The bullish case for Solana (Re)staking
Original author: tradetheflow_, crypto researcher
Original translation: Ashley, BlockBeats
Editors note: Ethereum is currently the main battlefield for re-staking, but with the rapid development of Solana in this bull market, its low cost, high throughput and strong network effect make it a potential hot track for re-staking. The author explores the market opportunities of Solana re-staking, including its ecological maturity, innovation potential, network expansion capabilities and optimization of DeFi capital efficiency.
The following is the original content (for easier reading and understanding, the original content has been reorganized):
Restaking is a simple yet powerful concept: it allows staked assets to be reused across multiple decentralized services, or as Jito calls them, Node Consensus Networks (NCNs).
This approach brings several advantages. Most notably, it enhances the security and integrity of decentralized services, allowing them to leverage the economic security of L1 without having to expend significant resources designing their own (and often more fragile) security models. For stakers, it also improves capital efficiency, as a single asset can provide security for multiple decentralized services simultaneously, thereby potentially earning a higher return on capital.
In fact, many top people in the industry believe that re-staking is a disruptive innovation that can build a more secure, flexible, and scalable blockchain environment and accelerate industry development. This has also attracted great attention from the market, making re-staking one of the largest tracks in TVL on Ethereum.
However, to date, re-staking has been mainly concentrated on Ethereum, as it is considered the most economically secure and widely adopted PoS blockchain. But with Solanas strong growth since the current bull run - especially in the context of the relative stagnation of Ethereum mainnet activity and the migration of a large amount of liquidity to L2 (such as Base) - a new question emerges: Does Solana have enough reasons to support re-staking?
In this post, we will explore the potential for re-staking on Solana from multiple angles and analyze the viability of this market opportunity. Let’s dive in.
Solana is mature enough to support re-staking
For re-staking, the underlying public chain must have strong economic security. This is exactly what Ethereum has always been good at: currently, the Ethereum mainnet has 34.3 million ETH staked (worth about $124 billion), 4,701 block validators, six consensus clients, and as one of the oldest and most reliable public chains for application development, it has a very high industry reputation. Therefore, Ethereum has become the preferred platform for re-staking.
However, humans tend to extrapolate the status quo into the future, assuming that Ethereum will always remain dominant. But history tells us that changes in the technology field are often driven by creative destruction. For example, once upon a time, Yahoo was considered the dominant search engine, but was later surpassed by Google. Similarly, IBM was once considered the ultimate winner in the personal computer field, but Apple eventually replaced it.
So, are we witnessing a similar moment in Ethereum’s history? Is it still necessary for the entire re-staking stack to be completely dependent on Ethereum? Especially with the trend of new asset issuance on the Ethereum mainnet shifting to L1 such as Solana or L2 such as Base, and the increasing uncertainty about the direction of Ethereum’s development, we need to rethink this question.
If we believe that restaking is indeed a game-changing technology, then we should consider extending it to other L1s, not just Ethereum. This will allow developers to freely choose which consensus layer to trust.
In this context, Solana is undoubtedly a strong candidate for re-staking. Since this round of bull market, Solana has become the fastest growing L1, and its economic security and ecological maturity have been significantly improved. As of now, about 65% of the circulating supply of SOL is staked, with a total value of about US$73 billion (only US$24 billion a year ago). In addition, Solana has nearly 1,400 block validator nodes and supports two existing client validators, and will add new clients such as Firedancer, Sig and Agave in the future.
More importantly, Solana is known for its extremely low transaction costs and extremely fast transaction speeds, and its adoption rate among users and developers continues to rise. Solana is currently the fastest public chain in the crypto industry for application development. It has not only achieved true organic growth, but also successfully overcome the cold start problem and established a strong network effect. All this shows that Solanas ecosystem is mature enough and staking on Solana is practical.
Restaking on Solana has greater potential than Ethereum
Ethereum is a pioneer in smart contracts, but its high gas fees limit the scope of on-chain application development. Solanas architecture allows developers to create richer application forms at the L1 level. Therefore, we can assume that Solana has a larger design space for re-staking than Ethereum.
First, Solanas low transaction and computational costs lower the barrier to entry for Node Consensus Networks (NCNs). Unlike Ethereum, where high fixed costs limit participation, Solana supports smaller, more cost-effective, and more efficient deployments of NCNs, enabling them to be optimized for specific use cases. This not only allows more services to be outsourced, thereby reducing reliance on direct on-chain applications, but also expands interoperability across the ecosystem.
Second, NCNs on Solana can handle more complex operations, and code can be deployed at a higher density without affecting on-chain computing power - unlike the EigenLayer design on Ethereum. This enables on-chain verifiability, on-chain reward distribution, on-chain data publishing, and enhances the overall flexibility and robustness of re-staking. Ethereum serves as a testing ground for re-staking, but in the long run, Solanas re-staking seems to have greater potential in real-world application scenarios.
In addition, Solana also has significant advantages over Ethereum in terms of liquidity re-staking tokens (VRTs). On the one hand, Solanas low cost can significantly reduce the operating costs of liquidity re-staking token providers. In a business model where every basis point is critical, this cost optimization not only improves profitability, but also promotes market competition and forms a more dynamic ecosystem, allowing different VRTs to provide diversified re-staking strategies and more flexible slashing conditions.
