Introducing Lido for Solana
Explaining the SOL liquid staking solution by Chorus One
‘Lido for Solana’ is a Lido-DAO governed liquid staking protocol for the Solana blockchain. Anyone who stakes their SOL tokens with Lido will be 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 Lido DAO is a Decentralized Autonomous Organization which governs and enables the development of liquid staking solutions for different blockchains.
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
Solana is an extremely fast, and censorship-resistant blockchain that has witnessed tremendous growth and adoption in the last year. Solana serves transactions at an order of magnitude higher rate when compared to base layer Ethereum. Additionally, there is a flourishing ecosystem emerging around Serum and other DeFi protocols such as Raydium, Oxygen, Pyth Network, and others that are being built on Solana. With over $14bn staked, Solana is now also in the Top 5 of Proof-of-Stake networks by staked value.
Liquid staking takes the utility of Solana a step further by:
- Improving the user experience
- Diversifying risks across multiple node and operators
- Providing instant liquidity — that can also be leveraged to earn secondary rewards (beyond the primary staking rewards)
- Integrations with DeFi protocols that support Solana’s liquid representation token
How Lido for Solana works
Lido for Solana not only makes it very easy to stake but also provides further utility through stSOL. Let’s look at the process in slight detail. A SOL token holder connects their wallet to an interface that supports Lido (one will e.g. be hosted at https://stake.lido.fi) and deposits their tokens into the Lido program. They immediately receive stSOL tokens that represent a share of the total pool. Every user’s tokens are held in a pool controlled by the Lido program.
The Lido program collects the deposited SOL and releases the newly minted stSOL to the user. Beneath the layer, the Lido Program distributes this SOL uniformly across validators participating in the Lido Program. When these delegations accrue rewards on the allotted stake, the total SOL under pool management increases and this increases the value of stSOL tokens. The Lido DAO governs the Lido 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:
- One-step process — Just deposit into the pool with a single click
- The pool takes care of validator diversification
- 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.
Reward distribution in ‘Lido for Solana’ is an interesting deviation from how rewards are distributed in Lido for Ethereum, which pegs
ETH2 to stETH in a 1:1 ratio.
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.
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.
The stSOLs that one gets can be used to reap secondary rewards through DeFi protocols. There will also be liquidity pools on AMM protocols and other DEXes where one will be able to immediately exchange stSOL for SOL. For the ETH<>stETH pair a popular AMM in terms of liquidity and volume is the Curve pool.
Withdrawals of SOL from the Lido program will be rolled out after the initial MVP that is expected later this summer. As mentioned above, instant withdrawals will be available in the open market. Once activated, withdrawal from the Lido pool will take a couple of epochs. This process is intentionally staggered to avoid bank-run scenarios.
As discussed in the rewards section a portion of the rewards goes to the Lido DAO treasury. The amount that goes to the Lido DAO treasury can be potentially used for different purposes
- Revenue share to maintainers (20% of the portion going to the treasury, see also the full Chorus One proposal to the Lido DAO)
- Value Accrual to LDO
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.
Chorus One proposed to build the liquid staking solution described here with support from the Lido DAO and the vote past with over 96m LDO in favor and 0 LDO against. Follow our Twitter handle and website to keep in touch with the latest updates.