Solana is one of the fastest and most scalable blockchains in the world, with over 50,000 transactions per second. But did you know that you can also earn passive income by staking your SOL tokens on the network? In this comprehensive beginner’s guide, we will dig deeper into the concept of Solana staking, how it works, and how you can stake Solana in 2024 using different methods and platforms.
Solana staking is the process of locking up your Solana tokens into the Solana blockchain to help secure the platform. Staking involves delegating SOL to a validator node on the Solana blockchain. Staking is vital to the health of the Solana blockchain as it ensures validators only add legitimate blocks to the chain.
When you stake Solana, you directly contribute to the stability of the Solana network and help improve its performance and decentralization. You also support the development and innovation of the Solana ecosystem. In exchange, you receive a staking reward in the form of SOL.
To start staking, you must have a staking account which you can create by using the command line interface or a compatible cryptocurrency wallet. Once the account is set up, you must delegate it to a validator node to start the staking process.
Delegating your account means that you have given the validator the right to vote and collect crypto rewards on the Solana blockchain on your behalf. By doing this, you become a delegator. To help you understand further, let’s explore these two terms in detail.
Who Is a Delegator?
A delegator is a Solana blockchain user who appoints a validator to act on their behalf in exchange for rewards. Rather than running a node and actively participating in the validation of transactions, a delegator entrusts their Solana tokens to a validator, who votes on blocks on their behalf.
Who Is a Validator?
A validator is a person who is responsible for maintaining the security and performance of the Solana blockchain. A validator is expected to keep their nodes online, update their software and follow the rules of the Solana blockchain.
A validator is also required to stake their own Solana tokens as collateral which they can lose if they act maliciously or negligently.
How to Stake Solana
In this section, we will explore the Solana staking options available, and the pros and cons of each.
Staking Solana On an Exchange - Easy
Staking Solana on an exchange is the easiest way to stake your SOL tokens, especially if you are a beginner. Centralized exchanges have a low barrier to entry, they are simple to use, and they do not require you to find a suitable validator
How to Stake Solana On an Exchange
Step 1: Start by identifying an exchange that supports Solana staking. Examples include Coinbase, Binance Exchange, and Kraken.
Step 2:Create an account on the exchange
Step 3:Acquire some Solana tokens
Step 4:Go to the staking section and search for Solana from the list of coins approved for staking
Step 5:Click on the "stake now" button to complete the staking process
Step 6:Wait for the submission time to be fulfilled before you can start receiving rewards
Advantages and Disadvantages
Advantages of staking Solana via an exchange
The process of staking Solana on a centralized exchange is straightforward
The exchange provides you with tax forms, hence simplifying your tax reporting
You get all you need in the centralized exchange. You don’t even need a traditional wallet as most exchanges have their own wallets
Disadvantages of staking Solana on an exchange
You contribute to greater centralization of the Solana network
Your staking rewards may be capped
Your Solana tokens are exposed to counter-party risk
Delegating Solana to an Existing Network – Intermediate
Although using a centralized exchange to stake your Solana tokens is easy, you may want to use a more decentralized way of staking Solana. The best way to do this is to delegate your tokens to a Solana validator.
How to Delegate Your Solana to an Existing Network
The easiest way to delegate Solana to an existing network is to use a wallet. Some of the wallets that offer Solana staking include:
Phantom wallet which allows you to delegate to a validator of your choice
Solflare which allows you to liquid stake through mSOL delegation to a validator of your choice
Slope which allows you to delegate to a pool or individual validator of your choice
Exodus which you can use to delegate to an Everstake validator
Atomic wallet which allows you to delegate to a validator of your choice
Ledger (hardware wallet) which you can use to delegate to a validator through the figment validator node
Delegating through a wallet requires you to select which validator you want to use. Please take time to thoroughly assess validators before you settle on one. Pay attention to the following factors when assessing delegators:
Commission rate – This is the percentage of rewards that the validator deducts from the delegators before distributing them. A delegator who charges a low commission rate allows you to make better profits. However, very low commission rates might be an indication of lower quality service which might expose you to penalties such as slashing.
