Liquid Staking vs. Native Staking in Solana
Tech
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June 21, 2024
Solana offers users various ways to participate in securing the network and earning rewards. Two primary methods of staking in Solana are liquid staking and native staking. Both methods have unique advantages and disadvantages, catering to different types of users and investment strategies. In this article, we will delve into the intricacies of liquid staking and native staking in Solana, providing a clear comparison to help you make an informed decision.
What is Native Staking?
Native staking in Solana involves locking up your SOL tokens directly with a validator node. This process contributes to the network’s security and decentralization, and in return, you earn rewards based on the amount of SOL you stake and how well your chosen validator performs.
Keep in mind that when you stake your SOL tokens, there's a lock-up period during which you won't be able to move or trade your staked SOL. In Solana, this lock-up period is called the "warm-up" and "cool-down" phase, and it can take a few days (mostly 2 days).
If you stake with a validator that behaves badly or doesn't fulfill its duties, you could end up facing slashing penalties, which means losing some of your staked tokens. So choose your validator wisely.
What is Liquid Staking?
On the other hand, Liquid staking allows you to stake your SOL tokens while retaining liquidity. This is achieved through liquid staking tokens (LSTs), which represent your staked SOL and can be used in other DeFi activities. Here’s how liquid staking works:
When you stake your SOL through a liquid staking protocol, you receive an equivalent amount of LSTs. These tokens represent your staked SOL and can be traded or used in other DeFi applications.
LSTs provide liquidity as they can be traded, sold, or used as collateral in other DeFi protocols. This flexibility is unavailable with native staking, where your SOL is locked up.
You continue to earn staking rewards through your LSTs. The rewards are either automatically reflected in the value of LSTs or distributed in a separate token.
Since LSTs are liquid, there’s no lock-up period. You can stake and unstake your token without waiting for the warm-up or cool-down period.
Key Differences Between Liquid Staking and Native Staking
Recommendation
Native Staking
Choose this if you are a long-term investor comfortable with locking up your SOL and managing validator choices for potentially higher rewards.
Liquid Staking
Opt for this if you prefer liquidity and flexibility, allowing you to trade or utilize your staked assets in various DeFi activities while still earning rewards.
Conclusion
Both native and liquid staking offer distinct advantages and cater to different user preferences and investment strategies in the Solana ecosystem. Native staking is ideal for those who prefer direct participation in securing the network and are comfortable with lock-up periods and validator management. Liquid staking, however, provides flexibility and liquidity, making it suitable for users who wish to maintain the ability to trade or use their staked assets in other DeFi activities.
Understanding these differences allows users to choose the staking method that best aligns with their goals and risk tolerance, optimizing their Solana network participation.
For further reading and detailed technical information, you can refer to the following sources:
