Staking on Solana: Traditional vs Liquid Explained

Solana uses a Proof of Stake (PoS) system to validate transactions and secure the blockchain. Instead of relying on energy-intensive mining (like Bitcoin), Solana selects validators based on the amount of SOL they have staked—either their own or delegated by users.

By staking SOL, you help:

• Confirm and secure transactions

• Maintain network performance

• Earn rewards for supporting the system

🧠 Think of staking like voting with your tokens—your SOL backs honest validators, and you earn a share of the network’s rewards in return.

Traditional staking is the simplest way to participate in Solana’s ecosystem.

How It Works

You delegate your SOL to a validator of your choice using a wallet like Phantom or Solflare. The validator adds your stake to theirs and uses it to help validate transactions. In return, you earn staking rewards.

🔒 Lock-Up Periods

Your SOL remains in your wallet but is locked—you can’t transfer or use it until you choose to unstake, which takes 2–3 days.

Example: If you stake 100 SOL today, you can’t send or use them in DeFi until they’re unstaked and unlocked.

🎯 Benefits and Limitations

Pros:

• Low risk, no technical knowledge needed

• Consistent, passive rewards (~6–8% APR)

Cons:

• Lack of liquidity—funds can’t be used in DeFi

• Requires manual unstaking to access tokens

🛠️ Great for long-term holders who want simple passive income.

Liquid staking removes the lock-up limitation of traditional staking while still earning rewards.

💡 How It Works

When you stake SOL through a liquid staking protocol, you receive a Liquid Staking Token (LST) in return. This token (e.g. mSOL or bSOL) represents your staked SOL.

You can use this LST in:

• DeFi protocols (like lending, farming, DEXs)

• Wallets and apps that support liquid staking assets

And while you use it, you still earn staking rewards in the background.

Both traditional and liquid staking methods have their pros and cons:

Traditional Staking

• Advantages: Simplicity and a reliable rewards system.

• Drawbacks: Lack of liquidity and utility in DeFi platforms.

Liquid Staking

• Advantages: Retained liquidity, higher yield potentials, and utility in DeFi.

• Drawbacks: Complexity, smart contract risks, and market volatility.

💡 Use traditional staking for simplicity. Choose liquid staking if you want to use your staked SOL in DeFi.

Liquid staking does more than boost flexibility—it can improve decentralization.

• Staked SOL is often distributed across many validators

• This helps prevent centralization of power

• It promotes a more resilient and democratic network structure

Protocols like Marinade even encourage delegations to smaller validators, helping strengthen the entire ecosystem.

🧠 Liquid staking supports both individual users and network health.

• Token: mSOL

• Features: Open-source, wide DeFi support

• Benefit: Automatically delegates to hundreds of validators

🔗 Marinade Finance

• Token: JitoSOL

• Unique Value: Combines staking rewards with MEV rewards (Maximal Extractable Value)

• Benefit: Higher potential returns

🔗 Jito Labs

• Token: bSOL

• Features: Non-custodial, user-chosen validator set

• Benefit: Easy-to-use dashboard and good DeFi integration

🔗 BlazeStake

🛠 Smart Contract Vulnerabilities

Since liquid staking depends on smart contracts, bugs or exploits could lead to fund losses. Use audited and reputable platforms only.

📉 Volatility and De-pegging

LSTs aim to track the value of SOL, but during high volatility, their price may depeg from 1:1. This affects trading and portfolio value.

💰 Tax Implications

In some regions, receiving LSTs may count as taxable income. Always check with a tax professional before staking large amounts.

🧠 Liquid staking = more flexibility, more responsibility.