The Solana Liquid Staking Ecosystem (Dec 2021)
In the past few months we have seen the introduction of four different liquid staking solutions on Solana. This article discusses these solutions and outlines some of the advantages and disadvantages of each one.
What is Liquid Staking?
Firstly, a brief recap about what staking is. Staking is the act of locking up a cryptocurrency to help secure the network. There are plenty of other articles that outline the mechanics of this, but from a regular user perspective, the key perk to staking is earning a yield. On Solana, the yield from regular staking is around ~6–8%. In order to stake, users have to select a validator (there are currently 1300+) and stake their tokens.
Liquid staking is the act of delegating your Solana to a service that stakes for you. In return, the service will offer you derivative tokens that represent your staked Solana. These derivative tokens are: mSOL (Marinade), prtSOL (Parrot), SOCEAN (Socean) and stSOL (Lido)
Liquid Staking vs Traditional Staking
Liquid staking offers a few advantages over traditional staking:
1) Better Yields: The liquid staking service will stake deposited SOL across multiple validators. This means that depositors will receive a blended return. This is especially useful if a validator goes down or raises fees. For a traditional staked allocation of tokens this means a potential loss of yield. For a liquid staking service, it means a slight dip in the yield while tokens are reallocated
2) Liquidity: Users receive synthetic tokens in return for their SOL deposits. These synthetic tokens (e.g. mSOL) can be deposited into liquidity pools on DEXs to further enhance yield.
3) Instant Unstaking: When a user wishes to unstake their SOL, there is currently a period where SOL is locked. This period can last up to three days, until the end of the epoch. Liquid staking solutions allow a user to unstake immediately, simply by swapping the staked SOL for normal SOL using an exchange.
4) Selecting a Validator: Most users will not have the time or energy or expertise to filter through 1300+ validators to select one. Liquid Staking solutions take over this work so that users can simply enjoy their yields.
Liquid Staking Projects on Solana
There are four main liquid staking projects on Solana: Lido, Socean, Parrot and Marinade.
Lido: Lido is best known for its staking service on Ethereum which has nearly $7 billion worth of ETH deposited. It has expanded beyond ETH to offer a liquid staking service on Solana. Lido Solana is called stSOL.
Parrot: Parrot offers a suite of services, mostly built around a stablecoin called PAI that can be minted by depositing assets as collateral. It also offers a liquid staking service that results in a prtSOL token when deposited.
Socean: Socean is another liquid staking service native to Solana. Its token is known as SOCEAN, and it does not yet have a governance token.
Marinade: Finally, Marinade is the giant of the lot and focuses solely on Solana. Like Parrot and Lido, it has a governance token called MNDE.
The table below compares the four liquid staking products. There are two main takeaways from this data. The first is that fees between the four products vary widely, ranging from very high (Socean) to nearly non-existent (Marinade). The second is that Marinade has by far the largest block of staked SOL under management with 76% of total assets deposited in liquid staking products.
Projects in Development
Stafi and pSTAKE are projects that have existing services on other chains and have announced they are developing a liquid staking product for Solana.
Other projects
There is one final project that is worth mentioning called aSOL. Unlike other liquid staking solutions, aSOL is a liquid staking aggregator. That means that if you deposit SOL in aSOL, it will split your SOL into multiple liquid staking solutions, currently Lido and Marinade.
Conclusion
The liquid staking ecosystem on Solana is new but is expanding rapidly. It will be interesting to see new projects joining the existing four and new innovations to be developed around liquid staking.
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