Stake pool size – This is the total amount of stake that is delegated to the validator. A larger stake pool means more voting power and influence on the market. However, it also means more competition for rewards and a higher chance of being diluted by other delegators.
Uptime – This is the percentage of time that the validator is online and active on the network. You want to go for a validator with higher uptime as they are more likely to be reliable and consistent. Keep in mind that being online all the time requires vast amounts of resources, hence more expenses for the validator to maintain.
Performance – This is a measure of how well the validator performs on the network in terms of latency, throughput, and quality of service. A high-performing validator is faster and more efficient.
Advantages and Disadvantages
Advantages of delegating Solana to an existing network
You get to retain custody of your Solana tokens, hence minimizing the risk of losing them to malicious actors
Decentralized staking offers higher yields than centralized staking
You have a say in which validator you want to support
Disadvantages of delegating Solana to an existing network
You have to track down your tax liability from the Solana blockchain. This might not be a straightforward task
The performance of the individual validator you choose will directly affect your earnings. For example, if they go offline, you might lose your earnings.
The process of delegating your tokens is more complex than staking on a centralized exchange
Liquid Staking Solana - Intermediate
Delegating your Solana tokens to a validator or staking them through a centralized exchange forces you to lock your funds up. You cannot use the tokens for any other yield-bearing activities such as lending or trading.
Although locking up your tokens is vital to staking, there is a unique form of staking that allows you to earn rewards on your staked SOL while also receiving a liquid token that you can use in place of your staked tokens.
How to Liquid Stake
A liquid staking provider will take your Solana token and stake it across several different validators. They will then issue you with a ‘staked token’ which represents your staked Solana. You can use this token to transact in the same way you would use Solana.
Most of the time, the staked token you receive will be more valuable than Solana. For example, if Solana is trading at $120, the staked token you receive might be trading at about $130. This difference in value is due to the accrued SOL staking rewards which are baked into the value of the liquid staking token.
When choosing a liquid staking pool, you should consider the fees, validator etiquette, and the security of the platform. Some of the top liquid staking platforms for Solana include Lido (stSOL), Parrot (prtSOL), Socean (scnSOL), and Marinade Finance (mSOL).
Advantages and Disadvantages
Advantages of Staking Solana Via a Staking Pool
You receive a liquid token that you can use in the same way as Solana tokens
You make more returns on your SOL by combining staking with other DeFi yield activities
A staking pool is more decentralized than using a centralized exchange yet easier than using a wallet to delegate directly to validators
Disadvantages of Staking Via a Staking Pool
Swapping between $SOL and staked SOL is a taxable event that further complicates tax reporting
You have to be deeply knowledgeable in crypto and decentralized finance protocols for you to benefit from liquid staking
You have no control over your Solana when it is in the staking pool
Running Your Own Network Validator - Expert
Running your own validator node is the most direct way to earn from your Solana tokens. However, this method of staking Solana is technically challenging and complex. Only those Solana users that have a background in computer science with experience in running complex computer systems run their own validator nodes.
How to Become a Validator
Validators make profits from the Solana rewards fees that are generated for validating blocks. They will also charge a commission to those who wish to delegate their Solana tokens.
If you choose to become a validator, you will be fully responsible for marketing your services, attracting Solana token holders, and convincing them to delegate their tokens to you. The larger your scale, the more profits you are likely to make.
As a validator, you can choose to validate transactions using your own machines that you run at home. However, you might want to run your machines in a data center with industry-grade components and high internet speeds to make your processes more effective and efficient.
Once you have bought the needed equipment to run a validator node, you will also have to pay about 1 Solana a day to get a chance to vote for blocks. It's important to take these costs into account before becoming a validator. However, if you make it into the list of selected new validators, you will receive a set of delegated SOL tokens from the Solana Foundation to help you get started.
