Debate Arises as Solana Overtakes Ethereum in Staking Market Cap

Recently, Solana surpassed Ethereum in staking market cap with over $53.9 billion staked tokens. The high 8.31% return for SOL stakers attracts users away from DeFi, raising concerns about market utility. Critics highlight the lack of economic security in Solana’s staking model, while Ethereum continues to explore decentralisation of staking, risking further centralisation through liquid staking protocols.

The Solana network has recently surpassed Ethereum in total staked value, igniting discussions on the implications for both platforms. Current data indicates that over $53.9 billion worth of SOL tokens are staked by approximately 505,938 unique holders, generating an annualised return of around 8.31%. On April 20, this amount briefly overtook Ethereum’s staked value, which stands at $53.93 billion from 34.7 million staked ETH tokens, according to Beaconcha.in.

This temporary market shift can be attributed in part to Solana’s substantial price appreciation compared to Ethereum over the past two years, resulting in the SOL/ETH price ratio increasing nearly tenfold from 0.0088 to 0.0866, as per CoinGecko data.

Despite the high return for SOL staking compared to ETH’s 2.98%, it has raised concerns about the impact on Solana’s DeFi ecosystem. Observers note that the attractive SOL staking return may deter users from participating in DeFi activities that offer comparatively lower returns. A developer named “JC” from Builda Protocol commented that with 65% of Solana’s market capital staked, the token lacks wider utility, which could be viewed as bearish.

Data from DefiLlama reveals that while there are $21.5 billion in liquid staked ETH tokens on Ethereum, only $7.22 billion of SOL tokens are liquid staked on Solana. According to Tushar Jain of Multicoin Capital, the more profitable SOL staking deters investment in lower-yield liquidity providing on Solana.

Ethereum’s dominance extends into DeFi total value locked (TVL) as well, with $50.4 million locked compared to Solana’s $8.85 billion. Additionally, Ethereum boasts a substantial validator network of 1.06 million validators, whereas Solana has only 1,243 validators securing its network.

Critics have raised questions regarding the essence of Solana staking. Ethereum researcher Dankrad Feist stated that Solana’s current staking model lacks real economic security, as there is no mechanism to penalise malicious behaviour. He remarked on the irony of calling it ‘staking’ without a slashing process in place.

Solana Labs has acknowledged that slashing is theoretically possible, but it is not an automatic process. According to reports, any slashing penalties would require a full network restart. Plans for a more effective slashing mechanism are reportedly underway for release later this year, as stated by Kyle Samani from Multicoin Capital.

The ongoing development within Ethereum focuses on decentralising its staking process, especially as many stakers engage with liquid staking protocols due to the substantial 32 ETH ($50,750) minimum requirement for setting up an independent validator. This trend has seen the Lido protocol dominate, capturing an 88% share of Ethereum’s liquid staking market, raising concerns over centralisation within the staking framework.