Unlock Solana (re)stake capital potential: why now is the best time to enter?

Original Title: The Bullish Case for Solana (Re)staking

Original author: flow

Source:

Compiled by Daisy, Mars Finance

Introduction

Restaking is a simple but powerful concept: it allows staked assets to be reused (or restaked) in multiple decentralized services, which Jito refers to as Node Consensus Networks (NCNs).

This method brings multiple benefits. The most significant is that it enhances the security and integrity of decentralized services, as these services can leverage the economic security of the main layer 1 (L1) without having to invest significant resources in designing their own security models, which may be weaker. In addition, from the perspective of the staker, re-staking can maximize capital efficiency, as a single asset can provide security for multiple decentralized services at the same time and has the potential to achieve higher capital returns.

The impact of this concept is far-reaching, and many top talents in the industry believe that re-staking is a revolutionary innovation that can accelerate industry progress by providing a more secure, flexible, and scalable blockchain environment for developers. This innovation has attracted great attention, and although it is still in the early and experimental stages, re-staking has grown into one of the largest tracks calculated by Total Value Locked (TVL) on Ethereum. The TVL at the beginning of this year was only $1.4 billion, and now it has exceeded $21.6 billion.

But so far, most re-staking is concentrated on Ethereum because it is considered the most economically secure and widely adopted Proof of Stake (PoS) blockchain. However, considering the strong growth of Solana since the start of this bull market, especially in stark contrast to the relatively stagnant activity on the Ethereum mainnet (with a significant amount of activity moving to layer-two solutions such as Base), a reasonable question arises: are there compelling reasons to re-stake on Solana now?

In this article, we will explore this issue from different perspectives and explore the potential market opportunities for re-staking on Solana. Let's delve into it.

1. Solana is gradually maturing and is suitable for re-staking.

For staking to be meaningful, the underlying blockchain needs to have strong economic security. That's why Ethereum has always been the preferred chain for staking. Currently, Ethereum has over 34.3 million ETH staked (worth $124 billion) with 4,701 block producing validators and six different consensus clients. As one of the oldest and most reliable blockchains, Ethereum has a high reputation in building applications. Therefore, it makes logical sense to build the foundation of staking on Ethereum.

However, humans always like to extrapolate the present into the future, assuming that the current situation will not change and Ethereum will always maintain its dominant position. But history tells us otherwise, especially in the field of technological frontiers, where the power of creative destruction is particularly strong. Just think back to the time when people widely believed that Yahoo was invincible in the search engine field, only to be surpassed by Google. Similarly, Apple rose in the personal computer field and replaced IBM, which was considered the end at that time.

Following this logic, we can't help but ask: Are we witnessing a similar moment in Ethereum's history? Is it still reasonable to build the entire staking system on Ethereum? This question is particularly important, especially when we see new asset issuance leaving the Ethereum mainnet and flowing to other L1 chains (such as Solana) or L2 scaling solutions (such as Base), while Ethereum itself lacks clear guidance on its development direction. You can refer to this article to get a comprehensive understanding of the current state of Ethereum.

If we recognize that re-staking is a truly game-changing technology, then we should expand its possibilities to make it available on other L1 chains, not just limited to Ethereum. This will give developers who want to utilize re-staking more freedom of choice and the ability to decide which consensus layer to trust.

In this context, Solana is clearly a strong candidate for re-staking. So far, it has become a representative L1 chain of this round of cycle, achieving significant growth, maturity, and security. As of writing, about 65% of SOL circulating supply has been staked, representing approximately 730 billion USD of economic security. A year ago, this number was only 24 billion USD. In addition, the Solana network has nearly 1,400 block-producing validator nodes, as well as two different client validators, with three clients (Firedancer, Sig, and Agave) currently in development.

In addition, Solana has extremely low costs and fast speeds, and is widely adopted by users and developers. It is the fastest chain for application development in the cryptocurrency field, showing real organic growth, overcoming not only the 'cold start' problem but also establishing strong network effects. All of this indicates that Solana has tremendous potential and is mature and robust enough to support further staking development.

2. Staking on Solana provides more possibilities than Ethereum.

As a pioneer of smart contracts, Ethereum's high cost limits the scope of developers to build applications on the chain. Solana's design enables developers to achieve a wider range of creative expression on L1 and create the applications they want. Therefore, compared to Ethereum, the re-staking design on Solana has greater potential.

First, Solana's low transaction and computation costs reduce the barrier to entry for node consensus networks (NCNs). Unlike Ethereum, whose high fixed costs limit the number of participants, Solana supports the deployment of smaller, more cost-effective, and efficient NCNs that can be tailored to specific use cases. This allows for more services to be outsourced, reducing the scope of direct applications and expanding the interoperability of the entire ecosystem.

In addition, NCN on Solana can handle more complex operations, with higher code density, without being limited by on-chain calculations like EigenLayer on Ethereum. This makes on-chain verifiability, on-chain reward distribution, and on-chain data publishing possible, while enhancing overall flexibility and robustness of staking. While Ethereum is a testing ground for staking, in the long run, staking on Solana has greater potential for practical use cases and application development.

In addition, Solana has a significant advantage over Ethereum in terms of liquidity re-staking tokens (referred to as VRT by Jito, that is, "Vault Receipt Token"). On the one hand, Solana's low cost can greatly reduce the operating costs of liquidity re-staking token providers (such as Kyros). In a business model where every basis point is crucial in economies of scale, this increases profitability, intensifies competition, and creates a more dynamic ecosystem, providing diversified VRT, more diverse re-staking strategies, and more flexible penalty conditions. On the other hand, liquidity re-staking on Solana is also more cost-effective for users, as lower transaction costs reduce barriers to entry, making it easier for them to use liquidity re-staking tokens in various DeFi applications without having to worry about high fees. This is a key factor in driving long-term capital adoption.

