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Once you are familiar with the concept of staking and staking pools, it can still be confusing to choose a stake pool. With that in mind, this article shares tips on picking a stake pool in the Solana ecosystem that will serve you best and fit the results you are looking for from your crypto investments. In addition, the article reviews the most popular Solana stake pools.
Like any Proof-of-Stake blockchain (PoS), Solana’s network requires “validators” to run its consensus algorithm. Stake pools are organized groups that allow users to delegate their SOL tokens and thus become stake pool delegators. Their stake pool operators can then distribute these tokens between the involved parties to achieve lower fees, faster transactions, security of transfers, and censorship resistance. In return, the participants earn rewards and receive liquid tokens in the same amount, enabling them to invest further and continue growing their assets.
Simply put, stake pools are responsible for guaranteeing that the network remains secure, correctly ordered, and available for use.
A stake pool provides several benefits over other networks with traditional staking models. For example, to stake SOL - and sometimes other SPL tokens - on Solana you do not have to run your own node and lock up capital to earn staking rewards. Instead, you can choose from one of many stake pools and their stake pool operators. Most of them require only a small amount of SOL to be delegated to the stake pool. Each staker can delegate their SOL, SPL token, or even USDC and Ethereum to any number of stake pools without incurring any fees or penalties. If you do not like how a particular stake pool is being run, you can easily change how much stake delegated with just one transaction.
· Maximizing block rewards: The bigger the stake pool, the higher number of tokens that can be gained from staking.
· Increasing community participation: a bigger community intervention is always welcomed as decentralization is one of the essential goals of blockchains.
· Improving investment opportunities: this is achieved by keeping the assets unlocked with liquid tokens gained in return for SOL.
· Limiting the risk of downtimes: more people involved in the pool means that the rest can handle ongoing operations when one party malfunctions.
Stake pools are used to delegate tokens and ensure the high availability and reliability of the network. But with numerous pools, how do you pick the one to stake with? Unlike many proof-of-stake networks, where validators are often run by large corporations and institutions, Solana allows everyone to participate in block production and earn potential rewards for it.
To delegate your SOL tokens to a stake pool successfully, you must first select a pool. There are various available pools for various stakeholders, and it can be overwhelming to choose the best one. You should consider the following factors when selecting a stake pool on the Solana blockchain:
The most forefront factor to take into consideration when picking a stake pool is the commission rate they charge, which can vary from 1% to even 20%. The lower it is, the higher your APY rewards will be. Some stake pools are not necessarily looking for new stakers due to a variety of reasons, and because of that, they increase their fees quite high. However, extremely low commissions might also be a red flag, since the validator should afford to keep the pool running. Thus, it is important to check if the commission rate of the stake pool you wish to pick fits your goals.
The total value locked (TVL) represents the number of assets that are currently deposited in a given DeFi protocol – including a stake pool. This value doesn't represent the yield that these deposits are expected to earn. Instead, it reflects the current value of the deposits themselves. TVL fluctuates not just when consumers make additional deposits or remove their funds. It is continually altering in accordance with the shifting dollar value of all crypto assets.
Thus, the TVL of a stake pool can not only reflect its popularity among users and the proper allocations of assets but also if its native token is valued appropriately. The token's market cap may be excessive or low in relation to the TVL of a stake pool. The more intense the correlation, the more the token may look overpriced or undervalued.
When depositing assets into a stake pool, you receive a token that represents those staked in return, so you don’t lose liquidity and the opportunity for investment. With that in mind, the most ideal is that this token you receive in exchange can be easily used in the multiple dApps of Solana. Thus, the level of integration with the ecosystem of dApps is an extremely important factor when choosing a stake pool. Marinade, for example, offers great integration, with mSOL being accepted in almost most dApps of Solana.
In order to not lose liquidity and opportunities for investment, make sure the stake pool you choose offers this integration. It is also interesting to make sure the staking pool platform you choose is integrated with the Solana wallet you use. Most tend to support Phantom and Solflare, for example. This way you are able to engage in liquid staking and couple invest these assets.
One of the main stake pool benefits is liquidity since it allows you to double stake your assets. Therefore, making sure the stake pool you are sending funds to offers great liquidity is crucial. To make sure of that you should take into consideration the integration of the token you received from the pool with the Solana ecosystem, how tradable the token is, the warm-up, and cool-down periods, trading volumes, and how easy it is to unstake it.
Multiple security firms have audited the Solana Stake Pool Program run by the Solana Foundation to ensure the total safety of funds. However, it is interesting to check if the stake pool you are considering adding your stake to has been reviewed by an independent cybersecurity company. If yes, this is a great sign that the stake pool offers security for its users and can be considered a safe option to invest in. Just keep in mind that audited stake pools still carry the risks of investing in cryptocurrencies in general, such as volatility and malicious projects.
Another great factor that often weighs in the choosing of a stake pool is how it delegates the assets in the background. For example, Marinade’s delegation strategy is more algorithmic. This means it considers performance when picking the validators to delegate the assets in the pool, making it very decentralization friendly. Lido’s stake distribution, on the other hand, is made by selecting a few node providers through an online application, often resulting in larger validators being picked. No strategy is right or wrong since different investors will have different preferences when it comes to the strategy of the pool.
Some investors will also prefer large stake pool providers that are present in a number of blockchains, while others prefer niche ones that are more focused on one given network. Considering the overall strategy of the stake pool is important so you pick one that fits your needs, goals, and beliefs, while also offering you good incentives.
Another important factor that can be relevant when choosing a stake pool to invest in is the number of delegators in the pool. That is because you want to know if the pool is over-delegated or under-delegated. The over-delegated stake pool may not receive as many block rewards because only so many blocks are generated per participant. The under-delegated pool may not have enough resources to maintain uptime, resulting in lost rewards for investors. Ideally, it would be best to choose a stake pool with the right number of delegators – neither too high nor too low. Some pools have thousands of users, while others have barely a dozen. The rule of thumb should be picking the ones that have a few hundred. Then it’s reliable and still offers relatively high rewards.
When looking for your next Solana stake pool, also check the intent of the stake pool operator and who they are. What is their plan for running the pool? For how long will they run the pool? Is the stake pool operator or manager well-known or unknown in the community? Doing your due diligence is vital to safe investing. It is also essential to look at the pool's performance, such as block-producing efficiency (BPE) and block-producing time (BPT). Ideally, go with the stake pool with consistent performance rather than one with extreme spikes in BPE and BPT.
At first glance, all Solana stake pools may be similar, but there are various options to choose from. It’s worth knowing them as they offer different benefits and can act as alternatives to each other. Of course, if you wish, you can participate in more than one to maximize your earnings.
You can learn more about Solana Staking Pools on docs.Solana.com links below:
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Please note that none of this is to be considered financial nor investment advice. We highly advise you to always do your own research (’DYOR’) before interacting with any of the projects or tools we write about. Crypto is a highly dynamic and fast paced environment with lots of moving parts that can quickly change.