Introduction

What is SOL?

• ​​Solana is a blockchain platform that includes proof of history (PoH) technology to improve speed without sacrificing security.
• Because of its PoH technology, Solana is one of the fastest blockchains available, with an average processing speed of 2,700 transactions per second.
• The native cryptocurrency of the Solana network is the SOL token, which is currently in the top ten of all cryptocurrencies for market capitalization.

Use cases of SOL

• Transaction fees. The SOL token is used to pay transaction fees on the Solana network, which are remarkably low thanks to the high throughput of SOL. Transaction fees on SOL average $0.00025 per transaction.
• Staking. Like many other cryptocurrencies, holders can stake their SOL for rewards, governance voting and gain eligibility to become a validator.
• dApps and smart contracts. Similar to Ethereum, SOL uses smart contracts that support decentralized applications, and there is a tremendous variety of dApps that exist in the SOL ecosystem.
• Creating currencies. Many dApps within Solana have created their own currencies, which power their projects. SOL is an attractive blockchain for this use due to its scalability.

Why SOL is getting attention

• ETH alternative. Solana is an increasingly popular alternative to Ethereum thanks to its lower fees and faster speeds.
• Hub for NFTs. With lower congestion than other blockchain platforms, SOL could become a standard for those looking to build and host an NFT marketplace or explore gaming applications in crypto.
• DeFi projects. The Solana ecosystem houses a wide variety of DeFi projects, such as decentralized exchanges (DEX), lending protocols, crypto wallets, investment platforms, and payment systems.

What is Staking?

Put simply, staking is using your crypto holdings to earn rewards. More specifically in Proof of Stake networks like Solana, Avalanche, Polygon, Cardano, etc…, delegated stake is used to represent voting power in their respective consensus algorithms. Proof of Stake networks depend on the difficulty of acquiring a dominant amount of stake to prevent bad actors from stopping the network or, even worse, from corrupting the ledger. When you stake with a network operator/validator you are assigning them the voting power represented by your native tokens and helping decentralize the network. To encourage users to participate in the decentralization of their network, most protocols give out rewards for delegating that stake. \n

Native Staking on Solana

Consensus

As mentioned above, Solana is a proof of stake network which means its consensus algorithm uses weighted voting from its pool of validators to maintain ledger integrity. All blocks (group of transactions) have to have 66% of the weighted votes agree that the transactions are valid for them to be added to the chain of blocks. If more than 33% of the voting power is controlled by bad actors then consensus will fail and the network will come to a halt. This is where the term “halting line” comes from. If you take the list of all validators sorted by their delegated stake, the halting line separates the group of entities that, if combined, could conceivably halt the network. The smallest number of entities required to interrupt a block chain is referred to as the Nakamoto Coefficient.

Rewards

Solana staking rewards are paid out from its inflation. Solana has a predefined inflation schedule that started with 8% per year and gradually decreases to 1.5% over the next 10 years. As of February 2022, the Solana inflation rate is 7.2%. That means at the beginning of each epoch, a pool of tokens that match the per epoch interest rate is created. This pool of tokens is then distributed amongst the staked SOL across all validators.

Delegating SOL

To take advantage of the staking rewards you must delegate your SOL to a validator. When you do so you are increasing their voting power and you are “vouching” for that validator. It is important to pick a good validator, not only from a network strength perspective but also to maximize the amount of rewards you get. We go further into how to choose a validator below.

Risks

Staking on Solana is considered “non-custodial” because when you delegate your SOL to a validator, you never give up control or ownership. The validator has no access to your funds, they cannot take them or prevent you from unstaking in any way.

There is no mechanism in which you can lose staked SOL. You can however lose out on gains. If a validator sets their commission to 100% right before the epoch ends they end up getting all of your rewards. Thankfully there are some community built tools that you can set up alerts for any validators you are staking with.

Warming Up and Cooling Down

To prevent bad actors from quickly acquiring enough stake to damage the network, all staking actions undergo a warm up period which takes an epoch (2–3 days) to go into effect. When delegating your SOL you will notice that it starts out in the state of “Activating” and takes a few days to be “Fully Activated”. Once fully active, the staked SOL begins earning rewards. The same time period applies when unstaking. It takes a 2–3 day cool down period for your SOL to deactivate and become available for withdrawal or redelegation.

Decentralization

The other most important thing to consider when choosing a Validator is how delegating SOL to a specific validator will help or harm Solana’s overall decentralization.

Halting Line: The most important decentralization metric to consider is the “Halting Line”. As mentioned above the network requires 66% of the weighted vote to agree that a set of transactions are valid. This means that if more than 33% of the vote is controlled by a set of bad actors then they can “Halt” the blockchain. It is critical to not stake with these validators that control the top 33% of stake to further promote the robustness of the network. You can refer to SolanaBeach.io to see the validators in the top 33% to avoid staking with.

