Key Insights & Takeaways
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The rough and turbulent period of the last quarter of 2022, when the Solana community and the ecosystem experienced the fever associated with the Alameda-related events, is over. We can safely admit that the Solana ecosystem surmounted another critical milestone in its evolution.
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The majority of Solana delegators hold more than 100,000 SOL tokens, indicating a concentration of stake among crypto whales.
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Solana`s staked ratio and APR have exhibited stability in the second quarter of 2023, while the supply of SOL tokens has been consistently increasing.
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The stake distribution between top validators in Solana is relatively even, with Binance and Coinbase Cloud standing out due to their larger stake volumes.
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Everstake is the leader in the number of staking accounts, with over 160,000 staking accounts delegating SOL tokens to the validator. Learn more about Everstake and delegate to us here.
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At the beginning of June, the SEC initiated lawsuits against Coinbase and Binance and qualified SOL, among other popular tokens, as securities. This caused another decline in SOL token price and the following staking and DeFi market fluctuations. Considering the ongoing regulatory lawsuits, we might face various scenarios of final decisions on SOL and other tokens mentioned in SEC claims. The next quarter might become determinative for Solana in that sense.
INTRODUCTION: UNDERSTANDING SOLANA, SOL STAKING, AND SOLANA STAKING REWARDS
Before delving into the research, we offer a brief overview of how Solana stands out from other blockchains and what Solana staking is all about.
What is Solana?
Solana blockchain`s main statement is that it has arisen for mass adoption across various industries. And Solana is, with its high performance and versatility, that allow facilitating a multitude of use cases, including finance, NFTs,payments, and gaming.
It’s possible due to Solana’s fastest network in the market and excellent scalability. On average, it produces a block every 400 milliseconds. Just to compare, Cosmos has a block for 7 seconds and Polygon – for 2. Also, Solana maintains over 4000 transactions per second, while the average fee for developers and users is around $0.00025, significantly lower than other networks.
The native cryptocurrency of Solana is SOL, and it is used for many purposes within the blockchain’s ecosystem, including payment for transaction fees, governance, token swaps, and, of course, for staking.
INTRODUCTION TO STAKING SOLANA
Solana staking, in a nutshell, is holding and locking up SOL tokens to secure the network and earn rewards in return. By staking Solana, users delegate their tokens to trusted network validators, thus contributing to the network`s consensus process and receiving additional tokens for doing so.
Delegation doesn’t mean transferring tokens to an entity – the coins remain in the delegator’s wallet yet being “frozen” by the network’s smart contract to participate in the block validation and earn staking rewards.
Validators play a crucial role in maintaining the operation of Proof-of-Stake blockchain protocols. Their responsibilities include validating and executing transactions and adding new blocks to the chain. In recognition of their efforts, validators are rewarded with native blockchain tokens.
Anyone can potentially become a Solana validator. For this, they should launch the blockchain node according to the procedure described in the Solana Docs There are 1,850 active validators on Solana Mainnet as of July 12, 2023.
APR is commonly represented as an annualized rate, but it can vary during each epoch as the inflation rate and total active stake change. To determine the current APR for staking on Solana, users can refer to platforms such as SolanaCompass or Stakeview app. The actual APR depends on factors such as the validator`s fee, the node uptime, and overall performance.
At the end of Q2, Solana network`s total stake reached 388.8M(more than $7.3 Billion) of 551.5M SOL, which makes 70.6% of the total network supply. To date, the circulating SOL supply is ≈400M SOL. There are more than 550,000 active stakers in the Solana network, according to SolanaCompass’s dashboard.
Let’s cover some of the staking metrics in more detail and try to speculate on the market dynamics.
THE EVERSTAKE APPROACH: METHODOLOGY OF OUR SOLANA STAKING REPORT
We apply a comprehensive approach to conducting on-chain data analysis of the Solana blockchain and its native SOL token. These are the steps that we take to ensure a robust methodology:
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Gathering On-Chain Data: We collected relevant data pertaining to staking, transactions, inflation, staked ratio, and other essential metrics for the Solana blockchain and the SOL token. This involved obtaining data from blockchain raw transaction records as well as utilizing APIs
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Data Cleaning and Preparation: We meticulously cleaned the collected data and prepared it for analysis using Python and PowerBI. This involved filtering the data, merging multiple data sources, and formatting it to facilitate further research.
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Data Analysis: The prepared data was comprehensively analyzed to uncover trends, patterns, and insights related to staking, transactions, and other metrics. To visualize and evaluate the data we employed graphs, charts, statistical measures, and hypothesis testing to visualize and evaluate the data.
