PoW and PoS blockchains

There are two main types of blockchain consensus: proof of work and proof of stake. In proof of work, the more computational power you have, the more voting power you possess. In proof of stake, the more tokens you hold, the more voting power you have.

Solana is a proof of stake network, where validators vote on which transactions to include in blocks. As a user, you can participate by staking your SOL tokens and delegating them to your chosen validator, increasing their voting power. In return, you earn staking rewards, which include inflation and MEV rewards.

On Solana, staking is straightforward. Simply open your preferred wallet extension, select a validator, and transfer the amount you wish to stake. A stake account will be created, and your tokens will be delegated to the chosen validator. Importantly, you retain full ownership of your stake account at all times.

Native staking from a staker POV

Each stake account can only be delegated to a single validator, but a validator can have many stake accounts delegated to them. By staking, you help secure the network and reduce SOL inflation (non-stakers are essentially funding stakers). Staking rewards are compounded into your stake account at the start of each epoch, with the validator typically taking a commission from those rewards.

Getting staking rewards at the start of every epoch

However, there are some limitations. When you stake, your tokens are locked for the entire epoch, which lasts around 2 days. Additionally, your stake must be activated before earning rewards, meaning there is a warm-up period. Another limitation is that staked SOL can't be used as collateral in DeFi, reducing capital efficiency.

These restrictions, along with the desire for more liquidity in staking, led to the implementation of the first Solana stake pool in 2021, to which Sanctum (formerly Socean) contributed.