Research Report | Solana vs. Ethereum: Validators & Staking

Abstract

The economic incentive of staking is pivotal for proof of stake (PoS) blockchains, as it enables more high-quality validators to be set up, which in turn can work efficiently, achieve consensus, and enhance the networks’ overall security.

In this context, we explore the validator and staking ecosystems on both Solana and Ethereum, highlight their similarities, and shed light on their differences — in particular regarding superminority, geographic distribution of validators, validator client diversity, and liquid staking tokens (LSTs). 

Topline

• Solana: NC: 23 / FIBP Nodes: ~2,900 / Staked Supply: 71% / Stake TVL: ~$22.4B

• Ethereum: NC: 2 / FIBP Nodes: ~7,000 / Staked Supply: 23% / Stake TVL: ~$57.4B

Key Takeaways

• Europe seems to be an equally important validator region as the United States for Ethereum, as is the case for Solana — however, to a lesser extent.

• We can see a clear trend taking shape on both Solana and Ethereum: high-performance validator clients (Firedancer vs. Silkworm). 

• The design space of LSTs on Solana seems to be growing and developing rapidly, in particular with the introduction of Jito’s StakeNet and Jupiter’s SUSD.

It’s Sunny Again On Solana DeFi

During the FTX fallout, liquid staking tokens (LSTs) on Solana faced their biggest stress test. A race to exit LST positions depleted liquidity, which caused a market depeg event — DeFi protocols faced a reckoning. LST depegs recovered by the next epoch. However, LST borrow-lend — the most fundamental use case — came to a screeching halt.

Fast-forward a year and the state of LSTs on Solana is in a vastly different place — risk engines are more sophisticated, volumes are growing, and use cases are multiplying. 

Marinade introduced Native Staking, Jito announced StakeNet, and BlazeStake has been able to grow into the 3rd largest LST provider with the help of its Custom Liquid Staking protocol and BLZE airdrops.

Moreover, Jupiter integrated Sanctum into its routing engine to provide instant liquidity for all LSTs, regardless of trade size. But, Jupiter's LST expansion didn't stop there. At Breakpoint, the liquidity juggernaut released the whitepaper for its yield-bearing stablecoin (SUSD) backed by LSTs. It’s the latest vote of confidence for LSTs, which continue to serve as the backbone of Solana liquidity.

While teams on Solana have relentlessly built a more resilient and compelling DeFi ecosystem, Lido sunset its operations to focus on Ethereum — a true testament to the focus and commitment of Solana-native LST protocols. 

Solana LSTs have now surpassed 15M SOL TVL, its highest level ever. Yet, we still have so much opportunity ahead. 

Enjoy reading this research report — we'll jump back in, building DeFi 2.0. 

1. Staking

Blockchains such as Solana and Ethereum use a “consensus mechanism” called Proof of Stake (PoS) which is run by validators and ensures that all transactions are verified and secured.

As such, Solana and Ethereum allow individuals or entities — known as “stakers” — to lock up a certain amount of SOL or ETH directly with validators as collateral to support its consensus mechanism.

This process is referred to as “staking”.

In return for their participation, stakers can earn passive yield on their staked SOL or ETH, in addition to staking rewards. Staking rewards are typically distributed in the form of additional tokens. The number of rewards stakers earn may depend on factors such as the staking duration and the amount of SOL/ETH staked.

This economic incentive is pivotal, as it enables more high-quality validators to be set up, which in turn can work efficiently, achieve consensus, and enhance the network’s overall security.

1.1. Solana Staking

As of November 27, 2023 there were 1979 active validators in the Solana network (Solana Beach, 2023).

In the context of the superminority, Solana’s Nakamoto Coefficient (NC) has shown significant fluctuations over time, reaching a peak of 34 in epoch 488, and settling at 23 as of November 27, 2023.

Fluctuations regarding the Nakamoto Coefficient might arise as stakers and liquid staking providers adjust their allocations based on validator performance and rewards — which is why it can be assumed that the continued success of Jito and the subsequent influx of stake has been a major reason for the decrease in Solana’s Nakamoto Coefficient.