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Interpretation and Insight Generation: We interpreted the analysis results to extract valuable insights and draw conclusions about the Solana blockchain`s current state and the SOL token`s performance. This process involved discussing the implications of the analysis, comparing the findings with other data sources or benchmarks, and potentially offering recommendations for future actions or areas of research.
By following this methodology, we aimed to provide a reliable and informative Solana report, offering an assessment of the Solana blockchain and the SOL token, leveraging our experience and expertise in the field.
IN-HOUSE TOOLS FOR STAKING ANALYTICS
Many staking data resources typically focus on primary information such as APR, validator count, price, and block time.
We at Everstake, a trusted validator with over 735K users across 70+ blockchains, understand the importance of staking analytics. To address this, we developed inner analytics tools – Slurp and Staking API.
Staking activities occur on-chain, including delegation, transaction validation, block creation, and reward accrual. As a result, all transactions are recorded in the blockchain and can be accessed. Slurp collects and processes this data to facilitate further analysis.
SOLANA`S TOTAL STAKE GROWTH: Q2 2023 ANALYSIS
Upon analyzing the annual chart, it becomes apparent that there are some conspicuous spikes observed, specifically in July-August and November 2022. From December 2022 to January 2023, a discernible upward trend was generally observed. The series of events associated with the FTX collapse likely served as a precursor to the noteworthy surge witnessed in November 2022.
In April 2023, an unfavorable trend was observed, characterized by a decline. However, in May, there was a noticeable improvement in the situation.
Despite the ups and downs of the fall and winter caused by the FTX-related events, the Solana ecosystem has shown signs of stable growth in the second quarter of 2023. While examining the dynamics of Solana`s total stake change, we can note that the total network stake increased quite rapidly in May. The growth pattern remained stable and positive in June either.
The network stake fluctuations occur for various reasons, including market corrections, ecosystem events, temporary shifts in user sentiment, or adjustments in the mechanism benefiting Solana staking.
Over the past couple of years, Solana has shown significant development and intense growth as a blockchain platform. This progress has been accompanied by an overall positive dynamic in the total staked value of SOL, the native asset of the Solana network. Additionally, Q2 displayed a slight decrease in total stake compared to the first quarter of 2023.
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End of 2022: total stake was 383 M SOL;
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End of Q1 2023: total stake was 398 M SOL;
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End of Q2 2023: total stake is 388 M SOL.
Sources: SolanaCompass and our data.
In light of the bearish market conditions observed throughout 2022, it is reasonable to assume that the present market trend gravitates toward stability. The challenges faced in the previous year, marked by a decline in overall market performance, may have prompted stakers and market participants to adopt more cautious and conservative approaches. As a result, the current market sentiment characterizes by a sense of steadiness and equilibrium, suggesting a potential shift towards more predictable and less volatile market conditions.
VALIDATOR PERFORMANCE IN SOLANA
In the following sections, we will determine which company is considered the best Solana staking validator by users. We’ll analyze how the SOL stake and accounts are distributed between top validators.
STAKE DISTRIBUTION AMONG TOP VALIDATORS
The stake distribution between top validators is crucial to a network`s decentralization and security. In the case of Solana, understanding how the stake is distributed among the top validators provides insights into the level of participation and influence held by these key network participants. We’ve divided the top validators into two categories by commission: 0-5% and 5-10 % fee, to have a more transparent data representation on the graph.
Please note that we have excluded anonymous validators in the following graphs for a clearer representation.
0-5% FEE VALIDATORS
While the stake is distributed relatively evenly, Binance (marked black) certainly stands out with a larger stake volume. There are a few reasons behind this dominance.
Being an industry key player and reputable crypto exchange, Binance attracts many token holders. The users tend to delegate their tokens within the CEX app simply because it seems to be an easier and faster way to stake, even though the delegators, in most cases, earn fewer rewards while staking on CEXs.
Still, it is worth mentioning that the native staking directly to validators does support the network and ensures a higher rate of rewards for users. In addition, with the native staking, delegators opt to use non-custodial wallets, which guarantees more secure funds holding and control than with CEXs.
7-10% FEE VALIDATORS
The most significant stake volume here belongs to Coinbase Cloud by Coinbase. Coinbase is also a well-known cryptocurrency exchange platform and a prominent player in the crypto industry. So it is unsurprising that it dominates this category`s staking market.
ACCOUNT DISTRIBUTION AMONG TOP VALIDATORS
In the Solana network, it’s hard to identify the exact number of delegators because a stake account can only be used to delegate tokens to a single validator at any given time; hence one delegator can own as many staking accounts as he needs.
For the convenience of studying the charts, here we also divided the top validators into groups based on their commissions.
