An overview of one of the most promising projects in the crypto industry and the function of passive earning by storing tokens
Most crypto investors know Solana as a project that has shown phenomenal growth (over 9000% in 2021), a network with a bandwidth of 40 thousand transactions per second, allowing to interact with smart contracts with minimal commissions of less than a cent.
In addition to technical performance Solana has established itself through partnerships with industry giants such as the FTX exchange. Due to the above and other factors, the asset is in the portfolios of many investors. The price of the coin shows parabolic growth throughout the year with extremely short corrections. The latter, however, may cause concern due to the lack of reliable and clear support levels capable of stopping the price in case it starts to fall.
In terms of fundamental analysis, SOL is often blamed for the excessive concentration of coins (up to 48%) in the hands of the developers themselves and a closed circle of the first venture capitalists. Solana is also a relatively young and untested project, which can lead to network failures. The last such failure occurred in September 2021, when the transaction-overloaded network had to be restarted.
As a blockchain of the groundbreaking Proof of History algorithm (based on the Proof of Stake algorithm), Solana presents holders with the opportunity to make additional profits through coin stacking. Network commissions for sending from the exchange and, if necessary, back to the exchange will cost a few cents, as will commissions for enabling and disabling the stacking feature. Rewards for stacking coins will begin to accrue after about 4 days and will continue to accrue about every 2 days thereafter. If a user wants to stop stacking, their funds will be available again from their wallet after about 2 days.
The sooner the better
The percentage received for stacking coins is not constant and depends on several variables: the total number of coins involved in the stacking process across the entire network and the uptime of the validator server to which the user entrusted the coins. During our study of several validators in October 2021, the percentage ranged from 6.8% to 7.5% p.a.
With a small number of coins involved in stacking, the percentage can rise up to 13%, but will fall smoothly with each year anyway – so in the fifth year of the network, the annual percentage will be from 4% to 6%, and after the 8th year of the network and further will fall smoothly from 3% to 2%, which will be the final percentage of rewards already “adult” network.
Each validator also sets its own commission on user rewards, which usually ranges from 0% to 10%. Validators can use the proceeds for technical support and upgrades to their servers and equipment.
A lower commission percentage and the value of the validator are not the most important metrics
Users are tempted, when coming to the list of more than a thousand validators available, to choose quickly the biggest validator with a well-known name and the lowest commission percentage and to stack all their coins at once with one click, but there are several reasons not to do so.
By choosing a non-large validator, users increase the security of the network, and by distributing their funds across multiple validators, they can compare their activity and revenue statistics;
The biggest contribution to the decentralization, stability and security of the network is made by the users who distribute their SOL between 5-8 different validators located in the most different geographical locations;
Solana sets extremely high requirements to the equipment of the validators, which can lead to some nodes being switched off over time due to the unprofitability of the network support process. The likelihood of some nodes shutting down due to unprofitability is particularly high during bear market phases;
However, such phenomena do not pose any danger to users’ funds, so you can safely choose absolutely any validator without fear for the safety of your coins in the event of termination of the validator activity.
You can find out more about each validator by using various services that collect network statistics. Validators.app and Stakeview.app are good places to start. In addition to technical indicators such as server uptime, validator commission percentage, and approximate annual percentage, the services also provide links to validator websites.
All the validators can be divided into three categories:
- The first are industry professionals with large data centers stacking many different blockchains.
- The second are enthusiasts of Solana community and developers of projects directly on this blockchain, for whom the fact of having their own node is a kind of sign of quality and commitment to the development of a common ecosystem.
- The third are validators representing cryptocurrency exchanges and wallets.
By delegating the votes of their coins to validators of the second category, users indirectly support their projects with their choice, the success of which, in turn, can affect the popularity of the entire Solana blockchain in the future and, as a consequence, positively affect the coin’s exchange rate. Validators who promise to use part of their rewards for charitable purposes and environmental initiatives also stand apart. Verifying the reality of such claims, however, appears to be a challenge.
Where’s the best place to turn on stacking?
Coin stacking can be enabled from most popular cryptocurrency wallets (for example: Exodus, Atomic), direct from some exchanges (for example: Binance, FTX) or from specialized Solana wallets and extensions listed on the official project website. The greatest functionality and flexibility of the process awaits users when using the latter.