How to Stake Solana
Solana is a Proof-of-Stake (PoS) blockchain. Unlike Bitcoin and other Proof-of-Work (PoW) blockchains, PoS blockchains like Solana, Avalanche, and Polkadot are dependent on coin holders to stake their coins to secure the network and validate transactions. Solana’s native coin, SOL, can therefore be staked with network validators to participate in running the decentralized Solana network. As a reward, stakers earn part of the network fees.
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What is Solana Staking?
Solana staking is the process of delegating SOL coins to a validator for a period of time. In return, the delegator (staker) receives rewards paid out in SOL. Staking SOL helps the Solana network remain secure and decentralized.
The Solana network is run by users who operate a full validator node. A validator node is a computer that runs Solana software that processes transactions and builds and validates blocks. Running a Solana validator node profitably requires high-end computer hardware, a commercial high-speed internet connection, as well as a significant SOL stake. Additionally, validator nodes pay approximately 1 SOL per day to participate in voting on the blocks they agree with.
SOL holders who do not have the capability or means to run their own validator node can delegate their SOL coins to a validator node of their choice. This allows them to be a part of the Solana network but with lower entry barriers. The more SOL coins are staked with a validator node, the higher its chances are to participate in block validations, which again allow it to earn more rewards.
SOL holders who stake their coins with a validator are called delegators. Delegators can freely choose what validator they want to stake their coins with. Staking requires a certain degree of trust in a validator. Staked coins remain under the delegators’ full control, but a validator’s incompetent or malicious behavior can result in a partial or complete loss — also referred to as slashing — of the SOL coins staked with the validator. Slashing is a mechanism to incentivize proper behavior and punish validators for violating the network rules. Therefore, it is recommended to do some due diligence before choosing a validator.
Delegators agree to stake their SOL coins with a validator for a chosen time period. The coins then are locked up and can neither be moved nor spent. Most validators charge a percentage of a delegator’s rewards as a fee for running the node on behalf of the delegator. Validator fees differ between validators and should be compared before choosing a validator.
Delegators have the option to unstake their coins anytime, but need to wait for the Cooldown period to complete before the SOL coins can be moved again. The Cooldown period ensures that the Solana network has enough time to penalize a validator for illegal behavior even after it decides to leave the network.
How Much Can You Earn From Staking SOL?
The amount investors earn from staking SOL depends on multiple factors. These include the number of validators participating in the network, the chosen validator, the amount of SOL staked, and the current price of SOL. Currently, the yearly return on investment (ROI) ranges from around 5 to 7%. For real-time data on annual rewards, check out Solana Staking Rewards.
Depositing SOL in DeFi protocols or staking them on centralized exchanges can earn investors significantly higher returns than staking SOL directly with the Solana network. But caution is urged, as those investments come with additional risks such as impermanent losses, hacks, and third-party risks.
How to Stake Solana (SOL)
Staking Solana (SOL) is a simple process. Investors can stake coins by moving them into a wallet that supports SOL staking. In the following, you‘ll find a step-by-step guide to staking SOL.
Step 1: Set up a Solana Wallet
Many web and mobile wallets support Solana staking. Check if your favorite wallet supports SOL staking by searching for the SOL coin. Wallets supporting staking should display a staking button in the SOL section.
Step 2: Top up Your Solana Wallet
The next step is to deposit SOL into your wallet. To stake SOL, many wallets require a minimum amount of 0.01 SOL. The easiest way to purchase SOL is through a centralized exchange like Binance, Coinbase, Kraken, or FTX.
It is recommended to transfer some extra SOL to your wallet to pay for future transaction fees, which will have to be paid to stake and unstake your SOL coins. A sufficient amount of SOL for your first dozen transactions should be 0.1 SOL.
Step 3: Find a Delegator
Once your wallet is topped up with SOL, you can stake them. Choose the ‘Stake’ option within your wallet. The wallet will lead you through the staking process and you will have to choose how much SOL you would like to stake. In the next step, the wallet will ask you to choose a delegator. When choosing a delegator, consider the following points:
- Overall Performance – Choose a validator that has historically performed well and had minimum to no downtime. Validators getting disconnected from the Solana network often will earn fewer rewards than more stable ones. You can check out validator statistics on Solana Compass or Solana Beach.
- Fees – Validators charge delegators fees for their work ranging between 0 and 10%. Fees are displayed as a percentage of the earned rewards. Some validators charge no fees and thus offer higher returns for delegators.
Overall it is important to find a reliable and cost-efficient validator to maximize returns and avoid losses.
Once a validator has been chosen, complete the staking process in your wallet. Note that you will only start earning rewards after the Solana Network has completed two epochs (warm-up period), which can take between two and four days. Staking rewards will be added to your balance automatically and no manual claiming is necessary.
How To Stake Solana (SOL) On Coinbase
Coinbase has automated the Solana staking process for its users. According to a blog post by Coinbase, users holding SOL coins in their Coinbase account will automatically earn SOL staking rewards. No further action on the part of the user is necessary. Coinbase pays out 75% of the staking rewards to users while retaining 25% as a fee for its service.
How To Stake Solana (SOL) On Binance
Binance offers locked staking for SOL coins. Depending on the chosen time period, returns are significantly higher compared to staking SOL directly with a validator. Binance guarantees that the same number of coins deposited ⦏…⦐ will be returned to ⦏investors⦐ along with yields paid out in the same type of coin. Interest rates are fluctuating and depend on market conditions, but the principle is protected. Users staking SOL with Binance face third-party risks and could lose their coins in case of bankruptcy.