Lesson 1. Staking and Validators

Welcome to the GREED Academy! In this first lesson, you’ll learn all about staking and validators on Solana. We’ll cover the basics of staking and validators, how to participate, and how to choose the right validator. By the end of this lesson, you’ll have a good understanding of why staking is important and be ready to make informed decisions about participating in the network. You will also learn how to complete the first lesson!

Introduction

Staking is a fundamental component of proof-of-stake (PoS) blockchains, essential for maintaining security and efficiency. In Solana’s PoS system, staking involves delegating your SOL to validators to support the network’s basic functions while earning rewards. Validators, the backbone of Solana, are machines that verify transactions, create blocks and maintain the chain’s integrity.

PoS relies on validators who are chosen as leaders to propose and verify blocks of transactions. This process, known as consensus, guarantees that all participants agree on the state of the blockchain. Validators earn the right to create new blocks and validate transactions based on the amount of SOL they have staked.

By staking your SOL, you delegate your tokens to a validator you trust to act in the network’s best interest. In return for supporting the network, you earn rewards based on the amount of SOL you’ve staked and the performance of your chosen validator. This incentivizes both the validator and you, the delegator, to maintain and enhance the network’s health and security.

Staking is crucial because it allows you to participate in the network’s operation and governance without the need to run a full node. It’s a way to actively support the blockchain while earning passive income from your staked tokens.

In this lesson, we’ll explore the role of validators, the process of staking, and how to choose a reliable validator. Understanding these concepts is vital for anyone looking to participate in the ecosystem.

Network Nodes

On Solana, there are two main types of nodes, both running the same client software but serving different roles:

• Consensus Validators: These nodes validate transactions, propose new blocks, and participate in the consensus process. The more SOL a validator has delegated to it, the more weight their vote carries. These nodes are what makes the network stay decentralized and secure.
• RPC Nodes: These nodes respond to requests from developers and users but do not participate in the consensus process. They are essential for facilitating interactions between the chain and the protocols or users. They are basically how we communicate with the network.

Validators are responsible for several functions, including transaction validation, block production, and consensus participation. Validators verify transactions to ensure they comply with network rules, such as checking transaction signatures. The leader validator, chosen randomly based on weighted staked SOL, groups transactions into a block and broadcasts them to the network. Validators also broadcast newly created blocks for other validators to confirm, with Solana’s consensus mechanism requiring at least two-thirds of validators to vote on a block for it to be confirmed.

Validators can choose from several validator clients to run their nodes, contributing to the network’s client diversity. This diversity reduces the risk of a single point of failure and enhances network security. Currently, there are two clients live on the mainnet: the original one from Solana Labs, now being further developed under the name Agave by Anza, and a fork by Jito Labs that can capture Maximum Extractable Value (MEV). As of July 2024, several new clients are in development, such as Firedancer by Jump, and Sig by Syndica.

Validators earn revenue in three different ways:

• Commission on Inflation/Stake Rewards. Solana runs on an inflation schedule where new tokens are created and distributed at the end of each epoch to stake-holders. To stay profitable, validators typically charge a commission on these rewards earned by delegators as a percentage in exchange for their service.

Proposed Inflation Schedule (source)

• Commission on earned MEV. Maximum Extractable Value or MEV refers to the additional profit that can be extracted from the ordering of transactions within blocks. On Solana, certain validator clients, like the one developed by Jito Labs, enable the capture of MEV. These clients allow validators to strategically include, exclude, or reorder transactions to maximize their earnings beyond the standard rewards and fees. Validators commonly give these rewards to stakers and might charge an MEV commission. This additional revenue stream is becoming increasingly important as it offers better financial incentives for validators to optimize operations and use advanced clients.
• Block Rewards. Solana’s transaction fees are composed of base fees and priority fees. Base fees are a standard charge for each transaction. Priority fees are optional and paid by users to expedite their transactions, ensuring they are processed faster. Validators earn half of these fees, with the other half burned to help control inflation and maintain economic balance. Recently, the increase in priority fees has significantly boosted validator profitability, often exceeding earnings from commissions, with many validators reducing their commissions to 0% to help attract more delegated stake. There is currently no simple way for a validator to share these rewards with stakers.

Fee Distribution with MEV/ Jito (source)

Anyone can run a validator, but for a high performance chain like Solana this is a costly adventure, requiring top-tier hardware and a stable internet connection to ensure high performance, uptime and reliability. Validators’ profitability depends on their ability to maintain performance and the amount of SOL delegated to it.

Most validators are machines rented in the worlds’ biggest data centers and there are several providers that offer validator renting and setup as a service, the best known one on Solana is our initiative partner Triton One.

Currently, there are around 1,500 validators on Solana, with 21 forming the superminority. This means they control more than one third of the total stake, and their collusion could in theory halt the network. Monitoring this number is important to understand the network’s health and decentralization, and it can be checked live on Solana’s website. Spreading their stake and increasing the number of validators forming the superminority is a very important step to higher decentralization.