Contrastingly, the total stake on Solana has remained remarkably stable, fluctuating within a relatively narrow range of 380 to 407 million SOL throughout April 30 to November 27, 2023 (epochs 444–535).

As of November 27, 2023 the total stake stood at 407 million SOL, which represents approximately 75% of the total SOL supply. Moreover, the superminority stake is currently 137 million SOL, which naturally represents approximately 24% of the total SOL supply.

Furthermore, the majority of the named, i.e. branded validator operators in the superminority are based in the United States (4), closely followed by Europe (3). Canada (Figment), Cayman Islands (P2P.org), and South Africa (Laine) are also represented in the superminority. Generally, most validator operators in the superminority are software and hardware specialists, as well as centralised exchanges — making Jump Crypto (Capital Markets) and Solflare (Wallet) the exceptions (Solana Beach, 2023).

1.2. Ethereum Staking

In stark contrast to Solana, the Nakamoto Coefficient of Ethereum currently stands at 2 — signifying a lower degree of decentralisation. 

Mainly, this can be attributed to the market dominance of Lido, which holds 33.1% of the Ethereum stake supply as of November 27, 2023.

Having said that, Lido’s market share might somewhat distort the overall picture — something we will discuss in the next chapter.

1.3. Staking: Solana vs. Ethereum

Despite its Nakamoto Coefficient, Ethereum boasts a larger number of active validators, up to date and fully independent, i.e. block-producing (FIBP) nodes, and stake TVL than Solana. 

Granted, the Nakamoto Coefficient measures the liveliness of a network, meaning it matters for real-time censorship. However, in the context of decentralisation, the total number of up to date FIBP nodes is pivotal as well. 

As of November 27, 2023 Ethereum ran ~7,000 and Solana ~2,900 up to date FIBP nodes (Etherscan, 2023; Solana Compass, 2023).

Although home validation is highly encouraged within the Ethereum community, 47% of Ethereum nodes are hosted (ethernodes, 2023). On Solana, most nodes are hosted as well, however, the hosting is far more distributed among a multitude of cloud providers: Latitude (~16%), AWS (~14%), Teraswitch (~13%), OVH SAS (~9%), and WEBNX (~6%) (ethernodes, 2023; Solana Compass, 2023).

Going further, a head-to-head comparison of active validators might technically not be suitable. In this context, comparing active Solana stake accounts (727,135) to active Ethereum validators (880,687) might offer a more balanced view (Solana Compass, 2023).

Generally, Ethereum’s validator variance can be attributed to several key factors: 

• Legacy: Ethereum was launched in 2015, Solana in 2020. Consequently, Ethereum has had more time to attract developers and establish a robust validator community.

• Hardware: Ethereum accommodates more affordable and accessible hardware, making it easier for a broad range of participants to spin up validators. On the other hand, Solana's validator hardware is often pricier and less accessible, which poses a barrier to entry.

• Profitability: As such, Solana's hardware and operational expenses can be a substantial burden for validators, especially given the relatively low transaction fees on the network. In contrast, Ethereum's transaction fees provide validators with more substantial revenues, making it a more attractive option for many. 

2. Geography

Similarly to the superminority, the geographic distribution of validators is equally critical. 

The more dispersed validators are, the less susceptible they are to local disruptions such as political events or natural disasters. Moreover, geographic distribution improves a network's overall performance by reducing latency and improving responsiveness.

In essence, geographic diversity of validators fosters a more robust, resilient, and globally accessible blockchain ecosystem.

2.1. Geographic Validator Distribution On Solana

Generally speaking, Solana's validators are well distributed globally. 

As of November 27, 2023 48.81% of Solana validators were based in the United States, 9% in France, 7.46% in the Netherlands, 7.36% in Russia, and 6.07% in Poland.

Having said that, it's worth noting that most of the staked SOL as of November 27, 2023 was placed with validators based in the United States, 31.28% to be precise. 

Moreover, the United Kingdom, Ireland, Lithuania, Germany, and the Netherlands collectively held 39.60% of the staked SOL, while Japan held 8.84%. In contrast, the rest of the world only held 15.34% of the staked SOL supply.

