How to Earn More SOL with Solana Staking Rewards
Learn about how staking SOL works in this Kamino DeFi Basics article. Find out how to stake SOL with Solana validators and other options.
Note: This is not financial advice. Kamino Finance does not endorse any tokens or platforms mentioned in this article.
- Solana is a Proof-of-Stake network that relies on staked tokens to operate.
- Users can stake their tokens with validators to earn SOL staking rewards.
- There are over 2,000 Solana validators to choose from on the network.
- Liquid staking tokens are a Solana DeFi option for staking without sacrificing liquidity.
This Kamino DeFi Basics article covers Solana staking. Staking SOL can earn users Solana staking rewards from Solana validators who finalize transactions on the network, but it's also a way to help secure and decentralize the network.
If you don't know why or how to stake SOL, this is a great place to start. Crypto staking has made blockchains more energy-efficient while encouraging participation from the network's users through yield, and anyone who holds SOL can participate in Solana staking with a little DYOR and a few clicks of their wallet.
Ancient History: The Blockchain World Before Staking Rewards
The first generation of blockchains secured their networks through Proof-of-Work (PoW) consensus mechanisms. This model requires computers to spend a massive amount of energy contributing to network security as a validator, the party that finalizes transactions on a blockchain as the ledger's truth.
Honest PoW validators are rewarded with the network's tokens for doing a good job, and this helps pay for the massive electric bill hitting their physical mailboxes. If validators are dishonest, then they don't receive rewards, and this compels validators to act as honestly as possible, so they can keep their lights on.
Next-generation blockchains, like Solana, operate on an entirely different kind of consensus mechanism. This mechanism reduces energy consumption while also allowing any Average Joe to earn yield while securing the network.
Why Does SOL Staking Earn Solana Staking Rewards?
Instead of having computers solve the hardest sudokus on earth, the Proof-of-Stake (PoS) method of reaching consensus requires validators to stake network tokens instead of staking their electric bill. Validators can only finalize as many transactions as the value of their tokens staked, and the economic incentive to act honestly is then based on losing one's stake (slashing).
Since every user might not have the hardware or knowledge to help finalize transactions, they can delegate their tokens to a validator they trust. Then, a validator does all the technical work, and users who want to stake their tokens can earn yield while ensuring their PoS network operates smoothly and securely.
So, when users stake their SOL with a validator, those tokens are put to work to make sure Solana transactions can be honestly validated. As a thank you for participating in a fundamental layer of the network, users who stake SOL earn a share of the SOL staking rewards at a rate proportionate to their Solana staking.
- If you stake SOL, you help Solana operate.
- If you help Solana operate, you earn SOL.
Is Crypto Staking Safe on Solana?
Many newcomers to the ecosystem might be wondering, "Is crypto staking safe on Solana"? Right now, automatic slashing has not been implemented, so delinquent validators are not yet raked over the coals for missing their slots. However, a validator that is deemed to have intentionally interfered with network performance may have their stake slashed manually.
According to data from Solana Beach, there are nearly 2,500 validators currently active on Solana. If you're looking for where to stake your Solano coin, you can run through this massive list of validators, DYOR, and find one for yourself—and if you're really into DYOR you can contact a lot of them through social media and have a chat.
If you'd prefer to earn Solana staking rewards without looking up every validator's Solana staking rates and fees, you can participate in SOL staking with liquid staking tokens instead. Liquid staking tokens are one of the leading sectors in Solana DeFi, and they're a budding part of DeFi for a reason.
How to Stake SOL with Liquid Staking Tokens
When you stake SOL with a Solana validator, you can't use that SOL to participate in DeFi. While your SOL is staked, it's staked, that's it. If you want to get your SOL back to do something with it, you'll have to wait for a cooling period that lasts one epoch, or around two days, until you can retrieve your staked SOL.
On the other hand, with liquid staking tokens, you don't have to figure out which Solana validators offer the best Solana staking rates or look for where to stake Solana assets to best help decentralize the network. Liquid staking projects take care of that for you.
That's not even the best part. When users stake Solana with a liquid staking project, they receive a liquid staking token in return. This token follows the price of SOL and also reflects the Solana staking rewards earned from the validators the project has chosen to stake your SOL with.
All you have to do is connect your Solana wallet, deposit SOL, and then liquid staking tokens appear in your wallet, earning SOL rewards every epoch. You can then use this yield-bearing asset to participate in Solana DeFi by providing liquidity for traders or depositing the token as collateral for a DeFi loan.
What's the Best Way to Stake SOL?
First of all, make sure you're using a Solana Ledger or another hardware wallet to help safeguard your assets against common exploits. Participating in DeFi with just one hot Solana wallet (a crypto wallet that's exposed to the internet), is not the best idea.
Then, the best way to stake SOL is to make sure your validator is outside of the network's superminority. This is the group of people that could theoretically work together to overtake the network if they decided to do such a terrible thing by combining 33% of all staked SOL.
Right now, it would take 31 Solana validators to combine their SOL staking power to censor or halt the network. This number is also known as a network's Nakamoto Coefficient, and raising this metric is incredibly important for the decentralization and censorship resistance of Solana.
How Can You Improve Your SOL Staking?
There are several ways users can optimize their Solana staking rates by participating in Solana DeFi while staking. The next Kamino DeFi Basics article will explain several ways you can pursue optimized staking yields while also earning yield on top of yield through DeFi.
Projects like Marinade Finance and Lido Finance have paved the way for a litany of new liquid staking projects representing validators who optimize their yields with several strategies. Through the power of DeFi composability on Solana, you can combine the strategies backing liquid staking tokens with DeFi strategies of your own.
Remember, DeFi is an extremely nascent sector, and there are multiple risks when participating in this emerging peer-to-peer financial system. Never participate with more than you can lose, and always DYOR.