If you would like to read more in detail about validators, check out Solana Labs’ Validator Documentation.

Now that we understand the role of validators, let’s explore staking and how you can contribute to and benefit from the network.

Staking

Staking on Solana means creating a stake account and delegating it to a validator. In return, you earn rewards based on the performance of the validator and the amount of SOL you staked. There are 2 main ways how you can do that:

Types of Staking

• Native Staking. This straightforward method delegates your SOL to the validator and your wallet owns the delegated stake account. You’ll receive rewards at the end of each epoch (approx. every 2 days) that’s auto-compounding to the same stake account. You can split, merge, un-delegate or delegate it to a different validator. We recommend native staking because of the lower risks and full control. It also often helps with the temptation to spend your precious SOL :D
• Liquid Staking. If you stake using a Stake Pool, instead of a staking account, you get SPL tokens, also known as liquid staking tokens or LSTs, that represent your share of the pool. The main two benefits stake pools bring are:
  1) distribution of SOL across multiple validators picked by performance and current stake, helping decentralization and reducing the reward variation
  2) the ability to still have a “liquid asset” you can still use on various platforms.
  This method is supposed to provide protection against any one validator’s downtime, help decentralization and promote the DeFi ecosystem. However, recent liquid staking tokens are often single-validator, which diminishes these benefits. The price of liquid staking tokens (LSTs) reflects the native token’s value plus accrued rewards.

Native staking is completely safe, and the only risk comes in the form of earning lower rewards if a validator underperforms or goes down. Liquid staking adds a marginal, but still present, additional smart contract risk.

Staking on Solana provides multiple ways to earn rewards while supporting the network. Whether you choose native staking for its simplicity and lower risks or liquid staking for its flexibility, understanding how each method works will help you make informed decisions.

Stake accounts are used to delegate tokens to validators and manage these delegations. Each account has two key authorities: the stake authority, which handles delegating and managing the stake, and the withdraw authority, which manages withdrawals and setting new authorities. A single stake account can delegate to one validator at a time. To delegate to multiple validators, you need to create multiple stake accounts or split an existing one. Two stake accounts with the same authorities and lockup conditions can be merged if they meet certain criteria. Delegations and deactivations happen at the end of the epochs, and in some cases it can take more than one epoch to complete (if the total change of chain’s stake could put the network health in danger).

Lockups on stake accounts prevent tokens from being withdrawn before a set date or epoch. For example, students of the Academy locked up their funds for extra rewards. While locked up, you can still delegate, deactivate, split, merge your stake, and change stake authorities, but withdrawals are restricted until the lockup period ends.

Stake accounts offer flexibility to manage staked SOL. Find more detailed information on stake accounts and their management here.

Choosing a Validator

Only ONE answer, the GREED Validator

greed.academy/stake

No, really, this is extremely important. When picking a validator, you want to make sure you’re getting the best rewards and helping the network stay strong and decentralized, while supporting the validator which values you’re aligned with.

First, check out the performance of the validator. You want one with high uptime and low skip rates so you get the most rewards. Reliable validators keep things running smoothly without a lot of downtime. Next up is reputation. Go for validators with a solid track record and good feedback from the community. These are usually the ones that are really involved in the ecosystem, get involved and care about the future of the network. Look at the real yield too. Tools like StakeView or Validators.app can help you compare actual returns, so you know what you’re really earning after validator commissions. Decentralization matters a lot. Choosing validators that aren’t part of the superminority is important in keeping the network more secure.

Also, think about your values. Support validators that align with what you believe in and contribute positively to the ecosystem. This could be those who are active in governance, support network upgrades, push community initiatives, or support cool projects. Avoid validators run by centralized exchanges. Stick with validators who put the network’s health first. This keeps the spirit of decentralization alive. Validators have a say in important network decisions, and their voting power comes from their total stake.

By choosing the right validator, you’re making sure your staked SOL is delegated to those who are committed to keeping the network healthy and decentralized. Focus on performance, reputation, real yield, decentralization, and your values to make a choice that benefits both you and the Solana ecosystem.

For more information on choosing a validator and details about validators, as well as general validator and staking information, visit validator.app’s FAQ.

How To Stake

There are multiple ways you can stake. In this lesson, we are going to focus on native staking, although we will brush on other platforms and ways to stake.

Native Staking

Here’s a step-by-step guide to get you started with native staking using popular wallets, along with some best practices and recommendations.

Through Phantom Wallet

1. Navigate to the staking section. Open Phantom wallet and click on SOL. Click on “Staking: Start earning SOL”. Click on “Native Staking”.
2. Choose a validator. Search and select a validator from the list.
3. Stake your SOL. Enter the amount of SOL you want to stake. Confirm the transaction and wait for it to be processed.
4. Wait for the stake to activate. Stake does not activate immediately, instead it will activate in the next change of epoch, at that time the SOL will be delegated and earning in the validator.

