5 minutes Read

How to Stake Solana Coin for Passive Income

Bitcoin’s Proof of Work (PoW) system had the direct disadvantage of massive energy use. To fix this, researchers developed a new consensus mechanism called Proof of Stake (PoS). 

With the mass adoption of the PoS system on various cryptocurrency networks came the opportunity for people to earn rewards by participating in the network’s consensus through staking. By staking Solana (SOL), you’re helping make the network more secure and also earning rewards in return. 

This article will walk you through everything you need to know about how to Stake Solana and earn rewards. 

What is Staking in Crypto?

Staking is a way for cryptocurrency holders to earn returns by locking their tokens for a period of time in a staking smart contract. By participating in staking, you essentially become a validator in a Proof of Stake(PoS) consensus mechanism and earn rewards for it depending on the amount staked, duration of staking and the blockchain network used.

While the staked cryptocurrency is locked up, it cannot be used by the delegator(the staker)

The new staking validators are randomly picked to validate new transactions on the chosen network.

The Concept of Staking – How Does Staking Solana Work

How does Solana staking work

The staking setup in Solana is slightly different from Ethereum’s. On the Solana network, staking SOL lets you choose validators you trust. This contributes to the PoS mechanism on SOL and helps maintain security by delegating more transactions to validators with the most votes (honest validators). You then receive rewards based on the amount of SOL you have staked.

There are two main methods of staking SOL:

  1. Independently: This method involves putting together your own hardware and software staking set-up. Staking independently offers full control of your own software and tokens. However, it requires coding skills and familiarity with the Solana  CLI and hardware setup. It may also be expensive to set up.
  2. Through a third party: Third-party options like staking pools let you participate in staking SOL with minimal cost and little to no technical expertise. The third party takes care of the validator node setup and opens a staking wallet for you.

Each method has its own merits and demerits. Generally, to stake independently, you’ll need a wallet, technical knowledge, and a really good hardware setup. Staking through a third party will require just an online account, but you’ll have to perform a KYC process, which makes this method a lot less anonymous.

 Things to Note Before Staking Solana – Staking Requirements

Before starting your Solana staking journey, it is important to know and have the following set up:

  1. A supported wallet: Choose a popular and secure wallet that supports staking SOL. Some examples are Phantom, Solflare, and Sollet.
  2.  Validators: Your staked SOL will be delegated to a validator, so it’s important to research the right one. Pick reliable validators with a history of consistent performance. Tools like Solana Beach and Solana Compass help with that.
  3. Epoch Periods: This is the amount of time during which staking rewards are calculated and distributed. It is usually two to three days on Solana. 
  4. Validator downtime: This refers to when a validator is inactive, offline or just performing below standard. 
  5. Minimum Staking Amount: Unlike many other blockchain networks, there is no minimum amount of SOL to stake. Just keep a little extra SOL for transaction fees.

How to stake Solana for passive income – Step-by-step process

Staking Solana for Passive Income

As discussed earlier, there are two major methods of staking SOL: Independently and via a third party. For the purpose of simplicity, we’d use a third party via the Phantom wallet to stake SOL using the following steps:

1. Install the Phantom Wallet extension: Navigate to the Phantom Wallet extension website and install the wallet by clicking “Add to Chrome”. Then click ‘’Add extension”.

2. Create a new wallet: Once the extension has been installed, click “create a new wallet”  and save the generated seed phrase in a secure location. It is usually advised to write it down on paper and keep it in a safe place, as anyone with your phrase can access your funds.

Create a strong password and click “Continue”. You can now open the wallet extension anytime by clicking the extensions button at the top right side ofyour chrome browser. 

3. Fund your wallet: You can fund your newly created wallet with the amount of SOL you want to stake plus transaction fees. To do so, send SOL to the phantom wallet address displayed on the wallet extension’s home page.

4. Staking SOL: Now, to stake SOL, first click on the Solana tab on your phantom wallet’s homepage. Then, click on ”Start earning SOL”. After that, choose a validator from the recommended list of validators to delegate your tokens to. It is usually safer to go for validators with a high amount of delegated SOL.

This shows that they are trusted. Also, take note of validator commissions. Type the amount of SOL you want to stake and click “stake”. Once the transaction has been verified on the Solana network, you are ready to go. 