Advantages and Disadvantages
Advantages of Becoming a Solana Validator
You get to validate directly on the Solana blockchain
You run your validator node like your own business and set your own commissions
You don't have to own the hardware to spin up a validator rig
Disadvantages of Becoming a Solana Validator
Becoming a validator is the most complex staking option that requires a strong technical background
You will need a hefty upfront investment
You must retrieve tax information from the blockchain, which is a hassle
Solana Staking Options Compared
Method
Requirements
Rewards
Risks
Centralized exchange
An account on CEX
Staking rewards minus a fee
Placing your trust in a custodial service
Existing network
A SOL wallet with staking capabilities
Staking rewards minus commission
Placing your trust in a validator
Liquid staking pool
An account with a liquid staking pool
Staking rewards minus a fee, liquidity tokens
Counterparty risk, smart contract vulnerability, losing your private keys
Running validator node
Hardware, software, technical knowledge
Unlimited staking rewards
Staking penalty, your staked SOL is at risk, penalties for going offline
Where to Stake Solana
As previously mentioned, centralized exchanges are the best places for beginners to stake their cryptocurrencies. Here are the top 3 places you can stake your cryptocurrencies:
1. Coinbase - Best Staking Platform for Beginners
Coinbase is one of the most popular cryptocurrency platforms in the world. Coinbase introduced Solana staking in June 2022, providing beginners with an easy way to earn rewards from their SOL tokens.
When you stake on Coinbase, you can expect to receive rewards every 3-4 days. At the time of writing, the APY for staking Solana on Coinbase is about 4%. Please note that this value can fluctuate. The minimum amount you can stake on Coinbase is $1 worth of Solana. Once you stake your Solana tokens, you can remove them from the staking process at any time.
The best reason to choose Coinbase for Solana staking is its ease of use. You will receive a beginner-friendly experience, and you don't require extensive technical expertise or prior knowledge of staking to stake on Coinbase. Staking on Coinbase also gives you peace of mind as the exchange has excellent security measures.
That being said, Coinbase charges a rather expensive staking fee of 25%.
How to Stake Solana On Coinbase
Follow these steps to stake Solana on Coinbase. Before you start, you’ll need to sign up to Coinbase and buy or transfer some SOL.
Find Solana
Use the search bar to look for Solana or find it in your list of assets in the My assets tab. Click on it to go to the Solana page
Read the disclaimer
Scroll down to where it says “Earn on SOL” and click the “Stake SOL” button. This will bring up a disclaimer explaining what you need to know about the process. Read the information and click “Continue”.
Enter an amount
Type in how much SOL you want to stake. If you want to stake it all, click on “Stake all”. Then click the “Preview stake” button.
Preview stake
Preview the amount of SOL you are about to stake and the expected staking reward. This pop-up will also explain the risks of staking, so make sure to read this information, and when you are ready, click "Stake Now".
Start earning SOL
Check your email for a confirmation message from Coinbase and wait for the staking rewards to start flowing into your earning balance
Crypto.com has quickly grown to become a top app in the crypto industry. The app is known for purchasing the naming rights to a Los Angeles stadium and partnering with the Paris Satin-Germain sports club, stunts which accelerated its popularity among crypto enthusiasts. Crypto.com started as a basic crypto app, but the team behind the app has been adding new features such as NFT marketplaces, financial services, a robust crypto exchange, and credit and debit cards.
The app also offers coin staking services that include support for Solana staking. One of the advantages of staking Solana on crypto.com is its ease of use. Once you enable the soft staking feature, your Solana tokens will immediately start earning you staking rewards.
Additionally, you receive your staking rewards daily. However, Crypto.com does not allow you to stake more than $100,000 worth of Solana.
Crypto.com offers 1% APY or a 2% APY if you stake more than 100,000 CRO tokens (CRO is the native token of Crypto.com). This requirement makes it difficult for beginner investors to earn more than 1% APY, as the cost involved is too high.
How to Stake Solana On Crypto.Com
Before you start staking, ensure that you have a crypto.com account with some Solana tokens then follow these steps:
Go to Crypto Earn
Open the app, click the menu button at the bottom, and then tap on “Earn” in the Finance section of the menu.
Select Solana
Tap the plus button to stake a new cryptocurrency and then select Solana from the list.
Choose the staking terms
Select whether you want to stake for a flexible, 1-month, or 3-month term, which offer successively higher rewards rates. Then tap “Continue”. You will need to agree to the Crypto Earn terms and conditions on the next page.