On the other hand, liquidity re-staking on Solana is also more affordable for users, as low transaction costs lower the barrier to participation, allowing them to more easily use liquidity re-staking tokens in various DeFi applications without having to worry about high fees. This is critical to driving long-term capital inflows.
Restaking Can Drive Innovation on the Solana Network
Solana’s vision has always been to become a global computing interface that everyone can build applications on. To achieve this goal, Solana has always focused on improving the throughput and reducing latency of the base chain.
This is a powerful and reasonable vision. However, the laws of physics cannot be defied, and we cannot increase throughput by 10 times or reduce latency by 10 times in a short period of time. To achieve orders of magnitude improvement requires a lot of resources and long-term efforts. Therefore, although it cannot be achieved in the short term, people have gradually realized that not all computations must occur at L1. This is also reflected in the recent discussion about network extensions.
From this perspective, re-staking can bring new design possibilities for the expansion of the Solana network and the network expansion plan. Its design space is extremely broad, and although it is not clear how the mechanism will be implemented, it is likely to evolve into a powerful infrastructure-level expansion tool. For example, the @SonicSVM project calls itself the first Layer 2 in the Solana ecosystem designed for sovereign games. It is built on HyperGrid, the horizontal expansion framework of the Solana virtual machine. The project plans to use Jito (Re)staking to enhance the security and operational efficiency of its SVM and support multi-functional applications in the Solana ecosystem, covering games, DeFi and other use cases.
In addition, the strong security provided by the re-staking mechanism can also effectively improve the reliability of the Solana network. For example, the Jito TipRouter NCN is under development to decentralize MEV tip distribution and enhance its security. Another example is Nozomi, a protocol launched by @temporal_xyz, which will use Jito (Re)staking to reshape Solanas transaction microstructure and solve problems such as sandwich attacks, slippage, and transaction timeouts. These innovations are in line with Solanas long-term vision and can significantly optimize the user experience, making Solana not only fast and low-cost, but also more secure, stable, and easy to use.
In addition to high performance and powerful on-chain data indicators, Solana also carries the spirit of entrepreneurship. In the past few years, we have witnessed the rise of a series of successful projects such as Jito, Kamino, Jupiter, and Helium. But this is just the beginning, and the number of projects that choose to build in the Solana ecosystem continues to grow.
If Solana is becoming the preferred public chain for developers, then restaking will undoubtedly have a place in it. It can extend Solana’s economic security to a range of key services in the ecosystem, such as oracles, cross-chain bridges, and sequencers. Although these components do not usually run directly on L1, they are still key parts of the ecosystem.
While smart contracts and their interactions themselves benefit from Solana’s security, these peripheral components often still require independent economic security guarantees. This means that they either need to raise a lot of capital to incentivize validators or compromise on security. This can lead to a paradox: the smart contract level may be secure and the calculation results are correct, but if the oracle provides wrong data, the entire system is still at risk. From a security perspective, the security of the entire system ultimately depends on the weakest link.
Therefore, some key services in the Solana ecosystem can use Solanas re-staking to enhance their security. For example, @switchboardxyz, a permissionless oracle network on Solana, is working with Jito (Re)staking to ensure the reliability of its data source. If this model is successfully implemented, it will improve both the security and stability of the Solana network.
Re-staking improves capital efficiency for DeFi users
Restaking offers a higher annualized rate of return than regular staking on Solana. Since one of the core goals of DeFi users is to optimize capital efficiency, restaking becomes an attractive option. It allows DeFi users to unlock new income opportunities on Solana without additional capital investment. For example, instead of purchasing liquidity staking tokens to obtain SOL staking income and use it in the DeFi ecosystem, users can choose to purchase liquidity restaking tokens, which not only earns higher APY, but also allows them to continue to operate freely in the DeFi ecosystem.
Judging from the rapid growth of DeFi in the Solana ecosystem, we can assume that a mechanism that optimizes capital efficiency will help attract a lot of liquidity in the long run. In fact, DeFi activity on Solana is surging. In the past year, the total locked value of Solana DeFi has grown from $1 billion to $10 billion, and the growth momentum remains strong, which further proves the market potential of Solana re-staking.
Summarize
Restaking on Solana is still in its early experimental stages, but it already shows great potential, and many interesting use cases are emerging. If we assume that Solana can capture a market share comparable to Ethereum’s restaking market in the long term, the market opportunity is significant.
Currently, the Solana restaking infrastructure is dominated by two core protocols: Solayer and Jito (Re)staking. As a pioneer, Solayer has built a complete restaking stack and achieved over $350 million in TVL. However, in the long run, Jito is more likely to become the leader of this narrative. With a strong technical foundation, the highest TVL in the Solana ecosystem, and a clear vision, Jito has established its leadership in the Solana ecosystem. In addition, Jitos restaking stack is designed to be extremely flexible, and has built-in liquidity restaking token integration from the beginning, while supporting multiple assets, which further enhances its future growth potential.
Anyway, I want to end with a quote from Freeman Dyson:
“When great innovations appear, they are almost always in a confused, incomplete, confusing form. Even its discoverer is only half-understood, and to everyone else it is a mystery. If an idea does not seem crazy enough at first, it has no hope.”
This sentence perfectly describes the current state of Solana re-staking: early, full of potential, and pregnant with new DeFi opportunities.
