Digital asset company 21.co 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 although the staking rate exceeds 60%, only 6% ($3.4 billion) of staked SOL comes from liquidity staking. In contrast, Ethereum has 32% of staking from liquidity staking.
Tom Wan believes that the reason for this difference lies in the existence of an in-protocol delegation mechanism. He states that Solana provides a simple way for SOL token stakers to delegate SOL natively, while the liquidity staking platform Lido is one of the few early methods to delegate Ether (ETH) to earn staking rewards.
Tom Wan states that the market share of Solana’s liquidity staking tokens (LSTs) is more balanced than 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 stages of the Solana 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 marketing and integration attributed to the lack of liquidity staking adoption, as there weren’t many high-quality DeFi protocols supporting LSTs at the time, and the market’s focus was not on liquidity staking.
However, with the launch of the Jito liquidity staking protocol on Solana in November 2022, it took about a year to reverse stSOL and mSOL, and jitoSOL became the most significant liquidity staking token on Solana with a market share of 46%.
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 also being an option. He points out that LSTs have driven the development of the Ethereum DeFi ecosystem and can similarly help significantly grow Solana’s TVL.
Tom Wan gives an example, stating that 40% of AAVE v3’s TVL on Ethereum comes from wstETH (wrapped stETH), which can serve 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 future growth of Solana’s liquidity staking rate in the next one to two years (based on current valuations):
– Base case: 10%, increasing $1.5 billion in available liquidity in DeFi
– Bullish case: 15%, increasing $5 billion in available liquidity in DeFi
– Long-term bullish case: 30%, having a liquidity staking rate similar to Ethereum, increasing $13.5 billion in available liquidity in DeFi
Tom Wan concludes by stating that with the right factors in place, Solana’s liquidity staking can experience significant growth in the coming years.
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