2.2. Geographic Validator Distribution On Ethereum

Ethereum, much like Solana, exhibits a notable degree of geographic decentralisation among its validators.

While this diversity enhances the network's resilience and global reach, there is a notable concentration of validators in specific regions. 

As of November 27, 2023 approximately 35.30% of Ethereum validators were based in the United States, with Germany, the United Kingdom, France, Canada, Australia, the Netherlands, and Singapore hosting considerable numbers of validators as well. 

For good measure, it’s important to bear in mind that validator stake can only be flexible on Solana, as validators on Ethereum have a fixed requirement of 32 ETH. 

2.3. Geographic Validator Distribution: Solana vs. Ethereum

Although the geographic validator distribution of Solana and Ethereum might seem similar, there are notable nuances which are worth highlighting. 

While most validators on both networks are predominantly located in the United States, it seems as if Ethereum relies less heavily on the Northern American region than Solana.

Europe seems to be an equally important validator region for Ethereum, as is the case for Solana — however, to a lesser extent. While Germany plays a pivotal role in Ethereum’s validator ecosystem, the country's role in the Solana validator ecosystem is rather minor. 

Moreover, while the Solana validator ecosystems in both the UK and Japan are relatively small, the countries significantly account for 18% of the network’s total stake. Having said that, Europe by and large remains the dominant stake region for Solana, outpacing the United States.

3. Validator Client Diversity

Proof of stake (PoS) blockchains such as Solana and Ethereum encourage external developers to create their own validator clients, i.e. software. 

Mainly, there are three advantages to this: 

• Every client maintains an individualised codebase, lessening the network's susceptibility to bugs and attacks. 

• This mitigates transaction finality risks by preventing a singular client from manipulating blockchain transactions. 

• Developers can enjoy the flexibility of crafting applications using their preferred programming languages — without constraints.

Thus, it is pivotal that multiple entities or teams develop and deploy validator clients independently, and by doing so, remove single points of failures to bolster decentralisation. 

3.1. Client Activity On Solana

At present, Solana primarily relies on two active validator clients:

• Solana Labs

• Jito 

Initially, the entire Solana network relied on the original validator client, developed by Solana Labs — written in the Rust programming language. 

While this existing client is effective, it was created in a fast-paced startup setting, leaving room for optimisation.

This gave rise to Jito, a fork from the Solana Labs client, which specialises in MEV-optimised validators that set out to significantly reduce the spamming challenges the Solana network faces. 

While both these validator clients have played a significant role in the network's success, the Solana ecosystem recognises the importance of client diversity and is making further strides to address this.

The development of new validator clients such as Firedancer, Sig, and Tinydancer represent a significant step forward in this context. 

While Sig — a Solana validator client written in Zig that focuses on optimising RPC processes in order to boost validator performance — and Tinydancer — an open-source light client — will certainly propel Solana forward, Firedancer seems to be the most anticipated release.

Firedancer is a new, high-performance validator client written in the C++ programming language that barely shares any code with the original Solana Labs client. Bugs in either client will thus not affect the Solana network as a whole, making network outages unlikely, and improving uptime and reliability. 

Moreover, Firedancer aims to significantly increase Solana’s transaction processing capabilities. Currently, Firedancer is live on Solana testnet and has shown in a live demo that it can process over 1 million transactions per second — far exceeding the transaction velocity from leading financial incumbents such as Visa (Solana, 2023b).

3.2. Client Activity On Ethereum

Compared to Solana, Ethereum presents a more diverse validator client landscape. 

Generally, Ethereum has two primary client types, execution and consensus, that collaborate to ensure the network’s functionality and security. 

At present, Ethereum runs 5 large consensus clients — Prysm, Lighthouse, Teku, Nimbus, and Lodestar — and 4 large execution clients — Geth, Nethermind, Besu, and Erigon.

3.3. Client Activity: Solana vs. Ethereum

It's worth noting that both Solana and Ethereum face challenges in achieving optimal client diversity. 

Even though Ethereum has a more diverse client landscape, the network still predominantly relies on a single set of validator clients — Prysm and Geth. 