Enter the amount
Type in how many SOL you want to stake and then tap the deposit button.
Confirm
Check the staking details on the next page and tap “Confirm”. You will then need to enter your passcode or use your fingerprint to authorize the transaction.
Kraken is a popular trading platform among advanced traders. It also functions as a cryptocurrency exchange. Although the platform's user interface is dated, it offers a great way for cryptocurrency enthusiasts to buy, trade, stake, and sell crypto.
Kraken added support for Solana staking in July 2021. They offer staking rewards of 6% to 6.5%.
Staking on Kraken gives you a lot of flexibility. While other platforms require you to lock up your SOL tokens, Kraken allows you to deposit as little as 0.2 Sol into the staking protocol and earn rewards. You are free to withdraw your tokens anytime you want.
Unfortunately, you cannot stake Solana on Kraken while in the USA due to SEC regulations.
How to Stake Solana on Kraken
You will have to open an account on Kraken before you can start staking. Once you have an account, follow the steps below:
Go to the Earn section
Click on the Earn tab at the top of the page. This will provide you with some information about staking, your staking and rewards balances, and a list of assets available for staking.
Select Solana
Scroll through the assets and click the stake button next to Solana, or click the big “Stake” button at the top and then search for Solana.
Choose an amount
Enter how many tokens you want to stake, or click on a proportion of your SOL balance. Also, choose between the flexible and bonded staking options. If you choose bonded, your tokens will be locked and unstakable for three days. Then click “Stake”.
Start earning rewards
Your transaction will now appear at the bottom of the page with the status “Initiated”. After a few minutes, the status will update to “Successful” and you can view your updated Solana staking and reward balances.
Staking rewards on Solana are calculated based on inflation and commission. Inflation is the rate at which new Solana tokens are minted and added to the total supply. Commission is the percentage of staking rewards that a validator charges their delegators for providing staking services.
The staking yield on Solana depends on the amount of Solana staked on the network. The higher the amount staked, the lower the staking yield. Solana also adjusts the inflation rate from time to time to target a specific annualized inflation percentage. The current target is set to 8% per year.
As previously mentioned, each validator sets its own commission rate, which can be anywhere from 0% to 100%. Validators can change their commission rates at any time, but the new charges will only affect new delegations. Existing delegations will continue to pay the commission rate that was agreed upon at the time of delegation.
Staking Example
Use the following formula to calculate staking rewards on Solana:
Staking rewards = (stake amount × inflation rate (1-commission rate))/ total active stake
For example, if you delegate 1000 SOL tokens to a delegator with a 10% commission rate, the inflation rate is 0.01% per epoch (about two days) and the total active stake on the network is 500 million SOL, then your staking rewards per epoch would be:
There are several strategies you can use to maximize your staking rewards on Solana. Here are a few:
Choose validators with low commission rates and high performance. Commission fees will eat into your staking profits so you want to choose a validator who charges reasonable fees. You also want to go for a validator with a higher performance. Performance measures how often a validator votes on valid blocks. High-performing validators earn higher rewards.
Diversify your stake across multiple validators. Spreading your stake across different validators eliminates a single point of failure hence increasing your chances of receiving constant rewards. If one validator goes offline and gets slashed, you can still earn profits from other validators.
Monitor your stake and adjust accordingly. Solana staking is not a set-and-forget activity. You must monitor your stake regularly and make adjustments as needed. For example, if a validator changes their performance rate or commission significantly, you may want to stop staking with them. Similarly, if you find a better staking platform or validator, you may want to move your stake to make better profits.
Focus on the long term. Staking on Solana requires you to commit for at least two epochs (about four days) before you can start earning rewards. It also requires a cool-down period of four epochs (eight days) before you can undelegated your stake and withdraw your tokens. Solana staking is therefore more suitable for long-term holders who believe in the future of the Solana blockchain and are willing to lock up their tokens for a while.
Compound staking or restaking your rewards. You can maximize your staking rewards on Solana by compounding your rewards and restaking them. Restaking means using your earned rewards to increase your stake amount and earn more rewards in the future. This creates a compounding effect that can boost your returns over time.
