What is Staking on Solana and How Does it Work?
What is Staking on Solana and How Does it Work?
If you have been in the crypto landscape, you would be familiar with the word ‘staking’. If you're not and you're getting started with Web3, don't worry, we're going to walk you through the concept of Solana staking and how it works. Read on and learn how to make better future staking choices.
What is Staking?
Staking is the process of delegating your cryptocurrency to a validator in a network in order to earn rewards and contribute to building the integrity of the network. Let's see a real-world scenario:
Adesua owns 100 SOL tokens in her Phantom wallet. Instead of allowing the tokens to sit idly in the wallet. Adesua can put the 100 SOL to use by depositing it on the blockchain. The 100 SOL yields profits with time and supports the blockchain’s infrastructure.
What is Solana?
Solana is a fast decentralized blockchain service platform built for dApps (decentralized Applications). The Solana blockchain network is known for its fast and low-fee transactions. It might interest you to know that Solana can perform thousands of transactions per second.
What is Staking on Solana?
Merging the two above concepts together, Solana staking is the process of depositing Solana native tokens (SOL) in the blockchain. Solana staking seeks to fulfill two vital purposes;
- To earn rewards
- To support the structure of the Solana ecosystem.
You can stake your SOL by assigning or delegating it to a validator. The validator performs the functions of acknowledging and processing transactions on the Solana blockchain.
However, the minimum amount needed to stake on Solana is 0.01 SOL. You can stake on a Phantom or Solflare wallet. You can also use centralised exchanges or liquid staking platforms like Marinade, Jito or SolBlaze.
How Does Solana Staking Work?
Solana staking uses a system called Proof of Stake, now modified to Tower BFT (Byzantine Fault Tolerance). Tower BFT is a consensus mechanism designed by the Solana blockchain to work in synchrony with Proof of History (PoH). A method where stake participants validate transactions without much energy dissipated by the blockchain.
Meanwhile, Solana staking works between the activities of delegators and validators. These staking activities, in return, secure the network’s integrity while earning rewards for both parties. Rewards earned are distributed every epoch, which is usually 2-3 days, but are paid out approximately 4-8 days. These staking rewards are based on Annual Percentage Yield (APY), which is within the range of 5-7%.
These APYs depend on the validator's performance and network inflation conditions. Solana's network inflation rate has recently been reduced by 15% yearly, aiming for a constant rate of 1.5%. Below is a guide on how you can stake on Solana:
- Set up a Solana-compatible wallet, e.g, Phantom or Solflare
- Transfer SOL to fund your wallet
- Navigate and click on “Start earning SOL” or “stake” button
- Select the staking method which can be native or liquid staking.
- Choose a validator with high uptime, low fees and great performance.
- Enter the amount of SOL and click “stake” to approve the transaction.
- Monitor your rewards, which will become active within 1-3 days.
NB: Both validators and delegators earn staking rewards.
Choosing the Right Solana Validator
As a stakeholder, choosing the right validator is vital because the safety of your tokens and stake rewards depends on it. Validators on the Solana ecosystem perform the roles of confirming transactions and maintaining the integrity of the blockchain. They are like the referees, and they run nodes on the blockchain. The nodes are specialized computers that verify transactions and new blocks to the blockchain. Below are the vital checkpoints to note before you choose a validator:
- Availability and Activeness: You should look out for validators that have 99% uptime. The validator’s presence greatly impacts their ability to earn rewards.
- Validator Fees: Validators receive a commission for the work. Prioritize overall effectiveness over low fees.
- Reliability: Aim for validators that have a trustworthy history. Validators that have a good record and amount of past staked tokens.
- Penalty risk: Be sure to verify validators' slashing history. Slashing is a situation where an amount of staked funds is lost because of a validator's misconduct.
NB: Slashing is rare on Solana because the ecosystem is built to be fault-tolerant
- Validator architecture: Verify the location and the devices the validator used for operations to avoid downtime
Top Solana Validators and their featuresSource: Starks Finance, Stakewiz, Binance, Helius, Figment.
Switching of Validators
It is possible to make a wrong choice of a validator in assigning your tokens for staking. If you're in this dilemma, you don't need to be stressed out. Solana infrastructure made it easy and flexible for you to switch validators without unstaking your SOL. All you need to do is perform the required action within the downtime, which is usually two to three days. Downtime refers to when a validator is offline or not functioning properly. You can follow these steps below to switch validators
- Open and access your token wallet
- Click deactivate tokens from your present validator
- Expect and wait for the deactivation time to finish
- Assign your staking to a new validator of your choice.
Wrapping Up
Solana staking is a means of earning passive rewards while contributing to the maintenance of the ecosystem.
Before you make your staking decisions, make sure to do proper research and consideration. With the right information, Solana staking promises to be a source of potential rewards to Web3 users.
Frequently Asked Questions (FAQ)
- What happens when my validator goes offline?
When your validator goes offline, you won't lose your staked SOL, but you may lose out on rewards. Select validators with good uptime and performance
- Can I lose my staked SOL?
No, you can't lose your staked SOL.
- How do I switch validators?
You can switch validators by undelegating one validator and redelegating to another validator
- What's the minimum amount of SOL to stake?
The minimum amount of SOL to stake is 0.01 SOL. You can check your validator's requirements.
- Can I unstake my SOL anytime?
Yes, you can unstake your SOL, but it takes up to 2-3 (an epoch) days to take effect