What if we told you that you could help secure, decentralize, and support the Solana ecosystem while earning SOL? Better yet, what if we told you it only takes 5 minutes to get started?! Luckily, such is possible, and hundreds of thousands of Solana token holders are doing exactly that. This process of helping secure the Solana network and being rewarded for doing so is known as “staking.”
In this post, we’ll walk you through staking, why it matters, how to stake your SOL, and the risks of staking. By the time you’ve finished reading this post, you’ll be more informed on staking, have an idea of how to do it, and will be able to decide whether or not staking is right for you.
What is Staking?
Staking is when SOL token holders assign their tokens to a validator. Validators exist to process transactions on the Solana network, retain a copy of all transactions that have taken place, and help secure the network. Assigning SOL tokens to a validator to help secure the network is called “delegation.”
When you delegate your SOL to a validator, you signal a degree of trust in the validator to the network. The more SOL delegated to a validator, the more “proof” the validator has in telling the network that they are trustworthy. This allows the validator to process more transactions and earn staking rewards to share with their delegators. Do note that you do not give up ownership of your SOL when you stake with a validator; you remain in control of all your SOL.
What’re Staking Rewards?
At the time of writing, validators can earn an annual percentage yield (APY) of 6.7% on the SOL they stake in exchange for processing transactions and maintaining the state of the network. However, delegators can expect to earn a slightly smaller yield depending on the validator selected. This is because validators take a share of the staking rewards earned from delegated SOL, or what is known as the “validator commission.” It should be noted that the staking reward APY that delegators earn can change depending on the validator’s commission and Solana’s inflation schedule.
For instance, if the validator you stake with pays an APY of 6% and you stake 100 SOL, you might expect to earn 6 SOL after staking for a year. However, if the validator changes their commission fee halfway through the year, you can expect to earn less than 6 SOL.
Why Does Staking Matter?
Staking helps secure the Solana blockchain and keep the network running as intended. Staking is arguably one of the most impactful things SOL token holders can do to support the ecosystem. Being an open and decentralized network, Solana depends on good actors (validators) to confirm that the transactions they receive are truthful and happened. Because the Solana network can be halted should a validator control 33% of all staked SOL, the more delegators and validators, the more expensive it becomes for someone(s) to act maliciously. Staking lies at the heart of Solana’s Proof-of-Stake consensus mechanism, which is designed to ensure the network remains decentralized and fully functional.
How To Stake Your Solana
Now that we understand what staking is, its rewards, and why it matters, let’s look at how to stake. Currently, there are two ways you can stake your SOL; you can either use a centralized exchange (such as FTX), stake with a personal wallet (like Phantom or Solflare), or use a liquid staking platform (such as DAOPool and Marinade Finance). Below we discuss the pros and cons of each.
Centralized Exchange (CEX)
- Centralized exchanges make staking simple; all you need is to use their interface to opt into staking.
- Many exchanges allow you to instantly unstake your tokens.
- Most CEXs are reliable and trustworthy.
- When staking through a CEX, you don’t get to choose a validator. Because smaller validators also need delegated SOL, staking via a CEX can make staking more centralized.
- Some exchanges charge a commission fee that is larger than what validators charge.
- When you stake with a CEX, your coins remain vulnerable to exchange hackers. Though CEXs continue to step up their security, there will always be the risk of your account being compromised either due to your own fault or an exchange security flaw.
Personal Wallet (Phantom, Solflare, Ledger, etc.)
- You are in complete control of where your funds are delegated.
- You can delegate your SOL across multiple validators with potentially higher staking rewards.
- Some validators are “better” than others, meaning you will need to decide who to delegate to.
- Staking rewards can be changed without formal notice.
- It takes 3 days to unstake SOL.
Liquid Staking Platforms
SOL token holders have the option to stake using a liquid staking platform. This allows token holders to earn staking rewards while also being able to instantly “unstake” their SOL. This is achieved by stakers swapping their SOL for a synthetic SOL token that is redeemable for an amount of SOL equal to the SOL you staked AND the staking rewards earned from staking. For instance, DAOPool and Marinade Finance users receive daoSOL and mSOL, respectively, when they stake their SOL.
- You get all the benefits of staking with a personal wallet.
- You can instantly unstake your SOL.
- Staking rewards earned from liquid staking platforms can be better than some CEXs.
- SOL is staked across multiple validators, thus reducing the concentration of delegated tokens and risks associated with staking on only a few validators.
