In this article you will learn all the basics of Liquid Staking in Solana. I tried to explain everything in an accessible language and without complex technical terms, so that this article can help everyone. Let's dive into new interesting technologies together and develop the Solana ecosystem.
Everything in this article is divided into categories and before each important topic you will see a picture describing what I am writing about. Use this for easier navigation.
Liquid Staking (also known as Soft Staking) is actually not that complicated. This is a more advanced standard staking system, the essence of which is that your funds are not locked in the protocol, they remain in your hands and you can dispose of them however you want.
With Liquid Staking you can generate multiple revenue streams of income from your crypto assets because you can lock your assets and still have access to them. You can use the liquid versions of your assets on other DeFi protocols and earn more on your initial deposits.
For example, in BlazeStake you can deposit $SOL and get $bSOL in return, which you can stake elsewhere for 1-30% APY (depending on the protocol) or just keep them on your wallet, earning rewards. Win-win situation.
If you want to withdraw your initial deposit, you must return the equivalent amount of the deposit in order to access your funds. Some Liquid Staking protocols charge a fee for using their platform, but fees vary.
Some metrics:
LST Advantages:
Mobility. In standard staking protocols, you often need to lock your funds and you are vulnerable to losses due to the volatility of cryptocurrencies. But in Liquid Staking, you can easily withdraw your funds and be safe in case of anything.
Having multiple sources of income. By staking SOL without locking them up, you can optimize your capital allocation and explore additional investment opportunities. Most of the advantages of DeFi are in your hands.
Protocols in Liquid Staking relatively are a new technology, especially on Solana. There are a lot of new, very promising projects here, and when you earn on LST, you can count on retrodrop. For example, a recent case with Jito and 5-20K$ for each active user. We will discuss this topic in more detail below.
Through Liquid Stacking, you support the ecosystem. For instance, if you staking at BlazeStake, this protocol automatically delegates SOL across 200+ Solana validators to strengthen the decentralization of Solana.
LST Disadvantages:
Counterparty Risk. Users must evaluate the reliability and security of the platforms offering liquid staking services to mitigate the risk of potential losses.
A tokenized asset may lose its binding to the original token. This is possible if the tokenized version is widely used and this leads to an elastic offer or if someone abruptly takes away most of the liquidity and dumps the tokenized asset.
If you lose your tokenized asset during a transaction, you will also lose access to your deposited funds. The only way to retrieve a previously deposit is to make another deposit equivalent to the previous one.
Liquid Staking is an innovative technology and it is based on smart contracts. They are very effective and useful, but they can be vulnerable and if errors are found in them, a hacker can steal user funds.
I want to tell you everything in less detail, just so you have an understanding of the basics, but don't have to spend a lot of time on this information. But if you want to understand everything in more detail, I advise you to study the source code from BlazeStake:
- Stake Pool Program:
- JavaScript Bindings:
Most popular Liquid Staking providers on Solana:
Let's look at this topic using the example of SolBlaze. If you staking $SOL on SolBlaze, you immediately get $bSOL. Instead of receiving more bSOL tokens like normal staking, your bSOL will increase in value over time relative to SOL, so when you unstake in the future, you'll receive more $SOL per $bSOL than when you staked, after staking rewards have accumulated.
If you want to earn more rewards, you can stake $bSOL in other familiar DeFi protocols and also invite friends (check the reward page)
Everything is easy and quite profitable, but there are small commissions:
Deposit fee: 0%
Instant withdrawal fee: 0.1%
Delayed withdrawal fee: 0.1%
Epoch fee: 5%
The epoch fee is a 5% fee on staking rewards and is necessary to support the variety of unique features that the BlazeStake pool offers. Here is the breakdown for the epoch fee:
Operations & Development: 50%
BLZE Burns: 20%
BLZE Liquidity: 20%
DAO Treasury: 10%
Where can your bSOL be restacked?
Airdrop in the context of Liquid Staking is one of the best tool to attract new users and incentivizing participation in staking activities within a blockchain ecosystem, in addition increase awareness of the protocol. One recent example is the large airdrop from Jito. How can this be?
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Token Airdrops for Stakers. Distributing free tokens to users who participate in Liquid Staking. These airdrops can be based on various criteria such as the amount of assets staked, the duration of staking, or participation in specific liquidity pools. By rewarding speakers with additional tokens, projects can incentivize long-term engagement and strengthen network security through increased participation in staking.
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Loyalty Rewards for Continuous Staking. Projects may implement loyalty reward programs to incentivize users to continuously stake their assets. For example, users who maintain their staking positions over extended periods could receive bonus tokens or increased staking rewards as a form of loyalty incentive.
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Governance Token Distribution. Airdropping governance tokens to stakers is another effective strategy to incentivize participation in Liquid Staking. Governance tokens grant holders voting rights and decision-making power within the ecosystem, making them highly valuable to users.
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Referral Programs. Referral programs can be utilized to incentivize users to onboard new participants into the liquid staking ecosystem. Stakers may receive rewards or bonuses for referring new users who subsequently stake their assets. This is well implemented in SolBlaze, by the way.
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Tiered Reward Structures. Implementing tiered reward structures based on staking tiers or levels of participation can incentivize users to increase their staking commitments. Higher staking tiers could offer enhanced rewards, exclusive benefits, or preferential treatment in airdrop distributions.
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Incentive Programs for Liquidity Providers. In addition to rewarding stakers, projects may offer incentives for liquidity providers who contribute to liquidity pools associated with liquid staking platforms. These incentives could include a share of transaction fees, yield farming rewards, or bonus tokens distributed based on the amount of liquidity provided. By incentivizing liquidity provision, projects can enhance liquidity depth and efficiency in the ecosystem.
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Community Engagement Initiatives. Airdrops can also be utilized as part of broader community engagement initiatives, such as participation in community events, social media campaigns, or educational programs. By rewarding active community members with airdropped tokens, projects foster a vibrant and supportive ecosystem while incentivizing ongoing participation and contribution. For example, Solana content hackathon with BLZE tokens as rewards.
What is the result?
Due to the features of Liquid Staking, experienced DeFi users can earn much more money and come up with interesting strategies. But standard staking will still remain the main means of earning for retail traders, who need to play for a long time. But that's just for now.
As a result, Liquid Staking is a new generation system that gives you the opportunity to earn more while risking less. Win-Win situation. We expect a lot of new interesting news from this area in 2024 and actively use new advanced cryptocurrency technologies.