You have successfully staked SOL.

Strategies for Maximizing Staking Rewards on Solana

To maximise earnings from staking Solana. Pay attention to the following strategies:

  • Diversification: Delegate your SOL to multiple validators to reduce the risk of downtime or slashing of rewards from a specific validator.
  • Re-Stake Rewards: It is also a good idea to compound your profits by re-staking your rewards to get higher profits. Some platforms let you set your wallet to do this automatically.
  • Avoid delegators with the highest percentage yields: You should consistently avoid delegators with very high APYs. High APYs attract a lot of SOL delegation, which eventually leads to decreased performance from the validator and, thus, reduced stake yields.
  • Liquid Staking: Consider staking in protocols that assign tokens to represent your staked SOL. These assigned tokens can usually be used for DeFi operations to earn additional rewards.

Benefits of  Staking on Solana Network

Here are some of the benefits of staking SOL on the Solana network:

  • Passive Income: Staking SOL is a great way to earn income passively while spending little time and effort.
  • Network participation:  By staking SOL, you are helping secure the Solana network via its PoS mechanism and aiding the network grow. This will, in turn, lead to better APYs as SOL price increases.
  • Low Transaction Fees and Fast Transactions: Staking on the Solana network is cost-effective and much faster than staking on many other blockchains, like Ethereum.

Risks of Staking on Solana Network

Staking SOL also comes with the following risks:

  • Slashing: This is the penalty for a validator acting maliciously. If the validator you delegated your tokens to misbehaves, your stake yields may be slashed.
  • Volatility: Solana, like every other crypto, is volatile. So, during bearish periods, the value of your staked SOL will drop even with stake rewards.
  • Validator downtime: Your staking rewards will be reduced each time the validator you chose experiences a downtime or a drop in performance.

Frequently Asked Questions (FAQs) About Staking Solana for Passive Income

How much can I earn staking Solana?

Staking rewards may fluctuate, but the average Annual Percentage Yield (APY) for staked SOL is around 6%. 

This means that for every 100SOL you stake, you get around 6SOL in profit per year. 

How much SOL do I need to start staking?

There is no minimum amount required to stake SOL. However, you should know that the more SOL you stake, the more your stake rewards.

Can I lose staked SOL?

Staked SOL is generally safe. However, you may lose all or part of your staked SOL if your validator is involved in malicious transactions or if your personal wallet is compromised.

Can I unstake my SOL anytime?

This usually depends on the platform. Some platforms, like Phantom, let you unstake your SOL at any time. However, there will be a “cool down” period during which you can’t use the unstaked SOL yet. On other platforms, there is a lock-up period. 

Be sure to do your research and find out how your prospective platform works.

How often do I get rewards on my staked SOL?

On the Solana network, rewards are distributed fairly frequently. Usually between two to three days.

Conclusion

Staking SOL offers a cool way to earn income passively on your SOL holdings. Whether you choose to stake independently or via a third party, it is sure to be a rewarding experience.

However, staking SOL also comes with risks associated with validator penalties and market volatility. But, by doing your own research on prospective validators and sticking to some of the return-maximising strategies like diversification and re-staking, you’ll minimise risk and keep making profits.

Copy Link

From the blog

The latest industry news, interviews, technologies, and resources.

April 30, 2024
Profitable USDT Trading Strategies: Making The Most of Your Tether Holdings

Do you know you can use USDT to earn massive returns? While USDT is a well-known stablecoin, many investors miss...

Read More
March 13, 2024
Eight Steps to Start Your Profitable Bitcoin Cash Investment Journey

Crypto assets are now breaking resistance to reach new highs. This long-awaited bull run means many investors are considering forgotten...

Read More
December 21, 2023
7 Potential Risks and Challenges When Investing in Ethereum 

If you are considering investing in ETH, you are not alone! As the second largest cryptocurrency, Ethereum sparks lots of...

Read More
November 2, 2023
The 8 Most Prominent Use-cases of Litecoin in Real-World Applications

Litecoin is commonly considered the "silver" to Bitcoin's "gold". It's like the sidekick to Bitcoin's superhero status. It was created...

Read More