3. Re-staking may bring new innovations to Solana

Solana's vision has always been to become a global computer interface where anyone can build upon. To achieve this goal, its core focus has been on increasing the throughput of the underlying chain and reducing latency.

This is a powerful vision and very meaningful. However, no one can violate the laws of physics, and we cannot simply increase throughput by 10 times or reduce latency by 10 times tomorrow. This requires a lot of resources and hard work to achieve an order of magnitude improvement. Therefore, even though it is not now, it is widely recognized that not everything will happen on L1. This has been confirmed by recent discussions on "network extension".

In this regard, we can think that restaking may open up new design possibilities when we think about expanding the Solana network and bringing new innovations to the 'Network Expansion' project. The design space is very broad, and even though it is currently unclear how and when it will be implemented, there is a good chance it will evolve into a powerful extension infrastructure tool. To illustrate this point, we can use the example of Sonic, a project that claims to be Solana's first self-sustaining game Layer 2 built on HyperGrid, Solana's horizontal scaling framework for the Solana Virtual Machine (SVM). The project plans to enhance the security and efficiency of its SVM using Jito (Re)staking, supporting a multi-purpose ecosystem on Solana, including gaming, DeFi, and other applications.

In addition, due to the hard guarantee provided by restaking, it provides a real use case to enhance the reliability of the Solana network. One example is Jito TipRouter NCN, which is under development, and it is used to decentralize and enhance the security of MEV tip distribution on Solana. Another example is Temporal's Nozomi protocol, which will utilize Jito (Re)staking to reshape the transaction microstructure of Solana and solve challenges such as sandwich attacks, slippage, and transaction timeouts. This aligns with Solana's long-term vision and may significantly improve user experience, ensuring that the chain is not only fast and cheap, but also reliable and easy to use.

Solana is not just about high performance and powerful metrics, but also the entrepreneurial spirit it represents. In the past few years, we have seen the rise of successful projects such as Jito, Kamino, Jupiter, and Helium. But this is just the beginning, the number of projects choosing to build on Solana is constantly increasing.

If Solana is becoming the preferred chain for builders, then restaking has its place here. This could extend Solana's economic security to key services that often operate outside the base layer, such as oracles, bridges, and sequencers, which are equally important. While smart contracts and their interactions fundamentally benefit from Solana's security, these other components often require their own economic security models. Therefore, we may ultimately encounter a situation where smart contracts execute correct computations on-chain, but based on an oracle that provides incorrect data. This creates a paradox: if other parts of the system are not equally secure, then having strong security at the smart contract level is of little value, ultimately, the weakest link in the system's security determines the overall security and resilience of the system. Therefore, it is reasonable for certain services focused on Solana to utilize Solana's restaking. For example, an unlicensed oracle network Switchboard on Solana is collaborating with Jito (Re)staking to ensure the reliability of its data feeds. If successful, this approach can significantly enhance the security and reliability of the Solana network.

4.(Re)staking improves the capital efficiency of DeFi users on Solana

Restaking offers higher annualized returns than simple staking. As one of the main goals of DeFi users is to optimize capital efficiency, restaking provides an attractive opportunity. It enables DeFi users to unlock new earning opportunities on Solana without additional capital. For example, users can purchase a liquid restaking token to earn higher annualized returns on Solana while still being able to do whatever they want in DeFi. However, it is worth noting that restaking comes with additional risks that need to be considered. But if managed properly, it can provide interesting risk-reward opportunities.

Given the increasing popularity of DeFi on Solana, we can assume that there is a mechanism to optimize capital efficiency that can attract a large amount of liquidity in the long term. Indeed, DeFi activities have surged on Solana, with TVL growing from just $10 billion to over $100 billion in the past year, and the momentum remains strong.

In addition, the activity on Solana is on the rise, and the sharp increase in network-generated fees is powerful evidence. Recently, we have seen weekly fees exceed 13 million US dollars, a significant increase from less than 1 million US dollars a year ago.

DeFi on Solana is just getting started. From a user's perspective, this means that the demand for solutions to optimize capital efficiency will gradually increase, once again proving the necessity of Solana restaking.

Conclusion

Restaking on Solana is still in the early experimental stage, but it represents a promising narrative and many interesting use cases have emerged. As the ecosystem continues to mature and gain momentum, the case for restaking will only become stronger. Assuming that in the long run, Solana can capture a similar restaking market share as Ethereum, the market opportunity is quite significant.

Currently, two major protocols dominate the restaking infrastructure on Solana: Solayer and Jito (Re)staking. As a pioneer, Solayer has already built a complete restaking stack with a TVL of over 3.5 billion USD. However, in the long run, Jito seems to be better positioned in this narrative. With a strong technical foundation, the highest TVL in the Solana protocol, and a clear vision, Jito has established its leadership position in the Solana ecosystem. Its flexible restaking stack, coupled with the integration of the first asset-agnostic native liquid restaking token (VRTs), further enhances its potential.

From the user's perspective, this highlights the significant market opportunity for restaking on Jito. If you are interested in this emerging narrative, this article provides an overview of the main trade-offs between different VRTs.

In any case, I will conclude with a quote from Freeman Dyson: 'When great innovation occurs, it almost certainly appears in a form of chaos, incompleteness, and confusion. It is only half understood by the discoverer, and to others, it is a mystery. There is no hope for any initial speculation that does not seem crazy.'

This perfectly describes the current state of Solana (Re)staking: early, promising, and an emerging field of new DeFi opportunities in the future.