Digital asset company 21.co’s analyst Tom Wan believes that liquidity staking is an untapped potential in the decentralized finance (DeFi) space of Layer 1 blockchain Solana, which could increase its total value locked (TVL) from $1.5 billion to $17 billion.
Tom Wan points out on the X platform that, despite a staking rate of over 60%, only 6% ($3.4 billion) of staked SOL comes from liquidity staking. In contrast, Ethereum has 32% of staking coming from liquidity staking.
Tom Wan believes that the reason for this difference lies in the presence of an in-protocol delegation mechanism. He states that Solana provides a native delegation method for stakers of SOL tokens, while the liquidity staking platform Lido is one of the few early methods to delegate Ethereum (ETH) and earn staking rewards.
Overview of Solana’s liquidity staking market
Tom Wan states that the market share of Solana’s liquidity staking tokens (LSTs) is more balanced compared to Ethereum. On Ethereum, 68% of the market share comes from Lido, while LSTs on Solana are more concentrated, with the top three LSTs accounting for 80% of the market share.
Tom Wan mentions that in the early days of Solana’s liquidity staking market, it was dominated by Lido’s stSOL (33%), Marinade’s mSOL (60%), and Sanctum’s scnSOL (7%), with the total market value of LSTs on Solana being less than $1 billion. He believes that the lack of adoption of liquidity staking was attributed to marketing and integration, as there were not many high-quality DeFi protocols supporting LSTs at that time, and the market focus was not on liquidity staking.
However, with the launch of liquidity staking token jitoSOL by Solana’s ecosystem liquidity staking protocol Jito in November 2022, they managed to flip stSOL and mSOL in about a year and become the dominant liquidity staking token on Solana with a 46% market share.
How to expand Solana’s liquidity staking market?
Tom Wan believes that the most important factors for the success of Solana’s liquidity staking tokens include liquidity, DeFi integration, and partnerships, with chain expansion being an option as well. He points out that LSTs have driven the development of Ethereum’s DeFi ecosystem and can similarly help Solana’s TVL grow significantly.
Tom Wan gives the example that 40% of AAVE v3 TVL on Ethereum comes from wstETH (wrapped stETH), which can be used as collateral to generate yield and unlock more potential for DeFi projects like Pendle, Eigenlayer, Ethena, and others.
He also makes several predictions for the growth of Solana’s liquidity staking rate in the next one to two years (based on current valuation):
Base case: 10%, increasing $1.5 billion of available liquidity in DeFi
Bullish case: 15%, increasing $5 billion of available liquidity in DeFi
Long-term bullish case: 30%, having a liquidity staking rate similar to Ethereum, resulting in a $13.5 billion increase in available liquidity in DeFi
Tom Wan concludes by stating that Solana’s liquidity staking has significant growth potential and can contribute to the expansion of the DeFi ecosystem on the platform.
