EigenLayer On Solana, Solana Network Congestion Resolved & More

Welcome back!

This is J264G and this week I’ve got these titbits for you:

• EigenLayer On Solana: What could restaking on Solana look like?

• Improving Payment: How Sphere helps solve key payment frictions.

• Congestion Patch: The essence of Solana’s network improvements.

The SEC has set its sights on the epitome of DeFi: Uniswap.

As I mentioned a while back, the EU seems to increasingly target crypto on-ramps and off-ramps, while the SEC seemingly wants to take all things on-chain to task. 

This is where we need to draw a line.

It won't be pretty, and we won't get out of this unscathed. 

And yes, we’ll have to make concessions. 

However, we need to uphold and defend what we’re all here for: self sovereignty. 

I applaud Hayden’s chutzpah and look forward to congratulating him and the Uniswap ecosystem after they emerge victorious from this kerfuffle.

Click on any underlined heading/hyperlink to learn more.

Spotlight

Restaking On Solana

EigenLayer mainnet launched last week.

Since the beginning of 2024, the combined TVL of restaking protocols such as EigenLayer has jumped from $1B to $13B — the hype is real. 

But what is restaking, and what would it look like on Solana?

Let's explore!

Before we start, though, let's get the basics out of the way first.

The Basics

• 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 SOL or ETH directly with validators as collateral to support the 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. 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.

• Liquid Staking

Going further, liquid staking is a concept that combines the benefits of staking with liquidity.

As mentioned above, traditional staking requires stakers to lock up their SOL or ETH directly with a validator. This means 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 SOL or ETH to a smart contract or staking pool — instead of directly to a validator.

In return for staking their tokens, participants receive a different type of token that represents their staked SOL/ETH. This new token — referred to as Liquid Staking Token (LST) or Liquid Staking Derivative (LSD) — can be traded, used in DeFi applications, or transferred while still earning staking rewards.

All this provides flexibility and liquidity for token holders.

Restaking

With restaking, we're taking things even one step further.

Restaking allows previously staked assets — native or liquid — to be staked again; albeit on a different platform.

The benefits are pretty straightforward: validators and individual stakers receive additional yield and rewards, while services gain trust and credibility. 

Confused?

I got you covered — here’s how the “trust and credibility” part could work on Solana.

Institutional and retail users mostly interact with dApps such as Jupiter, Tensor, and Kamino through an easy-to-use interface.

As such, technical complexities are abstracted away, allowing for frictionless and delightful experiences.

What we don’t see, however, are the vast array of third-party services these dApps leverage to deliver these experiences. 

Third-party services — such as oracles — solve highly specialised tasks that are critical for dApps to run smoothly. And as the Solana ecosystem grows, the larger the need for these specialised solutions will get.

But here's the crux: These third-party services are expensive to establish and operate. Additionally, dApp teams often don't know if they can trust third-party providers — especially when they are new.

This leads to a chicken-and-egg problem: Vitalik wants to create a new, often requested third-party service for dApps on Solana. However, as his solution would be fairly unknown in the ecosystem i.e. not sufficiently trusted, he's unsure if he could attract enough business to run a sustainable operation. Consequently, he decides to give up the idea — ultimately limiting the number of third-party services and hamstringing the expansion of the Solana ecosystem. 

This is where restaking could come into play.

Restaking would allow Solana validators and stakers to delegate native or liquid staked SOL to vetted third-party solutions on a restaking platform. The more (re)stake a third-party solution attracts, the higher the trust signal, the more likely teams will integrate it into their protocol worry-free — allowing the third-party service to flourish (refer to the illustration bellow for potential restaking applications on Solana).

On Solana, both Cambrian and Solayer are exploring restaking. 

Also, Sanctum might be in the pole position to craft the liquid restaking layer on Solana.

Apart from that, Jito is well-suited to build anything around restaking via StakeNet. 

Having said that, restaking might or might not become a thing on Solana — mainly due to the network's integrated philosophy and the potential risks.

Alternatively, non-SOL restaking i.e. bonds or dual staking might take off, who knows.

At the very least, though, the restaking discussion is picking up steam on Solana and I, for one, am excited about what the next couple of months will bring!

Thank you, Yash Agarwal, for your research contributions!

Chart Of The Week

News Bites

Improving Payment: Sphere has been accepted into the U.S. Faster Payments Council (FPC). Why is this significant? Well, the FPC was formed to address the complexities and challenges of today's payment systems. And as a voting member, Sphere is now in the position to advocate for all things blockchain and stablecoins to help solve key frictions in cross-border payments and beyond.

Solana Commerce: Circle just announced Web3 Services, a library that enables any developer to integrate Solana-based USDC acceptance into existing or new apps.

Old Faithful: Solana’s ledger archive history is growing rapidly — making new storage requirements necessary. If you'd like to learn more on how Filecoin and Solana are tackling this issue, check out Brian Long's talk here.

Congestion Patch: A new patch for the Solana network has been rolled out to address some of the widely discussed congestion issues. Most of the focus has been on this change: Treat super low staked as unstaked in streamer QOS — more on this below.

Networking Concepts: As mentioned above, changes regarding QoS, quality of service, are and will improve the user experience on Solana noticeably — at least temporarily. But what exactly is QoS? Here's an ELI5 explainer.

Caught In 4K

Weekly Take

Keks & Giggles

And that's a wrap!

If you'd like to reach me, respond to this newsletter or reach out to me on 𝕏.

Talk soon!

J264G

_{DISCLAIMER
None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research. Lastly, please be advised that we discuss products and services from our partners from which our team members may hold tokens/equity.}