The evolution of the cryptocurrency market has given rise to new opportunities for investors to earn passive income. Staking Solana is the process of holding SOL “stake” to secure the Solana blockchain and receive passive income in the form of USD-equivalent rewards. This blog post will walk you through how you can stake Solana and its do’s and don’ts while keeping an eye on the Solana to USD exchange rate for an extra layer of stability.
Getting Started with Solana Staking
You can stake Solana through the following options:
Centralised Exchange for Beginners
Centralised exchanges such as Coinbase reward for staking your Solana. Staking on this platform is easy and takes a few clicks. However, you must use the company’s custodial accounts or wallets to stake your tokens.
Considering staking rewards is crucial when deciding where to stake your tokens. The rewards are dependent on centralised exchanges, mostly between 4% to 10% APY rewards. Other important factors that you should consider when deciding where to stake are:
- Exchange’s security
- Lock up periods for staking
- Possible unstaking delays
A few benefits of staking Solana using a centralised exchange include the simplicity of the staking process, compact platform with no need for a traditional wallet, and simplified tax reporting. However, by staking Solana, you’ll be contributing to the whole network centralisation, experience counterparty risk, and possible staking reward.
Network Validator for Intermediate Investors
For an intermediate investor, the easiest way to decentralise your SOL is by delegating it to a network validator. You can use a Solana wallet that supports staking. Other platforms that you can use to delegate SOL to delegate network validators include:
- Phantom
- Solflare
- Exodus
- Atomic wallet
- Ledger
- Slope
One advantage of delegating your Solana to a network is that you can keep custody of your tokens. Additionally, you get to choose which single network validator you’ll support and has a possibility of earning higher yields. However, delegating to a network is not all to the good. You might incur a tax liability, experience difficulties, or be exposed to the performance of an individual validator.
Liquid Solana Staking
Staking Solana using the above two methods locks your funds up, making them unusable for other yielding activities like trading or lending. While the lock up is the core principle of staking, you can liquid stake to earn rewards on your SOL tokens while receiving a liquid token to replace your used tokens.
To pick a liquid staking pool, consider factors such as fees, validator etiquette, and security. Also, consider liquid staking providers like Lido, Socean, Parrot, and Marinade Finance. Liquid staking allows you to hold liquid tokens while your $SOL is staked, increase your yields on your $SOL, and enjoy a more decentralised and easier staking. However, you may struggle to file your tax reports, access your tokens as they’re held by a third party, and have to be well versed in crypto and DeFi products to get the most out of liquid staking.
Run Your Own Network Validator
Running your own network validator is complex and technically difficult. It’s only done by Solana experts who have a background and experience in complex computer systems. You need to run your own network validator rigs in a data centre with strong technical requirements. It also requires many upfront costs, and must retrieve tax data directly from the blockchain making tax reporting a hassle. The upside of running your own network validator is that you get to directly validate the Solana blockchain, set your own commissions, and can spin up a validator rig without having to own the hardware.
Endnote
Staking Sol tokens is a great way to generate a passive income. Staking can range from a few clicks of a button to complex settings of your own servers. Whatever path you choose, you’ll enjoy some benefits and experience drawbacks depending on your expertise level.