Data Center Concentration: Another important consideration is the data center that the validator operates in. If something catastrophic happened in a highly concentrated data center then the network could become vulnerable by making the total active stake considerably reduced and, in return, making the resources needed to halt the network considerably reduced as well. This is mitigated by the warm up and cool down period when changing stake but, in general, the more spread out the stake is among data centers the better. Our suggestion is to look at how much stake is in the data center of the Validator that you are considering. If it is above 5%, you might consider a different Validator. You can look up this information by searching the Validator of interest on Validators.app, clicking the data center for the validator, and viewing the total stake in that data center.

Validator Trustworthiness and Community Engagement: Validators who are involved in the community and have established trust are far less likely to be bad actors or be persuaded to join a group of bad actors in the future. Not only that, they increase the credibility of the community and therefore the value of the overall network which leads to an increased value of SOL. While it is hard to quantify or measure a Validator’s engagement and involvement here are a few things we look for:

• Do they have a website where you can learn more about them and contact them if necessary?
• Are they helpful in places like the Solana Discord or Reddit?
• Have they built any tools for the community?
• Do they conduct themselves professionally and with kindness?

Tools to help pick a Validator:

While this may sound like a lot to consider there are many useful community-made tools that can help immensely with choosing a validator. Our favorite tool is StakeWiz.com. They take into account all of the above and produce a ranking across all validators.

Liquid Staking: Stake Pools

While we encourage folks to consider staking directly with validators with at least a portion of their holdings, there are many circumstances in which it makes sense to participate in stake pools for staking.

What is a Stake Pool?

A stake pool is a protocol that accepts SOL and returns a liquidity token. For example Marinade, one of the largest stake pools, returns mSOL. The value of the liquidity token goes up over time as the pool makes returns on staking. This value increase is implemented directly in the stake pool protocols by offering more SOL over time per liquidity token. For example, the exchange rate for mSOL to SOL used to be 1 to 1. At the time of writing you can now exchange 1 mSOL back to the stake pool for 1.03 SOL.

Which Stake Pools are the best?

Marinade: SOL→ mSOL :

Marinade has the most defi integrations and strong community values which makes it one of the best stake pool choices.Their delegation strategy revolves around maximizing decentralization while still having high APY. When you stake with marinade you are indirectly staking with over 400 validators. You can read more about their strategy here.

While decentralization is an excellent thing to support, its worth considering what your own rewards will be. Marinade charges the least amount of fees when instant unstaking and even offers the option to have 0 fees by doing a delayed unstake. Another key feature that differentiates marinade from other stake pools is the ability to exchange already staked SOL accounts for mSOL. This enables you to get access to natively staked funds immediately.

With their clear market lead and dedication to decentralizing Solana, Marinade comes in as our recommended stake pool.

Jpool: Sol → jSOL:

Jpool has a very clean website with a great team behind it. Their delegation strategy is optimized for both APY and choosing validators that are below the halting line. They also offer key features such as instant unstaking and the ability to deposit stake accounts directly. A solid choice overall.

Socean: SOL → scnSOL

Socean has a solid community and with a decentralization oriented delegation strategy. Their presence in Defi is reasonably strong and offers a fair amount of integrations. Unfortunately, they have far more fees than other pools. They have a deposit fee, an instant unstake fee, and even a delayed unstake fee. Overall, a workable choice that would be easier to recommend if they had less fees.

Stake Pool Risks

While the risks are relatively low, by taking part of the stake pools you are exposed to protocol risk. Protocol risk is the risk associated with trusting the correctness and validity of all the smart contracts written to implement the stake pool. One mitigating factor is when the smart contracts have been audited. Both Marinade and Jpool have published their audits for all to review.

Stake Pool Advantages

Liquidity: In native staking there is a cool down period that takes an epoch (2–3 days) for your SOL to become available for transacting. With tokens like mSOL you can transact with them instantly. If you need to get back to SOL you can either swap them on a DEX, you can go to the stake pool and do an instant unstake for a small fee (0.3%), or you can do a delayed unstake where there is no fee but you have to wait an epoch.

methodology

In this dashboard, based on two tables solana.core.fact_stake_pool_actions and solana.core.ez_staking_lp_actions, we will analyze staking behavior in the Solana ecosystem from 10 days ago until now. some of the items and metrics related to stake pool actions table has a variety of action kinds in the action column. Therefore, I will refer to any operation involving a deposit or stake as a "Stake" action. also I will filter transactions with deposit and withdraw by considering Successfull transactions approach.

The Alameda + FTX Edge

FTX and Alameda Research created the Serum Foundation and announced Serum, a new high-speed, non-custodial DEX that’s built on Solana. You can learn more about Serum in the white paper and in this comprehensive write-up on The Block.

