Solana staking is the process of locking up some of your $SOL tokens to help validate blocks and secure the Solana network.
Staking on Solana can be slightly different to other networks, so we’ll be digging deeper into how to stake Solana, its pros and cons, and if it’s right for you!
Key Takeaways
- Crypto staking is great for earning passive income while you hold your assets for the long-term
- Staking your Solana helps secure the Solana blockchain and earns you additional $SOL as a reward.
- There are four primary methods to stake your Solana - staking $SOL through a centralized exchange, delegating your $SOL to an existing network validator, "liquid staking" your $SOL via a staking pool, or running your own network validator. We will cover exactly how to stake Solana using each approach.
What Is Solana Staking?
The Solana blockchain works through a mechanism called Proof-of-Stake. This mechanism keeps the blockchain decentralized by having different holders of the Solana token ($SOL) validate transactions on the Solana blockchain.
Through this process, the network ensures that no single user can become powerful enough to tamper with transactions while also rewarding everyday owners of the token for helping to secure the protocol.
To take part in this validation process, $SOL holders must lock up their tokens through a process called “staking.” In return, they receive an attractive yield on their staked tokens.
In a nutshell, staking is the easiest way to earn passive income in crypto. If you are someone who is invested in crypto for the long-term, you’re definitely better off staking your assets over just HODLing them in your wallet.
How Does Solana Staking Work?
Staking is the act of locking up your $SOL to secure the Solana network. People who validate the Solana network are called “Validators”, simple right? Solana staking differs from Ethereum as you are required to stake a minimum 32 $ETH to become a validator on Ethereum. To learn more about their differences, check out How To Stake Ethereum here.
Coming to Solana, the minimum amount of $SOL required for staking is 0.01 $SOL. That being said, if you go the route of running your own network validator, you could incur a daily transaction fee of 1.10 $SOL so you should be mindful of your staking amount if you’re a validator on Solana.
In short, by locking up your $SOL to secure the Solana network, you earn staking rewards.That’s it. Earn passive income in the click of a button.
Risks Associated With Staking
Lock-Up Periods
Many staking protocols require you to lock up your tokens for a certain period, meaning you can’t access or sell them during this time. If the price of the staked token drops during the lock-up period, you won’t be able to sell to limit your losses. This can be a problem if market conditions change quickly.
Slashing Risk
As mentioned in the section above, “Slashing” is the risk of losing your staked $SOL if you act dishonestly as a validator. If your $SOL is staked with a dishonest validator, you will lose a part of the $SOL you had staked as well.
Platform Risk
Staking via exchanges or third-party platforms introduces the risk of platform failure, mismanagement, or hacking. If the platform you use to stake your tokens gets compromised, your staked assets could be lost or stolen.
Pros and Cons of Staking
Pros
- Passive Income: Staking allows crypto holders to earn a steady stream of rewards without actively trading.
- Compounding Rewards: Many staking platforms and protocols allow users to automatically reinvest their staking rewards
- Easy to start: Staking can be done easily through many popular wallets and exchanges.
- Promotes long-term holding: Staking encourages holders to avoid frequent trading, supporting a long-term investment strategy—something we at Milk Road strongly believe in.
Cons
- Lock-up periods: Many staking protocols require a lock-up period during which staked tokens cannot be withdrawn or sold.
- Market volatility: While staking can earn rewards, market fluctuations can cause the value of staked tokens to drop significantly, potentially outweighing the rewards earned.
- Platform risks: Staking through an exchange or third-party platform carries security and reliability risks, and a hack or mismanagement could result in the loss of your staked assets. Ouch.
- Taxable Event: Converting your $SOL to any liquid staking token such as $JitoSOL is a taxable event as you are realizing a capital gain / loss.
How To Stake / Unstake Solana
There are several options for staking Solana. Here are your options:
- Through a centralized exchange (Beginner): Delegate your $SOL tokens to a centralized platform that stakes your tokens on your behalf.
- Through a network validator (Intermediate):Delegate your $SOL tokens directly to a validator on the Solana network who stakes them on your behalf.
- How to Liquid Stake $SOL on Jito (Intermediate):Delegate your $SOL tokens to a “liquid staking” provider who gives you back a liquid derivative token that can be traded.
- Running your own network validator (Expert): Validate transactions on the blockchain directly through a machine you control. Gather support by getting others to delegate their $SOL to you.
| Difficulty | APY | Liquid Token | Capital Required | |
|---|---|---|---|---|
| Centralized Exchange | Low | 5.33% | No | Low |
| Through a Network Validator | Medium | 7.18% | No | Low |
| Liquid Staking | Medium | 7.49% | Yes | Low |
| Running your own Network Validator | High | 7%-8% | No | High |
A number of centralized exchanges, such as Uphold.com, and Coinbase, provide rewards for staking your Solana. The process for staking through these platforms is very easy and just takes a few clicks.
The downside, however, is that in order to stake your tokens, you must use the custodial wallets of these companies. This means that you don’t hold the keys to the wallets, and you are entrusting your funds to the company you select.
How To Pick A Centralized Exchange
For many stakers, the most important consideration when deciding where to stake their tokens will be the staking rewards.