As such, a single client setup is used by the majority of network participants on both Solana and Ethereum.

Having said that, it seems as if the Ethereum ecosystem is working on a wider variety of additional (consensus and execution) validator clients than the Solana ecosystem. 

Generally, the main focus on Ethereum seems to be on execution clients. In this context, Silkworm will be the first Ethereum validator client written in C++, similar to Firedancer on Solana. Silkworm aims to be the fastest Ethereum validator client, while simultaneously maintaining the quality and readability of its source code. 

As such, we can see a clear trend taking shape on both Solana and Ethereum: high-performance validator clients.

4. Liquid Staking Tokens (LSTs)

Liquid staking is a concept that combines the benefits of staking with liquidity.

As mentioned above, traditional staking requires stakers to lock up their assets directly with a validator — implying that their staked tokens are not readily available for trading, spending, or transferring. 

Liquid staking aims to address this liquidity issue by allowing staked assets to be used in various ways while still participating in the staking process. 

When participating in liquid staking, holders stake their assets to a smart contract or stake pool — instead of directly to a validator. In return for staking their tokens, participants receive a different type of token that represents their staked assets. 

This new token — referred to as Liquid Staking Token (LST) or Liquid Staking Derivative (LSD) — can be traded, used in DeFi applications, or transferred, all while still earning staking rewards. 

All this provides flexibility and liquidity for token holders.

Moreover, the stake pools of LST providers often distribute assets among various validators outside of the superminority, thus promoting a more resilient and secure network.

4.1. Liquid Staking Tokens (LSTs) On Solana

The native LST ecosystem on Solana has been hyper-competitive from the outset.

Ultimately, this has led to Lido sunsetting its operations, which brought about a significant shift in the LST landscape on Solana. 

As of November 27, 2023 Jito held the majority of stake TVL (42.91%), closely followed by Marinade (38.75%). We can expect Lido’s stake TVL (8.88%) to depreciate over time, while the stake TVL of JPool seems to be remnants from FTX/Alameda — making BlazStake the third-largest stake TVL holder (3.94%) at the time of writing.

• Jito

Before we dive into Jito, it’s important to cover maximal extractable value (MEV).

MEV refers to the maximum amount of value a validator can make by including, excluding, or changing the order of transactions during the block production process. As such, MEV encompasses both the rewards a validator can earn through transaction fees and any additional profit they can gain through their control over the transaction order.

So, how does Jito fit in?

Jito operates validators which minimise the negative effects of MEV — e.g. spam trades and failed transactions — while maximising its benefits — e.g. network efficiency and additional profits.

When staking into Jito’s stake pools, users receive yield-bearing JitoSOL and rewards in the form of points (soon to be converted to Jito’s governance token “JTO”). The additional profits from Jito’s MEV validators are redistributed to Jito itself, JitoSOL, and the point programme — creating a positive flywheel.

• Marinade

Launched in August 2021, Marinade was Solana’s first liquid staking solution.

Generally, Marinade offers two staking strategies: liquid staking and, more recently, native staking. 

Liquid Staking

On Marinade, users allocate their SOL to a stake pool and receive mSOL. While their staked SOL earns staking yield (which is distributed directly into the price of mSOL), rewards (MNDE tokens), and MEV (Jito-enabled validators) — users can deploy their mSOL as collateral in various DeFi protocols such as Solend or Drift. Moreover, users can also direct stake using MNDE or mSOL, and a growing number of validators are offering boosted staking rewards to their direct staking voters. 

Native Staking

Launched this summer, Marinade Native is an alternative to liquid staking that allows users to benefit from an automated delegation strategy without using the liquid staking smart contract. 

• BlazeStake

At its core, the BlazeStake stake pool works the same as the ones from Marinade and Jito mentioned above.

Having said that, there are some differentiations:

• BlazeStake has the largest validator set of any Solana stake pool (200+ validators).

• BlazeStake leverages the official stake pool smart contracts from Solana Labs, which is heavily audited.

• BlazeStake pioneered the Custom Liquid Staking protocol, which allows you to liquid stake to specific validators or groups of validators.

