Kamino and Lido Offer Dual Rewards with SOL - stSOL
The staked SOL vault offers yield in fees and rewards, as well as staking rewards via Lido's stSOL.
Note: This article is not financial advice. Kamino Finance does not endorse any tokens or platforms mentioned in this article.
Overview:
- Helps accumulate SOL with 100% exposure to market
- Lowers the risk of impermanent loss with pegged assets
- Earns dual yield from staking and fees from trades
This vault provides 100% exposure to $SOL, the Solana token to rule all Solana tokens. The position maintains directional exposure to SOL, earns Solana yield, and also earns yield from trading fees with Orca Solana trades.
On Kamino, this vault is classified as a SOL Strategy, since users can hold SOL while participating in stSOL staking. This is one of several vaults on Kamino that provides complete exposure to Solana tokens while earning dual forms of yield.
Why SOL - stSOL?
Pairing these assets reduces exposure to impermanent loss, since a Solana price increase doesn’t push a position into stablecoins. One way to look at it: this vault is like Solana yield farming, since it is chock full of SOL, earns Solana APY from Solana staking, and stacks Solana yield from fees paid by traders when using Orca DEX.
What is SOL?
SOL is the native token of Solana, one of the most performant public blockchains available. It can be used to help secure the network through Proof-of-Stake (PoS) network consensus, which offers Solana interest rates in return for Solana staking.
PoS blockchains are 99% more energy efficient than blockchains that run on Proof-of-Work, and staking the Solana token SOL with a validator helps increase the network efficiency and security of Solana. Users on the network pay for transactions using SOL tokens, which are rewarded to validators, who then provide Solana yield to stakers.
What is stSOL?
Lido Finance provides liquid staking tokens that let users participate in staking for rewards while participating in DeFi. Lido liquid staking mints Lido crypto tokens like stSOL and stETH (Lido ETH on Ethereum) from PoS tokens that are otherwise trapped in the staking process, and Lido DeFi tokens are usually accepted on most platforms.
When participating in stSOL crypto staking with Lido, the token stSOL accrues the current Solana interest rates for staking while reflecting the value of its underlying SOL. Another way to put it: the Solana price today is reflected in stSOL, and the token also accounts for yield from Solana staking rewards.
When to SOL - stSOL?
This vault is for users who answer yes to the question, “Is Solana a good investment”? The Solana strategy yield is often lower than other vaults that experience higher trading volumes, but the trade-off is reduced exposure to impermanent loss with 100% exposure to Solana price discovery.
Additionally, earning yield on SOL-stSOL is like scooping free Solana tokens without having to buy Solana.
This strategy is good for users seeking low but long-term yields without participating in Solana lending. The APY is also higher than when users lend stSOL (demand is low since borrowers must pay back an asset that accrues yield on top of fees), and adding APY from trading yield and stSOL staking makes this vault often more optimal than lending SOL.
What are SOL - stSOL Risks?
If users buy Solana, they take on the risk of directional exposure to the market. This means if SOL drops in price, then Lido stSOL also drops in price. Lido-staked SOL is coded to correlate with SOL price, and this means the Solana CoinMarketCap value will affect both tokens.
There is also the risk that stSOL can de-peg from SOL. In 2022, Lido stETH was so highly leveraged that it became less valuable than ETH, even though Lido ETH always stood in reserves for withdrawal. If stSOL crypto market value diverges from SOL, then users can incur impermanent loss, or the loss can be realized if the pool is rebalanced.
Conclusion on SOL - stSOL
This vault allows users to participate in market making with SOL and stSOL, gaining maximum exposure to Solana price action and Solana staking APY. The position will naturally become more SOL-heavy over time as Solana rewards are accrued by Lido staking adding to stSOL crypto market value, so it favors long-term SOL holders.
