Solana Staking Reduces Supply as Whales Increase Holdings

Solana (SOL) staking has reached peak levels as whales move to accumulate more SOL, significantly impacting the market supply. The surge in liquid staking has led to a considerable lockup of Solana tokens, making them increasingly scarce.

Solana staking reaches record levels

Despite the inherent inflation, Solana (SOL) is becoming more scarce as staking activities increase. As a valuable utility token, long-term holders need to sell it more urgently. This has resulted in staking levels nearing record highs, with more than 68% of the SOL supply currently staked. New whale wallets have recently withdrawn SOL and added it to the staking pool. Both native and liquid staking contribute to the supply control, even as more than $5 million worth of SOL is unlocked daily.

The increase in staking coincides with Solana’s plan to reduce inflation to below 5%. This strategy has effectively decreased the available supply over the past months. Native staking has always been an option for SOL, with validators competing for the best returns. Since May, staking has also been accessible through Robinhood for eligible EU-based holders.

Growth of liquid staking on Solana

Liquid staking on Solana has seen significant growth, holding more than $4.31 billion in locked value. This makes it the dominant sector among Solana’s DeFi protocols, which collectively hold $5.15 billion in value, including DEX and lending protocols. The rapid growth of liquid staking began in late June, and it is building an ecosystem similar to Ethereum. Users receive liquid staking tokens in addition to rewards for their staked SOL, making them eligible for future rewards or airdrops.

Despite these airdrops’ unknown final value, the liquid staking boom is driving up SOL market prices by removing coins from circulation and introducing new sources of risk exposure. The competition in liquid staking is intensifying, with JitoSOL, the protocol’s top validator, leading the way. JitoSOL recently surpassed $2 billion in holdings for the first time.

While still catching up with Ethereum’s top liquid staking projects, Solana-based liquid staking currently represents about 6.71% of the supply. This relatively small share suggests significant growth potential as validators face increased competition.

Validator competition intensifies

The rise of JitoSOL coincided with outflows from the INF validator. Meanwhile, validators like Galaxy and Helius have climbed the ranks after adding liquid staking in recent months. JupSOL, the validator for the Jupiter DEX aggregator, has shown dramatic growth. JupSOL now ranks as the third-largest liquid staking provider, holding more than 9% of the staked tokens.

JitoSOL, the leading validator, controls over 45% of SOL in its liquid staking protocol. As of July 15, JitoSOL recorded a historic inflow with over 16,000 depositors. The validator also benefits from tipping, which ensures transactions are included in a block and protected from MEV bots. Over 160,000 wallets have issued tips, addressing the high transaction failure rates even among the best protocols.

While highly popular, liquid staking carries higher risks than native staking due to intelligent contract exposure. The current bullish sentiment for SOL fuels both liquid staking and the broader DeFi market on Solana. Solana’s staking dynamics significantly affect its market supply, driven by increased whale activity and the growth of liquid staking protocols.

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