Exploring On-Chain Data, The State of Solana Staking and Validators
Solana experienced several external hardships in Q4 2022, thanks to the FTX collapse. Consequently, many want to know how investors are reacting since the debacle. What developments have occurred since?
Leveraging our Staking Rewards API data, we look closely at Solana staking and validator activity to gain insights beyond price movement. We believe staking and validator activity are important areas to explore because they assess investor belief in Solana beyond holding completely liquid tokens. In addition, exploring the Solana validator set helps us ensure there are no structural red flags ahead and provides insights into the validator business.
24 million less SOL is currently staked relative to the October 2022 peak. In addition to the FTX collapse, an unstaking of 28 million SOL occurred starting on November 9th. Over the past month, however, there have been significant inflows likely driven by the SOL Foundation restaking. Consequently, the staking ratio currently stands at 68%, 7% lower than the 75% peak in October.
Despite the decline in staked tokens, what’s reassuring is unique wallets staking has climbed back to levels seen before the FTX collapse. The data suggests several larger wallets unstaked, rather than many smaller wallets. The 2022 year-end decline in wallets likely had to do with users taking tax losses, as in January, unique wallets staking reclaimed previous levels. Reclaiming unique wallet levels is an encouraging signal of delegator interest.
On the contrary, the observed price increase outpacing growth in staked value locked in USD in the last week may suggest an early sign of lacking confidence in Solana. However, before the FTX collapse, staked value growth was slightly outpacing price changes, suggesting increasing confidence
Typically, in a bullish scenario, the staked value growth exceeds price increases and vice versa in a bearish scenario. In Solana’s case, the slowdown of growth in staked value relative to the price is a very early trend, with only one week of data suggesting the shift. It’s not a strong signal unless it withstands for several weeks.
Validators are a vital component of sustainable L1s. Despite price action and staked tokens, operating validators highlight a sustainability baseline required for network security and decentralization.
That said, we looked at overall validator growth and distribution since 2021 for Solana until mid-November 2022.
Two significant trends are revealed. Larger validators' balance as a percent of the total balance stake has significantly decreased over time. Secondly, an increase in the number of validators is evident over time.
To further probe the question of decentralization on Solana, we compare staked tokens count vs. average validator balance vs. the number of validators. In an ideal scenario, the validator balance average should continuously decline as more validators join and the number of tokens staked increases.
Solana, Q3 2021 shows the validator count growing and the average validator balance shrinking, in tandem with the growth of tokens staked. This suggests new validators were entering the space, improving decentralization. If the number of validators had continued to increase while the staked balance remained flat, it might have suggested existing validators were redistributing tokens to their new validator addresses or losing to competitor validators.
Solana validator activity leans more on the side of increased decentralization over time, albeit momentum did slow down in Q3 2022. At the beginning of 2023, we also noticed a reduction in validators and tokens staked, suggesting some validators closed shop, leading to an increase in the average balance delegated to validators.
It's essential to track the top validators in Solana to understand who is providing them and if there may be any conflicts or concerns for network sustainability. Beyond centralization concerns by stake, we want to ensure the validator Providers are running sustainable businesses and won’t negatively affect network security. One of the biggest challenges for validators is competition amongst themselves, which currently threatens the overall PoS ecosystem, not just Solana. We cover validator competition in-depth, including data and insights from Providers, in our State of Staking 2022 Ecosystem Report.
To conduct the Solana validator analysis, we ranked validators by stake balance and identified the top 10 for any period within the last two years. A total of 26 addresses have been in the top 10. 21 of these addresses were identifiable through our API or block explorers.
The top 10 validators held approximately 15.47% of the stake. They charge an average commission of 7% (excluding the two validators that charge 100%). Eight of the validators in the top 10 have never left the top 10. These validators include Coinbase Cloud, Staking Facilities, address1, SOL Community, Everstake, a16z, and address3. Everstake, Coinbase Cloud, and Staking Facilities have been in the top 10 at least since 02/17/2021 and have never exited.
Considering that Solana has ~ 1900 active validators, the top flight of Solana validators has a relatively small turnover. The average time spent in the top 10 is 234 days across all 26 unique addresses.
The less time validators spent in the top 10, the lower their average share of the stake was. While this relationship is expected, a few outliers (Chorus One, P2P Validator, Melea, and LunaNova) had notably higher stake shares in the top 10.
Many reasons exist for a validator’s departure from this top. A validator's ranking can be affected by losing institutional investors, experiencing slashing events that result in a loss of staked funds, or merging with other validators to increase their market share.
Investigating validator distribution across 1,900+ validators and identifying reputable Providers in the top 10 validators suggests a sustainable validator set is in place for Solana.
Validator Reward and Commission Rates
In our staking report, validators agree that larger validators have the ability to lower commission rates as a way to attract more stake balance. Let’s explore how commission rates and reward rates affect performance.
At the time of the data pulled, most validator APRs ranged from 7% to 9%, and commission fees ranged from 0 to 10%. Validators able to offer lower commission fees are attracting more staked balances on average.
Surprisingly several larger validators with lower commissions are underperforming in terms of APR. At the same time, many with higher commissions are also underperforming in reward APR. This highlights an important factor that selecting the right validator is extremely important. The validator size isn’t indicative of APR. To help delegators identify trustworthy and well-performing validators, we run a Verified Provider Program on stakingrewards.com and highlight vetted Providers on asset profile pages.
Reward APRs grew significantly to 7 to 8% for delegators when staked tokens balance decreased but is now returning to the mean. According to on-chain data on Staking Rewards today, Solana delegator reward rates currently sit around 4.5%. Use the Solana calculator to see how much you could earn.
After closely exploring wallet staking activity, staking interest in Solana is returning to similar levels as before the FTX collapse. On-chain Solana validator activity suggests the validator set continued to grow since 2021 in distribution, if not decentralization. The top 10 Staking Providers running Solana validators are also reputable and show no cause for imminent concern. From a validator set perspective and on-chain staking data, Solana appears to be making a recovery. We did identify that the price increase has slightly outperformed staked value increase in the last week - something we recommend investors keep an eye on to better gauge if delegator sentiment is shifting.
State of the Stake
New Verified Providers on StakingRewards.com
The Verified Provider Program is an initiative to increase trust and transparency in the staking industry by verifying that Providers meet a set of criteria, including but not limited to, risk management, longevity, and security measures. When we verify providers, we look at their business through a microscope and analyse things such as their on-chain reliability, their provider setup, and value-added services for the whole ecosystem. You can learn more about the VPP in our articles about Provider Batch 1 and Batch 2. Providers that are part of the VPP have a blue checkmark next to their names on our website and can be viewed here.
We are excited to announce the following new Verified Staking Providers:
If you are a validator and would like to join the VPP, fill in this form.
Summit Fireside Chats
Summit Fireside Chats is a series where we interview validators, protocols, users and community members that attended the #StakingSummit. We discuss staking innovations, trends and banter about the market!
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