How To Stake Solana In 2023: Comprehensive Guide

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.

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.

• 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 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

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 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

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 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

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 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

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:

Staking rewards = (1000 × 0.0001 × (1-0.1))/500000000

Staking rewards = 0.00018 SOL

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.

Staking rewards on Solana are distributed every epoch which is about 2-3 days.

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.

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.

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.

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.

A good validator charges a reasonable commission, has a great reputation, and has great uptime and performance.