0-5% FEE VALIDATORS
The category of validators with 0% to 5% fee highlights a significant presence of anonymous validators. However, this group has two notable entities: meleaOne (represented by deep blue color) and Shinobi Systems (light green). The mentioned validators are winning the competition because of the 0% fee and being more appealing to users than anonymous validators.
7-10% FEE VALIDATORS
Among the top validators charging a fee ranging from 7% to 10%, Everstake (marked yellow) stands out as the confident leader. Yet, we can safely compare the data to any other validator on Solana – Everstake’s record in the staking accounts metric remains unbeatable since more than 160,000 staking accounts are delegating SOL tokens to us!
Everstake boasts a robust infrastructure that ensures high availability and optimal performance for Solana staking. We also offer our delegators a competitive distribution structure of SOL, accumulated from securing the network, ensuring they can maximize their staking results. The transparent fee structure, which includes reasonable commission rates, allows delegators to make informed decisions when selecting Everstake as their staking provider. All these statements are the factors of the leadership mentioned above.
When it comes to Coinbase, Jump Crypto, and Ledger by Figment, the number of staking accounts associated with these entities falls within a relatively close range spanning from approximately 27,000 to 40,000.
The network offers a generally positive trend – the number of staking accounts grew at a stable pace in Q1 and Q2 of 2023. This upward trajectory signals increasing user participation and engagement within the Solana ecosystem.
SKIPPED SLOT RATES OF TOP VALIDATORS
Skipped slot rate displays the percentage of the time a leader fails to produce a block during their designated slots. A lower value means the leader has a higher rate of successfully generated blocks.
Note that it doesn`t affect the staking APR for delegators (this metric is not factored into staking results calculations). Yet, it influences the additional validators" benefits for the block leading and overall serves as one of the Solana validators" performance/health metrics.
Skipped slots rate demonstrated significant fluctuations at the end of April and the beginning of May 2023. The graph reports abrupt bounces among Chorus One, a16z, Coinbase Cloud and Shinobi Systems.
The highest skipped slot rate (23.80% on May 11, 2023) belongs to Chorus One. On this date, no network upgrade was held, or any other events registered that could affect a validator`s performance. The reason for such a spike may refer to internal validator operation conditions since the rest of the validators don’t display the same pattern.
The most recent spike was registered on June 11, 2023. Coinbase’s skipped slots rate was 8.91% on the day. Similarly, there are no evident causes for what could have influenced such a significant surge in the skipped slots rate. Yet, in this case, we observe a similar pattern for the rest of the validators, which allows us to assume that the network itself possibly experienced a brief period of latencies in early June.
UNDERSTANDING DELEGATOR BEHAVIOR IN SOLANA STAKING
DELEGATORS DISTRIBUTION BY STAKE
75.24% of delegators (or rather to say, of the staking accounts owned by delegators) that stake Solana lock up more than 100,000 SOL per each staking account. This data highlights the concentration of stake among so-called “whales” and indicates a significant level of participation from large stake holders (institutions, VCs, early investors).
CRYPTO WHALES ROLE
The fact that 3/4 of Solana`s stake is owned by crypto whales confirms that a substantial amount of capital is committed to the network. Whether it looks like not too fair wealth distribution or not, the large stakeholders play a crucial role in maintaining the stability, security and growth of the blockchain ecosystem.
Nevertheless, to ensure a healthy and decentralized ecosystem, it is beneficial to encourage a wide distribution of stake among both larger and smaller delegators. Networks often implement various mechanisms to incentivize smaller stakeholders to participate actively, fostering a more inclusive and balanced ecosystem.
EXPLORING SOLANA`S STAKING METRICS
The dynamics of the Solana network and the incentives for participants rely heavily on Solana`s staked ratio, supply, and APR.
EXPLORING SOLANA`S STAKING METRICS
The staked ratio denotes the percentage of actively staked SOL tokens with network validators, highlighting their commitment to the network.
The supply of SOL tokens represents the overall number of tokens circulating within the Solana ecosystem.
Solana`s staking APR, or annual percentage rate, denotes staking benefits that participants receive by staking their SOL tokens.
Based on this graph, it is evident that both the staked ratio and APR exhibit a remarkable level of stability in Q2’2023, with no abrupt fluctuations over the observed period. Also, the supply of SOL displays a consistent upward trajectory indicating an ongoing expansion.
The increasing supply of SOL tokens should not be confused with inflation in the traditional sense, as it is a deliberate mechanism designed to support growth and sustainability and foster continued development and innovation within the Solana ecosystem.
