The key factors for the success of Solana’s liquidity staking token (LST) are liquidity, DeFi integration/partnerships, and expansion of cross-chain support. This article is based on an article by Tom Wan and has been compiled, translated, and written by Foresight News.
Table of Contents:
Despite a collateralization rate of over 60%, only 6% (3.4 billion USD) of the collateralized SOL comes from liquidity staking.
The market share of Solana’s LST (liquidity staking token) is more balanced than Ethereum’s.
History of liquidity staking on Solana
Leaders of LST
Success of Jito
Liquidity staking is the untapped potential of Solana DeFi, which could increase its TVL to 1.5 billion to 1.7 billion USD.
Many excellent DeFi teams are working together to bring more collateralized SOL into DeFi.
Liquidity staking on Ethereum sparked a collateralization trend in the ecosystem, and even the progress of re-staking protocols is currently booming. However, an interesting phenomenon is that this trend seems to have not extended to other chains.
Apart from Ethereum’s significant market value advantage, what other underlying factors are at play? When we turn our attention to Solana and compare liquidity staking protocols on Ethereum, what is the current development trend of LST on Solana? This article will reveal the whole picture for you.
On the contrary, 32% of the collateralization on Ethereum comes from liquidity staking. In my opinion, one of the reasons for this difference is the existence of “in-protocol delegation.”
Solana provides a simple way for SOL stakers to delegate their SOL, while Lido is one of the early channels for delegating ETH to earn staking rewards.
On Ethereum, 68% of the market share comes from Lido. In comparison, liquidity staking tokens on Solana are in an oligopoly state.
The top 3 liquidity staking tokens on Solana occupy 80% of the market share.
The early market was divided among Lido’s stSOL (33%), Marinade’s mSOL (60%), and Sanctum’s scnSOL (7%), and the total market capitalization of Solana’s LST is less than 1 billion USD.
This lack of adoption can be attributed to marketing and integration. At the time, there weren’t many high-quality DeFi protocols for LST, and the focus of the narrative was not on liquidity staking.
During the FTX crash, the liquidity staking ratio decreased from 3.2% to 2%.
Jito launched “jitoSOL” in November 2022, and it took about a year to surpass stSOL and mSOL, becoming the dominant LST on Solana with a 46% market share.
Second place: mSOL (23.5%)
Third place: bSOL (11.2%)
Fourth place: INF (8.2%)
Fifth place: jupSOL (3.6%)
In summary, the most important factors for the success of liquidity staking tokens are liquidity, DeFi integration/partnerships, and the expansion of cross-chain support.
Liquidity staking tokens have driven the growth of the Ethereum DeFi ecosystem. For example, 40% of AAVE v3’s TVL comes from wstETH. It can serve as collateral for generating income and unlock more potential in DeFi, such as Pendle, Eigenlayer, Ethena, etc.
Here are my expectations for the liquidity staking ratio on Solana in 1-2 years (based on current valuations):
Base case: 10%, providing an additional 1.5 billion USD liquidity in DeFi;
Bull case: 15%, providing an additional 5 billion USD liquidity in DeFi;
Long-term bull market case: 30%, similar liquidity staking ratio to Ethereum. Adding an additional 13.5 billion USD liquidity to DeFi.
Drift Protocol, Jupiter, Marginifi, BONK, Helius labs, Sanctumso, and SolanaCompass have all launched liquidity staking tokens.
As a DeFi user, competition and innovation in the market are always better. This is why I am optimistic about the future of Solana DeFi.
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