These vary widely across centralized exchanges, with most coming in between 4% - 10% APY rewards for staking.
Other considerations include:
- The security of the centralized exchange: Remember, you will be trusting your tokens to these platforms, so they need to be safe.
- Staking lock-up periods: Some platforms will award a higher APY if stakers lock up their tokens for a period of one or two months.
- Unstaking delays: Some exchanges require users to wait a while after unstaking to receive their tokens back into their wallet.
Pros And Cons Of Staking Solana Via A Centralized Exchange
Pros
- Simple process allows staking with just a few clicks.
- All-in-one platform with no need for a traditional wallet.
- Simplified tax reporting as the exchange provides your tax forms.
Cons
- Your tokens are exposed to counterparty risk.
- Staking rewards may be capped.
- Exchanges will store your crypto in their proprietary wallets – you no longer directly control your crypto.
While delegating to a centralized exchange is the easiest staking option, many blockchain users prefer to put their SOL to work in a more decentralized way. The easiest path to do this is to delegate to a network validator.
Pros And Cons Of Delegating Your Solana To A Network Validator
Pros
- Keep custody of your tokens - they never leave your wallet.
- Get to choose which individual validator to support.
- May offer higher yields vs. centralized staking.
Cons
- Tax liability is a hassle as you have to track data down from the blockchain itself.
- You are exposed to the performance of individual validators.
- Delegating is more complex than staking on an exchange.
How To Delegate Your Solana
The easiest way to delegate $SOL to network validators is through a Solana wallet that supports staking. The below table lists a few of the most popular Solana wallets that offer integrated $SOL staking:
| Ledger (Hardware Wallet) | Delegation to validator of your choice |
|---|---|
| Phantom | Delegation to the validator of your choice |
| Solflare | Liquid staking via Marinade (mSOL), delegation to validator of your choice |
| Exodus | Delegation to Everstake validator |
| Atomic Wallet | Delegation to validator of your choice |
The instructions below are for delegating using the popular Phantom Solana wallet. For a step-by-step guide on installing the Phantom wallet, click here.
Step 1: Install the Phantom wallet through their website and add some $SOL funds.
Step 2: Once your funds are in your wallet, click on the “Solana” button to pull up your balance.
Step 3: On the next screen, click on “Start earning SOL” under “Staking”.
Step 4: You’ll now be prompted with two options: Liquid Staking and Native Staking. To delegate your Solana to an existing validator, click on “Native Staking”. If you’re specifically interested in Liquid Staking, scroll down to the section of “Liquid Staking Your Solana (Intermediate)”.
Step 5:The next screen will show you all the individual validators that are available for delegation.
Step 6:Click on the validator you would like to delegate to, enter the amount of $SOL you would like to stake, and click the “Stake” button.
Once you press the “Stake” button, your $SOL is now staked directly with the chosen validator. 🎉
Note: Please note that staked $SOL does not get activated right away. Delegators will have to wait until the end of the Solana “Epoch” for their $SOL to start earning yield.
Step 1: Head to Jito and press “Stake Now” on the home page.
Step 2:You will automatically be redirected to the staking page of Jito. Over here, click on the “Unstake” option.
Step 3:Once you click on “Unstake”, you will be prompted with two options to unstake your $JitoSOL:
- Use Jupiter to unstake immediately but with a slippage of 0.3%
- Use Jito to unstake at a 0.1% fees but with a 1 day delay
There is a clear tradeoff between urgency and quantity. If urgency is priority, we would suggest going through Jupiter (top decentralized exchange on Solana).
If quantity is your priority, you can click on the information icon to understand the process of unstaking directly through Jito.
Here's what it says:
Step 4:Input the amount of $SOL you wish to unstake, click on your preferred option (Jupiter or Jito) and then click on “Unstake $SOL”.
Note:You will need to hold extra $SOL in your wallet to pay for gas fees for your transaction.
Step 5:Confirm the transaction in your wallet.
Step 6:In the bottom left corner of your screen, you will see two pop-ups showing that your transaction has first been submitted to the blockchain and then executed.
You can then head into your wallet to confirm that the transaction is complete.
The most direct way to earn from your $SOL tokens is to run your own validator node.This is a complex and technically challenging process normally only undertaken by Solana users that have a background in computer science and have experience running complex computer systems.Validators earn money from the Solana reward fees that are generated for validating blocks.Most big validators will charge a commission fee to those who wish to delegate their Solana tokens.Each validator is responsible for marketing their services and attracting $SOL holders to delegate their tokens to the validator.Ultimately, the validators with the largest scale make the most money.
What You Need To Run Your Own Solana Validator
Running your own validator node means validating Solana transactions directly on a machine that you own or have control over. Some validators opt to run their machines at home,but most effective and scalable validator rigs run in data centers with industry-grade components and internet speeds.For the absolute bare minimum validator rig that you can run at home, check out theSolana validator requirements. A more scalable off-site solution can be found through providers likelatitude.sh, who have data center machines for rent.The physical system is not the only cost that new validators will incur.Each validator on the Solana blockchain “votes” to validate every block of transactions.These votes cost about 1 $SOL token a day.To help new validators get started,the Solana Foundation has aDelegation Program that awards selected new validators with a starting set of delegated $SOL tokens.Despite the fact that Solana doesn’t have any minimum staking requirements to run your own validator, it is extremely difficult to break even from this endeavor. If you are an individual looking to earn passive income, we suggest you look at the other options mentioned above.