TOTAL RETAIL STAKE AND SOLANA STAKING APR
Total Retail Stake refers to the cumulative amount of SOL tokens staked by retail participants within the Solana network. It represents the collective contribution of individual retail investors who choose to lock up their SOL tokens for a specific period to participate in the staking process. This metric is an essential indicator of retail investors` engagement and level of network decentralization.
The growth trend of retail stake signifies an increasing level of engagement and participation from individual users within the Solana ecosystem. It suggests that more retail participants are opting to lock up their SOL tokens for staking purposes, indicating a higher degree of trust and commitment to the network.
However, it is noteworthy that there has been a downward trend in the APR – the rewards received by delegators through staking their SOL tokens have decreased over time. This dynamic is evident for Proof-of-Stake networks: the more tokens are staked, the lower the reward rate in general.
SOLANA PRICE PREDICTION & TOTAL AMOUNT STAKED: A CORRELATION?
Given the Solana analytics data for the period of Q2’2023, there is a strong correlation between the total stake and SOL price.
Notably, on May 26, 2023, the SOL token price exhibited an upward trend. This price increase was accompanied by a subsequent decline in the total stake, which occurred a few days later, on May 30, 2023. Specifically, there was a sharp decrease in the total stake from 389M to 383M on that day.
Due to the market conditions, we may suggest that some token holders were prompted to unstake and sell some of their holdings to secure their assets.
Since June 4, a notable and substantial decrease in the price of SOL has been observed. Notably, on June 14, the SOL token price reached its minimum during the second quarter of 2023: $14.49.
Continuing the comparison, let`s take a brief look at the previous SOL token price milestones:
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End of 2021: ≈$170;
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June 2022: ≈$37-40;
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End of 2022: ≈$10.
Following the bull market’s price peak in 2021, SOL, like many other cryptocurrencies, experienced a period of market correction. It`s important to note that cryptocurrency markets are highly volatile, and price retracements are standard after significant rallies. The fluctuations of the SOL token price are subject to various factors like market sentiment, regulatory developments, network upgrades, project milestones, ecosystem development, and broader trends in the cryptocurrency industry.
In June, we can safely attribute a decline in token price to the news about Securities and Exchange Commission (SEC) designating the SOL token as a security. The SEC initiated separate lawsuits against two prominent crypto exchanges, Binance and Coinbase, on June 5 and 6, respectively.
The discussion about SOL as a security is based on various arguments, including the expectation of profits that stem from the efforts of others, as well as the token`s application and marketing strategies.
SPECIAL FEATURES OF SOLANA STAKING
Liquid staking is another way to stake SOL tokens while receiving awards. This section will walk you through its main features.
WHAT IS LIQUID STAKING?
Solana Liquid Staking is a mechanism that combines the benefits of staking while maintaining the flexibility to trade or utilize their staked assets.
Unlike traditional staking, where tokens are locked up and illiquid for a specific period, Solana liquid staking employs tokenization to create liquid staked assets (such as sSOL, eSOL, mSOL etc.) that represent the underlying staked tokens. These liquid-staked assets can be freely traded, transferred, or used as collateral while still earning staking rewards.
LIQUID STAKING OVERVIEW
According to SolanaCompass, up to date, there are ≈8.5M liquid-staked SOL. It is ≈2.184% of the total network stake (388M SOL), with nine main identified stake pools and a few smaller anonymous ones.
Marinade Finance is dominating the liquid staking market handling ≈4.80M SOL, while Lido has been taking the second position (≈2.35M SOL), both far ahead of the rest of the competitors.
The APR offered by stake pools fluctuates in a range of the average network staking APR. Yet, stake pools offer delegators additional perks in the shape of the liquid token, allowing them to earn more profit using Solana DeFi protocols like Drift, Jupiter, Orca, Raydium, and others.
One of the Solana founders, Anatoly Yakovenko, recently expressed the hope for liquid staking to become a trend in Solana. This may signal the Solana Foundation’s intention to increase the stake pools’ support and promotion in the upcoming months.
WHAT IS MEV IN CRYPTO?
Maximal Extractable Value (MEV) refers to the additional value that participants in the DeFi ecosystem, often referred to as MEV searchers, can extract by influencing the inclusion and ordering of transactions within blocks produced by validators. The easiest way to track MEV statistics on Solana is via the Jito Explorer, which provides almost a complete picture of the process up-to-date. The graph below offers insight into the past month`s data, even though with no sorting, that would allow us to check the past three months.
MEV technology is achievable with the help of validators running specific software, like the Jito client. The new clients like Jito and Firedancer (in development) allow the network participants to not rely on a single client, which leads to more stable and secure network operation.
While in March 2023, the Jito client was adopted by 16% of the Solana validators, in early June, this number reached 26%. This displays a strong trend toward the MEV concept’s wide adoption within the Solana community.
