Introducing Lido for Solana

Explaining the SOL liquid staking solution by Chorus One

Rishi Sidhu
May 6 · 7 min read

Lido, the largest liquid staking project on Eth2 and Terra, is looking to expand its offering to the high-performance blockchain Solana. Chorus One is building this service for Lido.

‘Lido for Solana’ is a Lido-DAO governed liquid staking protocol for the Solana blockchain. Anyone who stakes their SOL tokens with Lido willbe issued an on-chain representation of SOL staking position with Lido validators, called stSOL. This will allow Solana token holders to get liquidity on their staked assets which can then be traded, or further utilized as collateral in DeFi products. We will work to integrate stSOL widely into the Solana DeFi ecosystem to enable stSOL users to make use of their staked assets in a variety of applications.

Lido for Solana gives you:

  • Liquidity — No delegation/activation delays and the ability to sell your staked tokens
  • One-click staking — No complicated steps
  • Decentralized security — Assets spread across the industry’s leading validators chosen by the Lido DAO

The Lido DAO

The first liquid staking protocol solution was built for Ethereum — and now Lido is expanding to different blockchain networks. Chorus One recently proposed a plan to build “a liquid staking token that will accrue staking rewards and represent staking positions with Lido validators on Solana”. The stake deposited to the Lido contract on Solana will be distributed to these validators following a logic similar to the Lido (stETH) on Ethereum. Lido on Solana will have a fee mechanism similar to that on Ethereum which allows splitting fees between node operators and the Lido treasury (e.g. to be used for the insurance fund).

Lido’s decentralized organization brings together the industry’s top staking providers, decentralized finance projects, and investors. The Lido DAO eliminates dependence on a centralized authority, thereby removing the risk of a single point of failure. Distributed governance also fosters a stronger community!

Solana Liquid Staking

Liquid staking takes the utility of Solana a step further by:

  1. Improving the user experience
  2. Diversifying risks across multiple node and operators
  3. Providing instant liquidity — that can also be leveraged to earn secondary rewards (beyond the primary staking rewards) through
  4. Integrations with DeFi protocols that support Solana’s liquid representation token

How Lido for Solana works

The Lido program collects the deposited SOL and releases the newly minted stSOL to the user. Beneath the layer, the Lido Program leverages the Stake Pool Program Library to distribute this SOL uniformly across validators participating in the Lido Program. When these delegations accrue rewards on the allotted stake, the total SOL under stake pool management increases and this increases the value of stSOL tokens. The Lido DAO governs the Lido Program and the underlying Stake Pool program — and also controls the list of validators that are part of this program.

Let’s compare this to traditional Solana staking, where a user has to perform a number of steps:

  • Create a Stake Account and transfer SOL to it
  • Set its deposit and withdraw authorities
  • Delegate it to a validator
  • Wait for activation of the delegation before the stake starts earning rewards

Furthermore, in traditional staking, if the user wants to diversify her stake across validators she would have to create and manage stake accounts for each validator.

Staking SOL through Lido will come with a variety of benefits:

  1. One-step process — Just deposit into the pool with a single click
  2. The pool takes care of validator diversification
  3. Immediate appreciation — You start earning from the pool from the moment of deposit. This gets reflected in the value-appreciation of stSOL tokens

Interestingly, there is no waiting time for receiving stSOL tokens. When a user delegates their SOL tokens they do not need to perform or wait for the completion of any delegation or activation steps, as is the norm in traditional staking. The user can instantly exchange stSOL for SOL at any time in the open market.

In Lido for ETH, withdrawals from the Lido program are blocked until the ETH2 chain is live. In Lido for Solana, staggered withdrawals will be enabled. These direct withdrawals will take a couple of epochs to process, and will be beneficial for large withdrawals (e.g. because there will be no slippage from trading on the open market). However, for small withdrawals exchanging stSOL on a DEX (e.g. to SOL) will likely prove to be the go-to solution in order to exit a staking position with Lido for most of the users.

Rewards

To understand how rewards work for ‘Lido for Solana’ let’s look at a hypothetical scenario. Let’s assume that the pool contains 2000 SOL and while we are at it let us also assume that a total of 1800 stSOL are held by the token holders. This puts an exchange rate of 0.9 stSOL per SOL.

If Alice deposits 1 SOL now she will get 0.9 stSOL in return. As rewards accrue SOL balance goes up, let’s say from 2000 to 2100. The new exchange rate becomes

Now if Alice goes and enquires about the value of her 0.9 stSOL, she finds it to be

Effectively, her SOL balance potentially went up by 5% from 1 SOL to 1.05 SOL. This approach is called the share-pool approach. Even though the numbers here are hypothetical they represent the concept of rewards accurately.

Note
The accrued rewards here are after a fee cut for Lido maintainers. To incentivize sustainable management of the Lido ecosystem, a portion of the rewards is split between the node operators and DAO treasury. The remaining larger chunk (on Ethereum, these amount to 90%) of rewards accrue to Lido users and get reflected in the increased value of stSOL as explained above.

Lido for Solana doesn’t follow the pegging approach, followed by ETH and stETH, as of now. However, this might be considered for revision when Solana launches native support for rebasing in SPL tokens.

Utilizing Liquidity

Withdrawals

Governance

The Lido DAO is the deciding authority on the various parameters of the ecosystem. Things like fees, upgrade approvals, validator set, voting mechanisms, etc. are decided by the DAO. It is in the DAO’s charter to make the system run smoothly and it does so through the process of voting. To be a voter one must possess the governance token, LDO. The amount of LDO determines the weight of your vote.

Lido DAO’s governance is a key aspect of the ecosystem and holds the key to the success of Lido for Solana.

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Chorus One

We offer staking and interoperability solutions for over 20 decentralized networks.