In order to maximize access to Serum, Serum will support cross-chain asset swaps, decentralized stablecoins, decentralized oracles, and non-custodial wrapped BTC, BCH, BSV, LTC, ZEC, ETH, and ERC-20s. Serum will decentralize the entire DeFi stack. Nothing will be left centralized.

By building on Solana, the Serum Foundation is enabling the best of both centralized and decentralized worlds: an exchange that is censorship-resistant and non-custodial and that is fast, inexpensive, and highly liquid. This is only possible because Solana enables Serum to run a CLOB that updates every 400 milliseconds.

Sam Bankman-Fried, the founder of Alameda Research and FTX, recently published five great Twitter threads on The State of DeFi (here, here, here, here, and here.). Building on his threads, Serum represents the first product for the next phase of DeFi.

DeFi 1.0 mainly focused on innovation in money markets (lending and borrowing). Defi 2.0 separates lending and trading and solves for decentralized exchange (high-speed trading and derivatives).

Despite clear product-market fit, DeFi still has many shortcomings. Most notably, it’s slow and expensive, which has limited the application design space. Gas costs on Ethereum are pushing trading costs above .05 ETH = $10 per trade.

This is precisely why centralized exchanges (CEXs) dominate trading today. But they won’t forever.

Automated market makers (AMMs) have grown in popularity on Ethereum over the last 18 months primarily because they make it easy for yield and risk-insensitive asset owners to provide liquidity to the market. However, that doesn’t mean that AMMs are the optimal mechanism to provide liquidity. AMMs are obviously lacking in many dimensions (most notably, capital efficiency).

Why should liquidity be provided differently (AMM vs CLOB) just because assets are held non-custodially vs custodially? Why should the nature of custody change how liquidity is provided?

It shouldn’t. Liquidity and custody are unrelated concepts.

Serum has a profound edge that no one else has: Alameda and FTX.

Alameda is one of the largest liquidity providers in crypto across almost every major venue trading billions of dollars per day, and they are intimately involved with the Serum Foundation. Just as Alameda seeded FTX with liquidity to propel its exponential rise over the last 12 months, Alameda will imbue Serum with incredible liquidity from the outset.

FTX is a major destination for many organic takers in crypto. They prefer to trade on FTX because FTX offers the best trading products (UX, APIs, matching engine, liquidation engine, cross-collateralization, liquidity, etc). FTX will route taker flow to Serum.

No one in the existing DeFi ecosystem has the combined financial, operational, and technical resources of Alameda and FTX. Moreover, Alameda and FTX have deep knowledge moats about how to bootstrap liquidity in modern crypto markets that virtually no one else has. They are the most impressive growth story in crypto over the last 12 months. They came out of nowhere and established themselves as one of the dominant exchanges.

Analysis

Taking into account the number of users and transactions, it can be seen that the stake/deposit action is popular, accounting for more or less 50% of all events. Now after the stock volume is reached, the order-to-bet event is seen in neither the total nor the average volume, indicating that the other three actions are responsible for handling the volume, while the order-to-bet is an add-on to the transactions.

also we can see that the total bet volume is much higher than the stock/deposit actions. Furthermore, we can see that the bonus claim volume is also much higher than the stock and deposit actions, which shows that the user tends to access his SOLas soon as possible.

<-- We can see that the share of high-volume transactions (with more than 100 SOL) in Unstake and Claiming reward measures is much higher than that of shares and deposits.

The graph shows the timely analysis of Stakers in the network, it can be seen that there is an increase in users in recent days specialy in Nov 10, which shows that this is the result of recent events in the network. The increase is seen in all types of users.-→

The Marinade stake pool has seen the majority of stake and deposit transactions over the last 10 days in terms of both quantity and frequency. The volume of unstak is much higher than other activities. in terms of Unstake, we can see Lido is the top performing stake pool. As we mentioned before, according to pools, the maximum activity levels were reached on November 9 and 10, along with the highest number of actions. In further view we see quite increasing activity of all type of actions during past 10 days over time.

we can see the Everstake validator had the most number of stake and stakers in almost all days among other top validators of each day.

The top staker staked more than 107k SOL.

Conclusion

• Lido had the most shares last week, but Marinade had more deposits, requests to claims, and unstaking transactions. As seen, Unstake ranks Lido as the top stake pool.
• The most effect on the “Solana Staking Madness: is due to the “Lido“, and “Marinade“
• The number of unstakes and withdrawals started to increase on November 8. Unstaking transactions peaked on November 10.
• Everstake validator has the highest number of stakes and stakers during the past 10 days.
• The volume of unstak is much higher than other activities.
• users tent to access their staked/unclaimed SOL in order to be able to sell it to not lose more money.
• The analysis of the addresses has indicated that while a few addresses were responsible for the majority of staked volume, the staked volume has been more evenly distributed among all the addresses, indicating that retail has been pulling out its funds from the protocols.