Debate as Solana briefly flips Ethereum in staking market cap

The Solana network briefly surpassed Ethereum in total staked value of their respective native tokens, SOL and ETH, sparking debate over whether it is actually bullish or bearish for Solana. 

More than $53.9 billion worth of SOL is now staked on the Solana network from 505,938 unique wallet holders, who are making an 8.31% annualized return, blockchain data shows.

The figure briefly overtook the staked ETH market cap on April 20, which now has $53.93 billion worth of value secured from 34.7 million staked tokens, Beaconcha.in data shows.

A contributing factor behind the flippening has been SOL’s strong price performance relative to ETH over the last two years, which has seen the SOL/ETH price ratio rise nearly tenfold from 0.0088 to 0.0866 since June 12, 2023, CoinGecko data shows.

However, the “risk-free” 8.31% return for SOL stakers at the network level — significantly higher than ETH’s 2.98% — may be attracting Solana users away from DeFi activities, such as providing liquidity to automated market makers and lending protocols in exchange for token rewards.

“Solana having 65% of its marketcap staked means there's no other use of it's token, it’s actually bearish,” Builda Protocol developer and X user “JC” said.

DefiLlama data shows that there are $21.5 billion worth of liquid staked ETH tokens on Ethereum compared to just $7.22 billion of liquid staked SOL on Solana.

Multicoin Capital managing partner Tushar Jain previously said that Solana DeFi has been stifled because it’s not rational to make an investment in something that produces a lower return than the “risk-free” investment.

Ethereum also dominates in terms of DeFi total value locked at $50.4 million compared to Solana’s $8.85 billion.

Industry pundits also pointed out that there are still far more validators securing the Ethereum network at 1.06 million compared to Solana’s 1,243.

One Ethereum researcher said Solana staking isn’t really securing the Solana network because there isn’t a mechanism to penalize bad actors for malicious behavior.

“It's very ironic to call it ‘staking’ when there is no slashing. What's at stake?” Dankrad Feist said in an April 20 X post. 

Solana Labs said slashing is already possible, but it’s not automatic, and the attacker’s assets can only be slashed by restarting the entire network.

Related: Ethereum price in ‘cursed’ downtrend which could continue well into 2025 — Analyst

Solana is looking to roll out a more comprehensive slashing solution later this year, according to Multicoin Capital Managing Partner Kyle Samani.

Solana Labs CEO Anatoly Yakovenko said he’s pushing for a “correlated slashing” mechanism, where the penalty would be equal to the square of the difference between a validator’s faulty stake in an epoch and the median network staked validator.

Meanwhile, Ethereum developers and researchers have been exploring ways to decentralize Ethereum staking. 

Many Ethereum stakers have resorted to liquid staking protocols over the last few years due to the high 32 ETH ($50,750) minimum needed to run an independent validator. 

However, this shift has led to the Lido protocol capturing an 88% share in Ethereum’s liquid staking market, adding another layer to Ethereum’s staking centralization concerns.

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