The platform Lido is a great liquid staking protocol for several blockchain networks such as Ethereum, Terra, as well as Solana. This staking tool has a lot to offer, most importantly liquidity on their staked assets as well as fostering decentralization of the underlying network. But, before we dive any deeper, let’s start with the basics.
Not everyone is aware that blockchain is not only about cryptocurrencies. It is a powerful tool for various endeavors. That’s precisely the purpose of Solana. As they claim on their website: “Solana is the fastest blockchain in the world and the fastest-growing ecosystem in crypto, with over 400 projects spanning DeFi, NFTs, Web3, and more.”
What makes Solana special are its scalability, speed, and low cost of use. It also offers censorship resistance, which means that not one single party has control over the network - currently, it would take the top 20 validators to collude in order to tamper with the network. Note that this is already an impressive number and that the Solana ecosystem is doing all that it can to increase this number even further! Solana’s ecosystem contains hundreds of various apps, and everyone can join in to become a validator - meaning an entity that provides computing resources for the processing transactions for which they earn SOL tokens as a reward.
Lido is a liquid staking solution for several Proof-of-Stake networks. Lido gathers top-notch node operators aka. Validators that each run their infrastructure individually. By staking via Lido, a user’s token gets distributed to Lido validators, which is beneficial for the decentralization of the network. Since Lido only allows professional, vetted node operators with a proven track record, it provides its delegators with the highest standards.
If one stakes via Lido, they receive tokens in return which represent their staked position. Given Lido’s big market share and brand equity, these tokens found wide adoption and can be used throughout different DeFi ecosystems. This means that delegators and thier delegations accrue rewards without foregoing the liquidity of their assets.
Lido for Solana was initiated back in April 2021 and its development was led by Chorus One, a fellow validator. Lido is continuously improving and the Lido ecosystem continues to drive the adoption of stSOL tokens, the staking derivative that delegators receive if they stake via Lido.
Let’s start with the liquid staking protocols and explain how they work. Users deposit SOL through Lido into the Lido program. For that, delegators receive newly minted ‘stSOL’ which is an SPL token for staking SOL and represents their share of the total pool. The staking happens via a DAO-controlled smart contract. Every network has its own DAO - Lido for Solana is one of them.
At first, the user deposits SOL tokens that are then distributed between DAO validators in equal parts. Delegators receive daily staking rewards on their staked SOL. Delegators can use their stSOL tokens across a wide array of DeFi applications such as Saber or Raydium. Once a user wants to stop their delegations, they can always do so and receive back their initial SOL as well as accrued staking rewards on top.
Aside from the fact that it is a seamless, simple-to-use tool for staking your SOL, which allows you to earn staking rewards without foregoing the liquidity of your assets, it has several other advantages. It is effortless to use with 1-click staking, offers a diversification of providers for higher security, and integrates with numerous DeFi protocols. Lido offers 5.92% APR, which can be gained immediately upon deposit.
Apps that use Lido for Solana include Serum, Saber, Solflare, Phantom, and Raydium. There are many validators within the network to make sure transactions go fast and smoothly. If they want to stop staking, they can swap them at any time via secondary markets.
One of the main problems of blockchain-based platforms is to teach people that they should always split their stakes between independent validators. Lido for Solana is perfectly suited for this purpose. It improves censorship resistance because it spreads the stake across various nodes. Lido carefully picks their node operators - they have a dedicated government that votes on all critical decisions, including the choice of validators. Members of the Lido decision-making team are the holders of a governance token called LDO. They choose validators according to their technical setup, team, as well as track record.
Many people want to participate in staking, but the only thing that matters to them is the rewards they can gain from it. With Lido for Solana, users that want to stake their assets don’t have to worry about diversification of the validator set because the platform takes care of it for them. It’s safer, quicker, and helps build best practices for the ecosystem.
There are concerns that platforms like Lido for Solana could be another form of centralization, which would oppose the initial idea behind blockchain networks. That can be the case if only one stake pool controls all deposited stakes. However, Lido for Solana and other similar tools are cooperating with many providers to make sure this situation doesn’t happen, and everything is decentralized as it should be. Please note that decentralization should not be considered as a binary state - i.e. a network is either decentralized or not. It’s much rather a spectrum and initiatives like Lido help to move the network closer to the decentralized end of the spectrum.
As for Solana, the project is still expanding, and it is improving continuously thanks to its ever-growing community. The platform was launched in September 2021, and it drew a lot of attention ever since.
Missing anything? Thoughts, feedback, or questions about the post?
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.