Liquid staking is Ethereum's largest sub-sector, dominating its DeFi landscape and rapidly growing across other blockchains. Developers and investors had hoped for similar success on Solana—but reality tells a different story.
The Promise of Liquid Staking
Both Ethereum and Solana rely on proof-of-stake (PoS) technology, where users lock (or stake) their tokens to earn yields. These staked tokens play a critical role in transaction validation and network security.
Liquid staking protocols issue redeemable derivative tokens at a 1:1 ratio, enabling users to:
- Earn base staking yields (5% on Ethereum, 7% on Solana)
- Deploy these derivatives in other DeFi protocols for additional profit
Known as liquid staking derivatives (LSDs), these assets have faced muted adoption on Solana despite over 70% of SOL being staked.
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The Solana Paradox: High Staking, Low Liquidity
Key Statistics:
- 70%+ SOL staked: ~$9 billion locked
- <3% in LSDs: Only ~$270 million in liquid staking protocols
Ben Chow, founder of Solana projects Meteora and Jupiter, notes:
"Unlocking the remaining 97% of staked SOL could dramatically boost TVL and transaction volume."
Jito Labs CEO Lucas Bruder agrees:
"No LSD protocol has cracked the right narrative yet. We see this as a massive growth opportunity."
Barriers to Adoption
1. Perceived Risk vs. Reward
- 7% base yield: Solana’s native staking is considered low-risk
- 9% LSD yield: Requires exposure to smart contract risks for marginal gains
Alex Cerba of Marinade (Solana’s largest LSD protocol) explains:
"Users question whether the extra 2% justifies DeFi risks when native staking is simpler."
2. Tax and Usability Concerns
- Unclear tax implications: Is receiving an LSD a taxable event?
- Withdrawal speed: Solana allows unstaking in 2 days vs. Ethereum’s 2-week delay
Messari analyst Kel Eleje observes:
"Solana’s native staking feels like low-risk liquid staking, reducing incentive to switch."
Ethereum’s Head Start
Comparative Data:
| Metric | Ethereum | Solana |
|-----------------------|---------------|--------------|
| Staked Supply | 20% | 70%+ |
| LSD Adoption | 40% of staked | <3% of staked |
Elias Simos of Rated notes:
"Ethereum’s mature DeFi ecosystem absorbs LSD capital more effectively. Solana needs more use cases to scale liquidity."
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FAQ
Q: Why is LSD adoption lower on Solana?
A: Native staking offers comparable yields with less risk, reducing incentives to use LSDs.
Q: Could Solana’s DeFi TVL double with higher LSD adoption?
A: Yes—redirecting even 4% of staked SOL to LSDs would increase TVL by ~$360M.
Q: What’s the biggest hurdle for Solana’s LSD growth?
A: Limited DeFi protocols capable of handling large inflows of liquid capital.
The Road Ahead
Solana’s ecosystem must address:
- Risk perception: Better educate users on LSD security
- DeFi depth: Expand protocols to utilize LSD capital
- Tax clarity: Provide guidance on staking-related taxation
As Bruder of Jito Labs puts it:
"Innovation in LSD utility—not just yields—will drive Solana’s next growth phase."