Pros And Cons Of Running Your Own Validator
Pros
- Get to directly validate on the Solana blockchain.
- Set your own commissions and run your validator node like a business.
- You can spin up a validator rig without having to own the hardware.
Cons
- Most complex staking option; requires a strong technical background.
- Requires a lot of upfront investment.
- Tax reporting is a hassle; you have to retrieve tax information directly off the blockchain.
Is Buying $JitoSOL The Same As Staking On Jito?
An alternate way to stake your $SOL is to buy $JitoSOL (LST) on a decentralized exchange like Milk Road Swap or Jupiter. Staking through Jito is potentially the better option as buying $JitoSOL on Jupiter incurs fees and a higher slippage. Both these routes will gain the same staking rewards in your $JitoSOL but they have one key difference outlined below:
Unstaking Process
- Jito: If you wish to unstake your $SOL on Jito, you’ll need to wait for the Jito unstaking process which typically takes 1 day. Despite the longer waiting time, the $JitoSOL-$SOL exchange rate on Jito will be better than what you get on Jupiter as Jupiter charges a higher fees.
- Jupiter: Unstaking your $SOL via Jupiter can be instant as you can swap $JitoSOL back for $SOL at any time. You can exit whenever you want, assuming there’s liquidity available. Despite the instant liquidity, you receive less $SOL while unstaking through Jupiter due to fees and higher slippage.
There is a clear tradeoff between urgency and quantity. If urgency is priority, we would suggest unstaking through DEXs like Jupiter.
- Jito: Unstake at a better exchange rate but has a waiting time of 1-6 days.
- Jupiter:Unstake your $JitoSOL within minutes but at a worse exchange rate.
How To Claim Your Staking Rewards
With liquid staking, you don’t have to worry about claiming rewards manually. Instead, you’re earning rewards daily just by holding your liquid staking tokens, regardless of which one you choose. These rewards automatically accumulate, and you can claim them seamlessly when you decide to unstake your $SOL, making the process hassle-free and efficient.
There are different ways to earn yield on your LST but it really depends on the type of liquid staking token (LST) you are getting into. Some provide rewards by additional tokens while others do it by increasing the value of the token. Here’s an outline of the different types of LSTs and how you earn rewards with each of them.
Rebasing Tokens
Rebasing LSTs adjust the supply of their tokens to remain pegged to the price of $SOL. These tokens distribute rewards in the form of additional tokens instead of the token increasing in value.
Non-rebasing / Reward-bearing Tokens
Rewards-bearing LSTs maintain a constant quantity of tokens in your wallet but increase in value with respect to the staking APR. As these tokens are not pegged to the price of $SOL, it allows users to gain staking rewards through increase in the token’s value. Jito’s LST, $JitoSOL, is one of the biggest non-rebasing LSTs in the Solana ecosystem.
To Sum It Up
Staking $SOL is a great way to earn some passive yield on your idle tokens. Staking is also the primary method by which users of the Solana blockchain ensure it continues to run.
Staking ranges from being as simple as a few button clicks to as complex as setting up your own servers and nodes. Each path has its benefits, drawbacks, and different groups of $SOL holders that may be interested in it.
Frequently Asked Questions
Converting your $SOL to any liquid staking token such as $JitoSOL is a taxable event as you are realizing a capital gain / loss. For individual tax advice regarding staking rewards, please consult a tax advisor.
There are a lot of benefits to staking, but it does not come without risk. One of the biggest risks you should consider is the “Platform Risk” which means that you can lose all your staked $SOL if the staking platform you use gets compromised.That’s why it’s important to do research into the platform before staking your $SOL with them.
There is no minimum amount that is required to start staking. While that is the case, it’s advisable to stake at least 0.01 $SOL in order to cover network transaction fees and still have some $SOL left over to stake.
Through liquid staking, $SOL can be leveraged to earn staking rewards while also providing a liquid token that can bear additional yield through lending, liquidity providing, or trading.
Staking yields vary but normally range between 5% and 10%.
When selecting a validator, it’s important to keep in mind factors like the validator’s reputation, their fee structure, their node uptime and performance as well as how much $SOL tokens they already have delegated to them. Check out our “Delegating your Solana to an existing network validator” section above for more details.
Jito is a leader in liquid staking for $SOL tokens.
- People who want to earn interest on crypto: If you’re investing for the long haul, you can get paid to wait for future price appreciation.
- People who can afford to wait: Staking crypto often comes with lock-up periods during which you can’t withdraw, use, or sell your crypto.
- People interested in compounded returns: Stakers can reinvest their staking rewards, thereby potentially increasing their returns over time.
Yes. Whichever wallet holds the $JitoSOL will receive the yield as the value of $JitoSOL increases with respect to its staking APR. As long as you own the wallet with the $JitoSOL, you will continue to receive yield on that specific wallet.
