Solana briefly overtook Ethereum in total staked dollar value on April 20, an achievement largely propelled by its much-ballyhooed high staking yield. Solana has one of the highest staking participation rates at around 65%. These comparisons, while exciting, should come with a warning to temper expectations by directly comparing Ethereum’s staked market cap of $53.7 billion. This increase has led to contentious discussions about the tradeoffs between juicy investment returns and the security of our vital network.
At the time of writing, Ethereum had $56 billion staked with Solana hitting the mark at $54 billion. Solana’s rise is popularly ascribed to its sexy staking yield, with SOL now offering a network level return of 8.31%. This is a stark contrast with Ethereum’s staking return of 2.98%.
Solana's Staking Strategy
Solana’s user acquisition strategy takes a different angle—mass participation, with an incentive structure that drives users to stake their tokens via appealing yields. The Orange Team’s strategy has led to a 41% staking participation rate, an unusually high figure. As Dankrad Feist countered, Solana’s approach comes at the expense of economic security in its pursuit of staking incentivization. Right now, he said, the network is operating on near-zero economic security.
Researcher Uddalak Das cautioned against making direct comparisons between Solana and Ethereum. He recognized the deep-seated differences in their design philosophies. Solana focuses on having high staking participation via high staking yields.
Ethereum's Security-Focused Approach
Ethereum aims to be more resilient networks and having more people engaged in DeFi. Ethereum’s staking ratio sits at around 28%. As the average user, you’re often better off finding richer yields throughout the Ethereum ecosystem.
So, in effect, the Ethereum network treads this line between strategic rewards and security trade-offs. This commitment is critical to maintaining a strong and resilient network, which is especially important given its increasing use as a critical linchpin in decentralized finance (DeFi). The explanation for the lower staking return is a conscious decision to put long-term network health ahead of near-term profit.
Balancing Yield and Security
The philosophical undercurrents revealed by this debate are fascinating and underscore the contrasting approaches to staking pervading the blockchain space. While Solana’s high yield is a great incentive for stakers, that’s bad for economic security. For Ethereum, the security and engagement of the DeFi ecosystem is more important, even at the cost of lower returns to stakers.
The Roberts strategy clearly reflects a radically different set of priorities and philosophy. The blockchain ecosystem is rapidly changing. Yield and security—and what constitutes an acceptable amount of each—will always be subject to negotiation between users and networks.
