Welcome to Episode 6, coming to you from the smoky hills of Vang Vieng, Laos.
Staking earns its name from proof-of-stake, the ‘consensus mechanism’ that powers Solana’s blockchain and which we discovered in Episode Four.
If you haven’t already, make sure to read / watch ep. 4 before continuing here.
Pool - a collection of tokens held in one place.
SOL - Solana’s native token, validator / token rewards are paid in this token.
Stake - the crypto-assets that you lock up during staking.
Staking - the process of locking up crypto-assets, such as SOL, to support the running of a blockchain or app, typically receiving rewards in return.
These will make more sense as you read on.
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Any token holder can stake their SOL—essentially delegating their SOL to a validator, who votes and creates blocks on their behalf.
In return, validators share their rewards with delegators, allowing them to earn their share in the networks economic activity.
As users delegate more SOL to a validator, its voting power increases and therefore its rewards too.
Furthermore, larger stake leads to a greater likelihood of leading block production, whereupon a validator earns transaction fees too!
In short, validators benefit though more SOL rewards.
By staking, users earn yield (like interest) on their SOL tokens—typically between 6%-30% APY.
This may seem trivial for an asset that can move 20% overnight, but volatility should fall as it matures.
Also, if you’re investing in SOL, extra yield can only be good!
As total stake increases, Solana’s blockchain strengthens, as it becomes harder for a malicious actor to apprehend the network.
Also, staking reduces the amount of freely traded SOL, which can help ease selling pressure.
The predecessor to “liquid staking”, native staking is slightly easier to understand.