A Guide to Staking SOL Tokens and Earning Rewards

By  Noah Washington September 15, 2023

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  • With the growing shift towards proof-of-stake consensus algorithms, staking has emerged as a popular way for holders to earn rewards on their SOL tokens
  • Centralized exchanges offer user-friendly interfaces and robust customer support, ensuring a seamless staking experience for newcomers
  • It's important to choose a reputable Solana wallet like Phantom or Solflare, create a stake account, pick a trusted validator and delegate SOL for rewards
  • Platforms like Stakewiz offer data-driven insights on validators, examining metrics like node distribution, security, and performance history.

Over the past few years, Solana has rapidly gained momentum to become one of the most widely used and talked about blockchains in the crypto sector. Powered by its blazing-fast speeds and low transaction costs, Solana has attracted scores of developers, projects, and investors who believe it represents the future of Web3.

With the growing shift towards proof-of-stake consensus algorithms, staking has emerged as a popular way for holders to earn rewards on their SOL tokens. This also helps to secure the Solana network.

Getting Started

For those new to staking Solana, centralized exchanges like Binance and Gemini offer a simple point-and-click experience. However, staking via a decentralized exchange (DEX) allows investors to support decentralization while retaining control of your private keys.

SOL staking metrics. Source: Staking Rewards

This guide provides a comprehensive overview of the pros and cons of staking Solana on centralized exchanges versus a decentralized one. Factors like ease of use, security, rewards potential and more are assessed for the optimal staking solution for different users based on priorities and technical abilities. Whether you're a seasoned crypto veteran or dipping your toes into Solana for the first time, this guide will elucidate the nuanced tradeoffs between the two staking options.

Staking Solana on a Centralized Exchange

Staking Solana through a centralized exchange provides several key benefits, one of which is a more simplified staking process. Centralized exchanges are well-known for their user-friendly interfaces, ideal for newcomers to the world of staking. Through one-click staking options, these platforms eliminate the need for complex staking procedures and knowledge, making participation accessible to a broader range of people.

Many centralized exchanges also offer reliable customer support. Users can expect immediate assistance for any staking-related queries or issues that may arise. This support is invaluable for troubleshooting staking problems and can provide users with a sense of security and trust in the staking process.

Speaking of security, centralized exchanges offer enhanced protection measures against hacking. By leveraging state-of-the-art cybersecurity solutions, these exchanges take considerable measures to secure user funds.

While centralized exchanges offer convenience for staking Solana, relying solely on CEXs has considerable risks. With CEXs in full custody of crypto, staked SOL is vulnerable in the event of a security breach or hack. Stakers must place complete trust in the platform's capabilities to safeguard assets. While CEX staking provides simplicity, it lacks the autonomy and resilience of a decentralized approach. Understanding these risks allows stakers to assess if the convenience merits the profoundly centralized.

Staking Solana on a Decentralized Exchange (DEX)

Staking SOL on a decentralized exchange also comes with a host of benefits, starting with the fact that users retain full custody of their SOL tokens. This means users keep their private keys, ensuring complete control over their assets without relying on third-party custodians. This element of independence is one of the fundamental principles of decentralization and provides an added layer of security.

When it comes to potential returns, DEXs can also offer higher staking rewards due to direct staking. The absence of intermediaries means no fees are taken off the top of staking rewards, increasing potential returns for the staker.

A DEX platform also contributes to enhancing the decentralized nature of blockchain technology. By staking on a DEX, users help avoid central points of failure, thereby supporting the robustness and resilience of the blockchain.

While decentralized exchanges offer clear benefits for staking, users should be aware of the potential risks. The complexity involved in using a DEX directly can also pose challenges for crypto traders who lack experience in staking wallets and decentralized protocols. Without the simplified interfaces of centralized exchanges, inexperienced users face greater chances of making errors that could lead to loss of funds. While a DEX aligns with the decentralized ethos of Solana, they do require caution and technical proficiency to use safely for staking.

Elements to Consider When Choosing a Staking Method

With so many validators to choose from, delegating your SOL to stake can seem daunting. Services like Stakewiz offer data-driven guidance to inform your decision.

Stakewiz analyzes key metrics for each validator on factors like:

  • Node Distribution - Avoid over-centralization by selecting validators with geographically dispersed nodes.
  • Datacenter Distribution - Validators with nodes across multiple data centers reduce region-specific risks.
  • Service Provider Distribution - Multi-cloud infrastructure reduces dependence on single providers like AWS.
  • Withdrawal Authority - Validators that empower token holders with slash-protected withdrawal minimize centralized control.
  • Reputation - Positive community feedback and tenure suggest a reliable validator.
  • Performance History - Consistent block production and uptime demonstrate technical proficiency.
  • Security - Validators with robust security practices help safeguard the network.

Stakewiz aggregates these metrics into an overall score for each validator. Delegators should be thoroughly researched before staking.

Staking Solana via a Wallet

  • Select a Wallet. Choose a Solana wallet that supports staking features. Popular options include Phantom, Solflare and Sollet.io. Make sure to download the latest version of the wallet.
  • Create a Stake Account. Once a user has SOL in a wallet, go to the "Staking" section and click to add a new stake account. This dedicated account will hold tokens for staking.
  • Pick a Validator. Research potential validators on sites like Solanabeach and the Solana forums. Look for proven validators with high uptime and community reviews.
  • Delegate a Stake. Finally, delegate a stake to a chosen validator in the wallet's staking section. This assigns SOL tokens to the validator to earn staking rewards.
  • Monitor Staking. Monitor staking activity and rewards over time directly within a Solana wallet. Some wallets let you re-delegate your stake as needed.

In the End

Solana's token price over the past year. Source: CoinGecko

When deciding where to stake, it's important to research all of the top options thoroughly. Whether using an exchange or DEX, choose one that inspires confidence. Make informed decisions to maximize earnings and contribute to the thriving Solana community. Staking is a great way to invest in the burgeoning crypto ecosystem for investors.