Step by step native staking on Phantom

Through Solflare Wallet

1. Navigate to the staking section. Open Solflare wallet and click on SOL. Click on “Stake”.
2. Choose a validator. Search and select a validator from the list.
3. Stake your SOL. Enter the amount of SOL you want to stake. Confirm the transaction and wait for it to be processed.
4. Wait for the stake to activate. Stake does not activate immediately, instead it will activate in the next change of epoch, at that time the SOL will be delegated and earning in the validator.

Step by step staking on Solflare

Checking Out Your Stake Account

One can follow the status of their staking account. If you want a simple overview, both Phantom and Solflare will provide some information, like the amount staked, the status or the rewards accrued. But as we mentioned previously, stake accounts can be more complex and have more elements. If we want to get more information about the stake account, we will have to go to one of the explorers, for example Solscan or Solana.fm.

Searching for the wallet address and heading to the “Stake Account” or “Stakes” sections in Solscan and Solana.fm, respectively will take us to the information about the stake account.

Account view on Solscan

Clicking on the stake account address you will be able to see a more complete picture on your stake account, like the state of your account, activation epoch, the different authorities, rewards, transfers and other very useful information.

Stake Account view on Solscan

As you can see, the stake account address and the wallet address are not the same. This stake address is unique to each wallet account.

Staking Through Other Platforms

• Native staking is also possible by connecting any wallet to a platform designed to perform stake account creation and delegation, for example Stakewiz.
• Native Staking Through Backpack: Currently, Backpack is not recommended for staking due to several unresolved issues. These include missing a way to perform some important basic actions, like re-staking and changing validators. They promised improvements but have yet to deliver.
• Liquid Staking: Platforms like Marinade Finance or Jito offer liquid staking solution. You’re exchanging a staking account for liquid staking tokens that represent your position. Getting out of this position might not be a great experience as this makes it sound, because you’re either going to wait for epoch change to get the full value in SOL (just as you would with native staking), or pay a noticeable fee if you need it immediately.
• Buying an LST on a DEX: You can purchase liquid staking tokens (LSTs) on decentralized exchanges. It’s faster and easier than doing it through a platform but you’re usually getting a worse deal.

Best Practices and Recommendations

1. Choose reliable validators with high uptime and good reputation.
2. Choose a validator that aligns with your values, and support validators contributing to the ecosystem, like our educational initiatives that are possible thanks to the GREED Validator.
3. Stay up to date of any changes in the network and staking mechanisms to ensure you are making the best decisions.
4. Monitor your stake regularly through your wallet or Solana explorers like Solscan or Solana.fm.
5. Avoid swapping tokens in wallets, due to unreasonable fees. Use dedicated platforms for token swaps to ensure better rates.

How to Unstake

If you decide to unstake your SOL at any point, here’s how to do it using Phantom or Solflare. Remember that once you unstake, it will take until the change epoch for your SOL to become available. You can check how long until the change of epoch in platforms like Solscan or directly on the wallet.

Through Phantom Wallet

1. Open Phantom. Navigate to the Solana section of your Phantom wallet.
2. Locate your staked SOL. Click on the amount of SOL you have staked.
3. Unstake. Select the “Unstake” button. This will start the process of deactivating your stake.
4. Confirm the transaction. Approve the transaction to deactivate your staked SOL.
5. Wait for the epoch to end. Your SOL will be available for withdrawal after the end of the next epoch.

Through Solflare Wallet

1. Open Solflare. Head to your Solflare wallet and select the SOL token.
2. Access staking. Click on the “Stake” section to view your staked accounts.
3. Unstake. Click on “Unstake”.
4. Confirm the transaction. Approve the deactivation request.
5. Wait for epoch completion. Your SOL will be ready for withdrawal once the current epoch ends.

Step by step unstaking on Solflare

Completing the Lesson

If you made it this far, now you should know a lot about staking and validators to complete the lesson. The test for this first lesson is to natively stake any amount of SOL (it can be as little as 0,01 SOL) to the GREED Validator following the steps in the “How to Stake” section. Keep in mind you’ll need some extra SOL to pay for the transaction and create the account.

Once staked, go to the TEST HERE, connect your wallet, and enter your newly created stake account address that you can find in the explorer following the steps detailed above.

Remember, the wallet address and the stake account address are NOT the same!

After entering your correct stake account in the box and submitting, you will have completed this weeks lesson and earn your first star on our leaderboard. You can feel free to close that staking account once you see the star next to your wallet.

For this lesson to count as completed for the purpose of our first semester rewards split, you have to use the same wallet that you signed up with (you should be able to find on our leaderboard), and complete the test before 3PM UTC on Thursday 15th of August. Good luck!

We hope you found this lesson useful. Thank you for joining us on this first lesson of the GREED Academy. Come back next week for a lesson on governance!

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