Is There a Downside to Staking Solana?
Although staking Solana is a great way to make some passive income, the process isn’t without its disadvantages. Here are some of the cons of staking Solana:
You might lose your coins through slashing – If the Solana validator you choose to delegate to violates the safety rules of the Solana blockchain, they are penalized by having 100% of their stake slashed. This means that you might lose all your earnings and even your staked coins.
You lack access to staked coins – Unless you are using the liquid staking method, you will lose the ability to use your Solana tokens for the duration they are staked. You cannot trade them or use them to generate income in other ways.
Market changes – The cryptocurrency market changes drastically from time to time. If the price of Solana drops drastically, it might cut into your profits or even cause you to get a negative return.
Should I Stake Solana
Whether or not you should take Solana is a personal decision, and the answer is different for different people. If you are considering staking Solana, you should take your time to evaluate the following aspects:
Risk vs rewards - Consider the staking method you want to use and how much profit you are likely to make. Is the profit worth the risk involved?
Tax implications – Cryptocurrencies are taxable in the US. As such, it is important to consider how staking Solana will affect your taxes. Think about how you will determine how much tax you need to pay to decide whether the hassle is worth it.
Skill level – While some staking methods are straightforward and beginner-friendly, others require you to have deep knowledge and experience. Take time to decide whether the staking alternative you have in mind is the right one for your skill level.
Do you want to trade actively or HODL – Your long-term investment strategy is also a big factor when deciding whether staking is good for you. If you want to hold onto your Solana tokens for the long run, staking might be a good move for you since you will be making passive income on the side. However, if you want to become a day trader, locking up your Solana tokens might not be a smart move as you might need them before the staking period is over.
Final Thoughts
Solana staking is a great way to participate in the governance of the Solana network while earning a passive income. Solana is one of the fastest and most scalable blockchains in the world, with a high potential for growth and innovation.
By staking your SOL tokens, you can support the development and adoption of this cutting-edge technology while also benefiting from its performance and features. Solana staking is easy and accessible for anyone who owns SOL tokens and there are many options to choose from depending on your preferences and goals.
Whether you want to stake by becoming a validator on the Solana blockchain or delegate your Solana tokens to another validator, there is an option that will suit your needs most. If you prefer to stake in a stress free manner, then Coinbase is your best option. Not only is it the top staking platform, it is also easy to use and beginner friendly.
Solana staking is a rewarding and exciting experience that can help you make the most of your SOL tokens and contribute to the future of decentralized finance.
Staking rewards on Solana are distributed every epoch which is about 2-3 days.
What is the minimum amount required for staking?
There is no minimum stake required for staking on Solana. However, each stake account has a rent fee of 0.0022828 Sol per year, which is deducted from the stake account balance. If the stake account falls below this amount, the stake account will be deactivated and the remaining balance will be returned to the owner.
Can staked Sol tokens be traded or sold?
No, staking Solana means locking up your token into the Solana blockchain. Once you lock up your SOL, you cannot use the tokens until you unstake.
Is Solana staking secure?
Yes, Solana staking is very secure as it relies on a large and diverse network of validators that are constantly monitored and incentivized to behave honestly and efficiently.
Is Solana staking taxable?
Yes, the US tax code does not differentiate between crypto earned through staking and any other activity such as trading. Since crypto holdings are subject to tax when sold, staking rewards are also subject to tax. However, you should consult a tax advisor for individual tax advice.
What is the best Solana Staking validator?
A good validator charges a reasonable commission, has a great reputation, and has great uptime and performance.
Alice is a content writer and editor at Bankless Times. As a cryptocurrency and content specialist, she has reported on crypto news, produced user guides, and crafted content for exchanges. She has first-hand experience in trading and investing, and in her spare time, she writes the puzzle page for a regional magazine and rings church bells.
Alice is a content writer and editor at Bankless Times. As a cryptocurrency and content specialist, she has reported on crypto news, produced user guides, and crafted content for exchanges. She has first-hand experience in trading and investing, and in her spare time, she writes the puzzle page for a regional magazine and rings church bells.
