Why should you stake SOL?

Staking SOL is more than earning rewards—it’s vital to Solana’s decentralization and security. By staking, SOL token holders contribute to the network’s resilience and governance. Selecting the right validator to stake with is crucial. Delegating tokens to a validator resembles voting in a representative democracy, as it reflects trust in their ability to maintain consistent uptime and vote on blocks quickly and accurately. Other considerations include a validator’s ethical behavior, response to hard forks, and contributions to the Solana ecosystem.

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A well-distributed stake among reputable validators strengthens the network’s decentralization. It makes it hard for any single, well-funded entity to manipulate consensus decisions for personal gain.

At Helius, our goal is to grow the Solana ecosystem. We also seek to deliver the best value to our stakers. We have high trust, top technical expertise, and complementary operations that let us provide the best rewards to our stakers.

What happens when you stake?

There are two forms of staking on Solana: native and liquid. Currently, 94% of staked SOL is natively staked, making it the primary focus of this article. A later section will cover liquid staking. Users can stake natively through many platforms. These include multi-sig treasury management tools like Squads, popular wallets, and dedicated staking websites. To stake SOL natively, users deposit their tokens into a stake account. This is then delegated to a validator’s vote account. A single user can create many stake accounts. Each can be delegated to the same or different validators.

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Above: A single staker delegates to multiple validators

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Every stake account has two key authorities: the stake authority and the withdraw authority. The system defines these when creating the account and, by default, assigns them to the user’s wallet address. Each authority has distinct responsibilities. The withdraw authority holds greater control over the account. It has the right to remove tokens from the stake account and can update the stake authority.

The most important unit of time in staking is an epoch. Solana epochs last 432,000 slots, which is roughly two days. The system issues staking rewards when a new epoch starts. This process is automatic; stakers will see their balance increase each epoch. Users can harvest MEV rewards (more on this later) directly through the Jito website.

When you natively stake SOL, you lock tokens for the duration of the current epoch. If users deactivate their stake at the start of an epoch, they may face a cooldown period of up to two days before withdrawing. The process can be almost instant if they withdraw as the epoch ends.

Similarly, activating stake requires a warm-up period that may last two days or be nearly instantaneous, depending on when the user initiates the stake account. Users can consult a Solana block explorer to track the current epoch’s progress.

How do operators make money?

Validator operators make money in three ways:

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• Issuance/inflation: new tokens printed
• Priority fees: users send SOL to validators to prioritize their transactions
• MEV rewards: users give Jito tips to validators to include transaction bundles

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Validators denominate their revenue entirely in SOL, which scales directly with their stake amount. Operational costs are mostly fixed and denominated in a mix of SOL and fiat.

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Above: Solana validator total staking rewards (Data source: Dune Analytics, 21.co)

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Issuance

Solana distributes staking rewards each epoch by creating new SOL tokens per an inflation schedule. The current inflation rate is 4.9% and reduces by 15% annually toward a long-term rate of 1.5%.

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A validator’s staking rewards are based on the number of credits earned. Validators earn credits by correctly voting on blocks that become part of the chain. Validators who experience downtime or fail to vote on time earn fewer credits. With an average number of credits, a validator with 1% of the total stake should earn about 1% of the total inflation.

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A validator’s staking rewards are split among their stakers based on the size of their delegations. Validators can charge a commission as a percentage of the total inflation rewards issued to all their stakers. Commission fees are usually a single-digit percentage but can be any number from 0% to 100%.

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Above: the Solana inflation schedule

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Priority Fees

A validator designated as the current block builder receives fees from every transaction they process. There are two kinds: base fees and priority fees. These payments are instantly credited to the validator’s identity account. Before, these rewards were 50% of the base fees and 50% of the priority fees, with the remaining fees burnt. This structure will soon change with the passing of SIMD-96, allowing 100% of the priority fees to go to block producers.

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Users pay priority fees to process their transactions first. Securing priority is vital in many situations, including arbitrages, liquidations, and NFT mints. Complex transactions need more computing power and thus pay higher priority fees. Hot token accounts with strong demand require higher priority fees.

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Base fees are a much less significant source of revenue than priority fees but are necessary to deter spam. The system fixes base fees at 0.000005 SOL (5000 lamports) per signature. Most Solana transactions only have one signature.

MEV (Jito) Rewards

Validators operating the Jito validator client account for over 90% of all stake. Jito introduces an out-of-protocol blockspace auction. Blockspace auctions occur off-chain. They allow searchers and apps to submit groups of transactions known as bundles. These bundles often contain time-sensitive transactions such as arbitrages or liquidations. Each bundle comes with a ‘tip’ to the block builder. These provide validators with an additional revenue stream separate from priority and base fees.

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In 2024, Jito MEV income grew from a rounding error to a major validator revenue source. Jito charges a 5% fee on all tips. Validators can charge their own MEV commission using a similar mechanism to inflation rewards. Stakers split the remaining fees based on the relative size of their delegations to the block builder.

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Above: Data quantifying growth in priority fees and Jito tips. Data source: Blockworks Research

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Synergistic Businesses

The Helius validator charges 0% commission on issuance and MEV rewards; our stakers enjoy the highest possible native yield. We aim to increase our total stake and improve transaction landing for our customers. Using staked SOL for connections helps us reduce congestion and boost the performance of our core business.

Our previous article analyzes the costs and revenue of running a validator in more detail.

Where does the APY come from?

Annual Percentage Yield (APY) represents the annual compounded percentage return stakers would earn by staking at the current rate for an entire year. Several factors influence this rate, including the network’s current rate of issuance, validator performance and uptime, the prevalence of users tipping validators, and the current staking rate (i.e., the proportion of SOL staked). Several sites list validators ranked by their APY, with StakeWiz being one of the most comprehensive.

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Specifically, APY will come from two key sources: issuance and MEV rewards.

Issuance

Validators distribute staking rewards among their stakers based on the size of each staker’s delegation. Validators charge a commission for their services, ranging from 0% to 100%. These rewards depend on the validator’s voting performance. Each successful vote earns them credits. Running a Solana validator is technically demanding. This difficulty is increasing over time as the chain becomes faster.

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Well-managed validators generate higher rewards due to factors such as:

• Minimal Downtime: Validators do not earn credits during downtime, as they cannot participate in voting.
• Prompt Voting: Validators may receive fewer credits if they consistently lag in consensus participation.
• Accurate Voting: Credits are only awarded for voting on subsequently confirmed blocks.

MEV (Jito) Rewards

MEV rewards play an increasingly prominent role in the composition of staking rewards. Rising on-chain transaction volumes and the accompanying arbitrage opportunities drive this growth. Recently, Jito MEV tips account for approximately 20-30% of the total rewards, substantially boosting staker earnings. Similar to issuance rewards, validators apply commissions on MEV tips ranging from 0% to 100%. Jito also charges a 5% commission on all MEV-related earnings.

Other Considerations

Despite the potential for higher returns with low-commission validators, many still choose high-commission validators such as Coinbase. This is driven by factors such as vendor lock-in and regulatory arbitrage. For example, funds using Coinbase Custody must be staked exclusively with Coinbase’s validator. Centralized exchanges benefit from retail users prioritizing convenience over yield optimization. Off-chain users are insensitive to subpar returns, giving exchanges flexibility in the rewards they offer.

Finally, new protocol mechanisms, such as SIMD-123, aim to let validators share block rewards directly with stakers. If implemented, this would provide stakers with an additional revenue stream.

Who are the key players in Solana’s staking ecosystem?

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Solana validators can be grouped into several categories.

Ecosystem Teams

Many prominent Solana application and infrastructure teams run validators that complement their core operations. For example, Helius operates a validator to support its RPC services.

Examples:

• Helius
• Mrgn
• Jupiter
• Drift
• Phantom

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Centralized Exchanges

Centralized exchanges are among the highest-staked Solana validators, offering a one-click staking solution for off-chain exchange customers.

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Examples:

• Kraken
• Coinbase
• Binance
• Upbit

‍Institutional Solution Providers

These companies specialize in staking services tailored to institutional clients. They support many blockchains to meet broader customer needs.

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Examples:

• Figment
• Kiln
• Twinstake
• Chorus One

Independent Teams

Solana’s validator ecosystem includes many independently operated medium-sized and long-tail validators. Several validators have been active since the network’s Genesis and contribute to the ecosystem through education, research, governance, and tooling development.

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Examples:

• Laine
• Overclock
• Solana Compass
• Shinobi

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Private Validators

The network also has over 200 private validators. Their stakes are self-delegated and likely controlled by the operating entities. These validators are characterized by 100% commission rates and a lack of public identity information on block explorers and dashboards.