• Moreover, BlazeStake’s gauges can be utilised to direct stake or protocol emissions.

When staking with BlazeStake, users do not receive mSOL or JitoSOL, but yield-bearing bSOL and the corresponding rewards such as BLZE airdrops and MEV (Jito-enabled validators).

4.2. Liquid Staking Tokens (LSTs) On Ethereum

In contrast to Solana, Ethereum's LST landscape presents a more varied array of providers. 

In this context, Lido maintains a dominant position with a market share of 78% of TVL, a position it has consistently held since The Merge.

Other significant LST players include Rocket Pool with 9% market share, Binance (6%), and Frax (2%).

4.3. Liquid Staking Tokens (LSTs): Solana vs Ethereum

When examining the LST ecosystem on Ethereum, it becomes apparent that large entities such as Lido, Binance, and Coinbase dominate the market.

On Solana, however, home-grown LST solutions such as Jito, Marinade, and BlazeStake were able to launch innovative solutions, creating a competitive ecosystem from the outset which made it difficult for large entities such as Lido, Binance, and Coinbase to find their footing. 

Having said that, Solana's stake TVL stands at ~$22.4B, while Ethereum's stake TVL stands at ~$57.4B. Or: Solana’s stake TVL is only 39% of Ethereum’s stake TVL — although 71% of the SOL supply is staked, versus 23% on Ethereum.

As such, LST providers on Solana currently cannot compete with Ethereum’s blue chips such as Lido or Rocket Pool with respect to TVL.Even when combining the TVL of Jito, Marinade, and BlazeStake, the consortium would only rank 4th after Binance when competing directly with Ethereum’s LST powerhouses. Consequently, the direct competitors for Jito, Marinade, and BlazeStake are Ethereum LST providers such as Coinbase, StakeWise, and Swell to mention but a few. 

Nevertheless, both the growth rate and APY of Solana-based LST providers are seemingly more dynamic and lucrative — which might further spurt the growth of Jito, Marinade, and BlazeStake.

Furthermore, the design space of LSTs on Solana seems to be developing rapidly. 

Two notable developments are Jito's StakeNet and Jupiter's SUSD. 

StakeNet is an autonomous and self-sustaining network of keepers and on-chain programmes which leverage historical validator data to score and subsequently stake delegation amounts to individual validators. The goal of the system is to overcome stake pools' reliance on centralised keypairs and servers — thus avoiding single points of failure, as well as potential censorship, hacks, and shutdowns (Jito, 2023b). 

Moreover, Jupiter argues that stablecoins such as USDC and USDT come with multiple levels of custodian and regulatory risks, which should be avoided. This has motivated the Jupiter team to introduce SUSD — a fully decentralised stablecoin backed by SOL liquid staking tokens (LSTs) — as an alternative to USDC and USDT. Apart from a larger degree of decentralisation, SUSD also introduces interest-free loans: The SOL used as collateral to mint SUSD earns yield, which in turn covers the cost of the mint — resulting in a perpetually interest-free loan with SOL exposure (Jupiter, 2023).

Closing Remarks

Our research has shown that neither the Solana nor the Ethereum validator and staking ecosystems are superior. 

What can be said, however, is that both blockchains are working towards the same goal of developing into highly decentralised, globally distributed, networks. 

In the context of liquid staking, Jito recently overtook Marinade regarding stake TVL — further underpinning the hyper-competitiveness of staking on Solana. 

Moreover, liquid staking providers on Solana are in the midst of pushing the envelope of what is possible in DeFi — with StakeNet and SUSD at the very forefront of this new frontier. 

Acknowledgements

I am deeply grateful to everyone who contributed to the realisation of this research report. 

First and foremost, I would like to express my heartfelt gratitude to Superteam — Kash and Neil in particular — without whom this report would not have been possible.

Moreover, I extend my sincere appreciation to Marqu for his invaluable data wizardry. 

Lastly, I would also like to acknowledge the support from Brandon Tucker (Marinade) and BlazeStake. 

This report would not have been possible without the collective efforts and support of each and every one of you — thank you for your generosity. 

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