- You cannot pick the validator you stake with.
- You assume the risk of the liquid staking platform being compromised.
- You must pay a fee to unstake your SOL.
- There is always the risk of a “bank run” limiting you ability to withdraw your SOL in a timely manner.
How To Pick a Validator
When using a personal wallet, you get to select a validator. However, because not all validators are equal, you must consider several factors when delegating to a validator. These factors include the following:
- You should see if the validator has a website, an active and public team, and whether they’ve acted maliciously previously.
- Using resources, such as Validators.app, you should consider how the validator has performed in the past.
- StakeWiz can also be used to see how validators stack up to one another via a “Wiz Score,” which accounts for several factors such as data center decentralization, stake weight, voting performance, block production performance, uptime, published information, operational history, etc.
- Staking Rewards
- Consider what commission the validator charges and what kind of APY you can expect to earn. Some validators charge 100%, while others charge 0%.
- A complete list of Solana validators and their commission fee can be found on SolanaBeach.io.
How to Stake (Phantom)
Should you decide to stake your SOL from a personal wallet, you can follow the five steps below to begin your staking journey. By staking with Samoyedcoin, you’ll be helping us earn rewards necessary to cover the costs of running a validator (~1 SOL per day & server space) and reinvest back into the Samoyedcoin project.
- Install Phantom & deposit SOL.
- Click on the Solana token balance in your wallet.
- Click the “Start earning SOL” button.
- Search for “Samoyedcoin” and click on our validator
- Select the amount of SOL you wish to stake.
- Click the “Stake” button.
How to Stake (DAOPool Liquid Staking)
When staking with DAOPool, each SOL staked in the pool is distributed to the Solana communities’ validators, with the goal of further decentralizing the network while also supporting all DAOs. As of May 2022, Samoyedcoin is one of nine different validators part of the DAOPool, meaning a share of SOL staked through the DAOPool will go towards the Samoyedcoin validator.
- Install Phantom & deposit SOL.
- Navigate to the DAOPool website
- Enter your desired number of SOL to be staked
- Click “Stake”
Once you’ve staked with the DAOPool, you will receive daoSOL tokens in return. Each daoSOL token represents your share of SOL staked with the pool, as well as staking rewards earned. Should you wish to receive your SOL and staking rewards back, you can click the “Unstake” tab on DAOPool’s website and withdraw your SOL.
As with everything in crypto, staking isn’t without its risk. In this section, we details the risks you should be aware of and consider when deciding whether or not staking is right for you. These risks include network risk, platform risk, validator risk, and human error.
As with any blockchain, there is always the risk that the network goes down or is compromised. For instance, you could find yourself unable to unstake your SOL should the network go down. Though some centralized exchanges allow you to unstake from their platform should the network be unable to process transactions in a timely manner, staking through a personal wallet means you won’t be able to unstake your SOL.
Whenever you store coins on a centralized exchange (CEX), you assume the risk of your account being compromised or the exchange being hacked. Because you’re required to keep your coins on a centralized exchange (CEX) to stake, you assume these same risks when using a CEX. While these service providers spend millions per year on security and offer several different options to secure your account, these risks remain.
The same could be said of using a personal wallet, such as Phantom, to stake your SOL. While Phantom and others let users choose who they stake with, there is always the risk of the personal wallet having a security flaw. The same can also be said of liquid staking platforms.
As previously noted, one ought to take the right precautions when selecting a validator. If a validator wants to, they could abruptly change their validator commission fee or act maliciously. For instance, if the validator advertises 0% commission, they could change the commission fee at a later date.
Because we’re human, there is always the risk that something goes wrong due to our actions. So when it comes to staking, make sure you follow all the necessary precautions and correct steps to ensure you do not stake with the wrong validator, send coins where you shouldn’t, and/or share your seed phrase.
Staying true to our vision of accelerating the adoption, development, and growth of the Solana ecosystem, we hope this blog post was helpful in your journey of better understanding the Solana ecosystem. Hopefully, you now understand what staking is, what staking rewards are, why staking matters, how to stake, and the risks. While we aspire to make market participants more informed, taking this knowledge and combining it with some research of your own is the recipe for success!
|Disclaimer: This information is general information and is intended for educational purposes only. The information contained herein is not intended to constitute legal, tax, accounting or investment advice. Information, opinions and views are solely the author’s own and should not be used as the basis of any investment decision. When making investment decisions, contact a licensed investment professional who can ensure the suitability of your investments. Do your own research.