Solana’s staking surge: What impact will this have?

Solana (SOL) is becoming scarcer despite its built-in inflation, thanks to extensive staking activities. As a utility token, SOL is valuable in the long term, and many holders prefer to stake rather than sell. This has resulted in over 68% of the SOL supply being staked, reducing the amount of SOL available on the market.

Whale Activity and Staking Dynamics

Recently, significant whale wallets have withdrawn SOL from exchanges and added it to staking pools. This staking includes both native and liquid staking methods, helping to manage the SOL supply even with the linear unlocking of more than $5 million daily. The increased staking has coincided with a planned decrease in SOL inflation to under 5%, further tightening the supply.

Native and Liquid Staking

Native staking on Solana involves competing validators offering the best returns. Since May, staking has also been possible through Robinhood for eligible EU-based holders. The growth in staking is accelerating, particularly with the rise of Solana-based liquid staking, which allows holders to gain both staking rewards and access to liquid staking tokens.

Market Sentiment and Price Movements

The surge in staking and liquid staking has coincided with a peak in new and active Solana wallets, contributing to a recent price rally where SOL surpassed $180. After a market correction, SOL is now priced at $170.03. The sentiment for SOL remains cautiously bullish, with some influencers predicting a potential rally to $250.

Liquid Staking Ecosystem

Liquid staking on Solana now holds over $4.31 billion in value locked, making it a dominant sector within Solana’s DeFi protocols. This is part of a broader DeFi ecosystem on Solana, which includes DEX and lending protocols, totaling $5.15 billion in locked value. Liquid staking allows users to receive staking rewards and liquid staking tokens, which could be eligible for future rewards or airdrops.

Leading Liquid Staking Protocols

JitoSOL is the leading validator in Solana's liquid staking ecosystem, holding over $2 billion. Other validators like JupSOL and Galaxy are also growing rapidly, reflecting the increasing competition among validators. JitoSOL, for instance, saw record inflows and high participation from depositors, reflecting its popularity.

Comparison with Ethereum

While Solana’s liquid staking is growing, it still lags behind Ethereum’s liquid staking projects. For example, Ethereum's Eigen Layer locked in over $22 billion at its peak. Liquid staking on Solana currently comprises about 6.71% of the total supply, indicating significant growth potential compared to Ethereum's higher percentage.

Validator Wars and Market Risks

The influx of funds into top validators like JitoSOL has led to significant outflows from others, such as INF. Validators like JupSOL and Helius are rising in ranks by offering competitive liquid staking benefits. The validator wars highlight the intense competition within Solana’s staking ecosystem.

Risks and Opportunities

Liquid staking, while popular, carries higher risks than native staking due to smart contract exposure. However, the current bullish outlook for SOL is boosting both the liquid staking and DeFi markets, indicating a strong potential for future growth and investment opportunities within Solana’s ecosystem.

Solana's extensive staking activities, both native and liquid, are tightening its supply and driving market dynamics. The increasing competition among validators and the growth of liquid staking protocols highlight the evolving nature of Solana's ecosystem, offering both opportunities and risks for investors and stakeholders.