing Ethereum’s 5.09% yield.
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Written by Agbo Obinnaya.
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