What is liquid staking?

Liquid staking allows users to diversify their exposure across multiple operators via stake pools, which enable the issuance of Liquid Staking Tokens (LSTs). These tokens represent ownership of the underlying stake accounts.

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LSTs are yield-bearing assets that accrue rewards based on the underlying stake accounts’ APY. With native staking, rewards increase the balance of staked SOL each epoch. In liquid staking, the quantity of tokens remains fixed, but their value appreciates relative to the SOL token.

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LSTs enhance the capital efficiency of staking by unlocking DeFi opportunities. The canonical example is depositing LSTs as collateral on lending platforms. This enables users to borrow against their holdings while still earning staking rewards.

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Helius launched our own LST (hSOL) through Sanctum, a popular LST launchpad. Our token is backed by a single-validator stake pool. Helius stakers can convert their existing stake into hSOL using Sanctum’s platform, which offers a 0% fee interface for this conversion process.

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Currently, only 7.8% of staked SOL is liquid staked, but this segment is growing fast. Liquid staking represents 32 million SOL, up from 17 million at the start of 2024—an annual growth rate of 88%. JitoSOL is the most popular, comprising 36% of all Solana LSTs. Other notable options include Marinade (mSOL) and JupiterSOL (jupSOL), which account for 17.5% and 11% of the market, r espectively.

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In many jurisdictions, issuing staking rewards as tokens is treated as a taxable event (similar to stock dividends) and taxed as income upon receipt. However, LSTs let users earn rewards without such taxable events. Their wallet balance stays the same; only the value increases. Always consult a financial professional for guidance tailored to your specific circumstances.

Is Staking SOL Safe?

With native staking, stakers keep control and custody of their SOL at all times. If a validator goes offline or exhibits poor performance, non-custodial stakers can freely unstake and switch to an alternative. In the case of a network outage, stake positions will not be affected. Once network activity returns, the position will remain unchanged.

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Liquid staking is also widely regarded as a secure option. Five reputable firms have audited the stake pool program nine times, ensuring its robustness. LSTs may temporarily trade below their underlying value during adverse market conditions or black swan events. While these deviations are typically short-lived, investors should consider the tail-end risks, particularly when using LSTs as collateral.

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Slashing is a penalty mechanism that reduces delegated stakes to discourage malicious or harmful behavior. Solana does not currently implement slashing, but it is under consideration and could be later introduced.

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Finally, stakers should adhere to best practices for securely managing their private keys to prevent loss or theft.

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How is staking SOL different from staking ETH?

Solana and Ethereum differ in their approaches to staking. Solana integrates Delegated Proof of Stake (dPoS) directly into its core protocol, enabling delegation without relying on external solutions. Ethereum, which transitioned from proof of work to proof of stake, relies heavily on third-party platforms like Lido and Rocket Pool for delegation and liquid staking. Solana’s staking participation rate is high at 67.7% of total supply compared to Ethereum’s 28%.

On Ethereum, the only native staking option is home staking. This self-custodial option requires technical proficiency and dedicated hardware. Validators must stake a minimum of 32 ETH and ensure their hardware remains online and adequately maintained. The network of thousands of home stakers contributes to Ethereum’s reputation as a highly decentralized blockchain.

A few major platforms dominate liquid staking on Ethereum. Lido leads the market, controlling over 28% of the staked ETH supply. Lido issues stETH, a yield-bearing token that appreciates in value as rewards accumulate. Ethereum is an older network with lower inflation rewards. Staking ETH with Lido offers an APR of 2.9%, notably lower than the yield for staking SOL. Lido charges a 10% fee on staking rewards. stETH, like all LSTs, has risks. These include smart contract bugs and stETH’s price deviating from ETH.

Finally, Ethereum includes a slashing mechanism to penalize validator misconduct, though slashing instances have been rare.

Conclusion

This article delved into the concepts and mechanics of Solana staking. Whether you are a seasoned participant or new to the ecosystem, understanding staking is crucial for making informed decisions as a long-term SOL holder. Staking is a way to earn competitive yields and a fundamental mechanism underpinning the network’s security and decentralization.

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Many thanks to 0xIchigo, Brady Werkheiser and Deepa Talwar for reviewing earlier versions of this work.

Disclaimer:

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