Original Article Title: The bullish case for Solana (Re)staking
Original Article Author: tradetheflow_, Crypto Researcher
Original Article Translation: Ashley, BlockBeats

Editor's Note: Currently, Ethereum is the main battleground for restaking. However, with Solana's rapid development in this bull market, its low cost, high throughput, and strong network effect make it a potential hotbed for restaking. The author explores the market opportunity for Solana restaking, including its ecosystem maturity, innovation potential, network scalability, and optimization of DeFi capital efficiency.

The following is the original content (slightly reorganized for better readability):

Restaking is a simple yet powerful concept: it allows staked assets to be reused across multiple decentralized services, or what Jito refers to as Node Consensus Networks (NCNs).

This approach brings several advantages. The most significant one is that it enhances the security and integrity of decentralized services, enabling them to leverage Layer 1's economic security without having to expend significant resources designing their security model (which is often more fragile). For stakers, it also increases capital efficiency, as a single asset can simultaneously secure multiple decentralized services, potentially achieving a higher capital return.

In fact, many industry experts believe that restaking is a disruptive innovation that can build a more secure, flexible, and scalable blockchain environment, accelerating industry development. This has also attracted high market attention, making restaking one of the largest tracks by TVL on Ethereum.

However, so far, restaking has been mainly focused on Ethereum, as it is considered the PoS blockchain with the highest current economic security and adoption. But with Solana's strong growth during this bull market - especially against the backdrop of relatively stagnant Ethereum mainnet activity and a significant migration of liquidity to L2 solutions (such as Base) - a new question arises: Does Solana have enough reasons to support restaking?

In this article, we will explore the potential of restaking on Solana from various perspectives and analyze the feasibility of this market opportunity. Let's dive in.

The Maturity of Solana is Sufficient to Support Staking

For staking to be viable, the underlying public chain must have strong economic security. This has been Ethereum's advantage all along: the Ethereum mainnet currently has 34.3 million ETH staked (valued at approximately $124 billion), 4,701 block-producing validators, six consensus clients, and as one of the longest-standing and most reliable blockchains for app development, it enjoys a highly esteemed industry reputation. Therefore, Ethereum has become the preferred platform for staking.

However, humans tend to extrapolate the present into the future, assuming that Ethereum will always maintain its dominant position. Yet history tells us that technological revolutions are often driven by creative destruction. For example, there was a time when Yahoo was considered the leader in the search engine space, only to be surpassed by Google later on. Similarly, IBM was once seen as the ultimate winner in the personal computing field, but eventually, Apple took over.

So, are we witnessing a similar moment in Ethereum's history? Is it still necessary to have the entire staking stack heavily rely on Ethereum? Especially as the trend of new asset issuance on the Ethereum mainnet shifts towards L1s like Solana or L2s like Base, and with the increasing uncertainty surrounding Ethereum's development direction, we need to rethink this issue.

If we believe that staking is indeed a game-changing technology, then we should consider expanding it to other L1s, not just limited to Ethereum. This will allow developers to freely choose which consensus layer to trust.

In this context, Solana is undoubtedly a strong candidate for staking. Since this bull market cycle, Solana has become the fastest-growing L1, and its economic security and ecosystem maturity have significantly improved. Currently, about 65% of SOL's circulating supply is staked, with a total value of around $73 billion (compared to just $24 billion a year ago). Additionally, Solana has nearly 1,400 block-producing validator nodes and supports two existing client validators, with future additions of new clients like Firedancer, Sig, and Agave.

More importantly, Solana is renowned for its low transaction costs, high transaction speeds, and continues to see adoption among users and developers. Solana is currently the fastest public chain in the crypto industry for app development, achieving true organic growth and successfully overcoming the cold start problem to establish a strong network effect. All of this indicates that Solana's ecosystem is mature enough, making staking on Solana a practical possibility.

The Redeployment on Solana Holds Greater Potential Than Ethereum

Ethereum has been a pioneer in smart contracts, but its high Gas fees have limited the development scope of on-chain applications. In contrast, Solana's architecture allows developers to create richer application forms at the L1 level. Therefore, we can argue that the redesign on Solana has a larger design space than Ethereum.

Firstly, Solana's low transaction costs and computing costs have lowered the entry barrier for Node Consensus Networks (NCNs). Unlike Ethereum, Ethereum's high fixed cost restricts participation, while Solana supports smaller-scale, more cost-effective, and more efficient NCN deployments, allowing it to be optimized for specific use cases. This not only enables more services to be outsourced, reducing reliance on direct on-chain applications, but also expands the interoperability of the entire ecosystem.

Secondly, NCNs on Solana can handle more complex operations, and code can be deployed more densely without affecting on-chain computing capacity—this is different from the EigenLayer design on Ethereum. This makes on-chain verifiability, on-chain reward distribution, and on-chain data publication possible, enhancing the overall flexibility and robustness of redeployment. Ethereum serves as a testbed for redeployment, but in the long run, the redeployment potential on Solana seems to be greater in real-world applications.

Furthermore, in terms of VRTs (Liquidity Redeployment Tokens), Solana also has significant advantages over Ethereum. On the one hand, Solana's low cost can significantly reduce the operating costs of liquidity VRT providers. In a business model where every basis point is crucial, this cost optimization not only increases profitability but also promotes market competition, forming a more vibrant ecosystem, enabling different VRTs to provide diversified redeployment strategies and more flexible slashing conditions.

On the other hand, liquidity redeployment on Solana is also more affordable for users because the low transaction costs reduce the entry barrier, allowing them to more conveniently use liquidity VRTs in various DeFi applications without constantly worrying about high fees. This is crucial for driving long-term capital inflows.

Redeployment Can Drive Innovation on the Solana Network

The vision of Solana has always been to become a global computing interface, enabling everyone to build applications on top of it. To achieve this goal, Solana has been focused on increasing the throughput of the underlying chain and reducing latency.

This is a strong and reasonable vision. However, physical laws cannot be defied, and we cannot exponentially increase throughput or drastically reduce latency in a short period of time. Achieving such magnitudes of improvement requires significant resources and long-term effort. Therefore, although it may not be achievable in the short term, people have gradually realized that not all computation needs to happen on L1. This point is also reflected in recent discussions about "network extensions."

From this perspective, re-staking can bring new design possibilities for the extension of the Solana network and the "network extensions" plan. Its design space is vast, and although it is currently unclear how this mechanism will be implemented, it is likely to evolve into a powerful infrastructure-level extension tool. For example, the @SonicSVM project claims to be the first Layer 2 specifically designed for sovereign games in the Solana ecosystem, built on HyperGrid, which is Solana's horizontal scalability framework. The project plans to leverage Jito (Re)staking to enhance the security and operational efficiency of its SVM, supporting multifaceted applications in the Solana ecosystem, including gaming, DeFi, and other use cases.

Furthermore, the strong security guarantees provided by the re-staking mechanism can effectively enhance the reliability of the Solana network. For example, Jito TipRouter NCN is currently being developed to decentralize MEV tip distribution and enhance its security. Another example is Nozomi, a protocol introduced by @temporal_xyz, which will leverage Jito (Re)staking to reshape Solana's transaction microstructure and address issues such as sandwich attacks, slippage, and transaction timeouts. These innovations align with Solana's long-term vision, significantly improving the user experience, making Solana not only fast and low-cost but also more secure, stable, and user-friendly.

In addition to its high performance and robust on-chain data metrics, Solana also embodies an entrepreneurial spirit. Over the past few years, we have witnessed the rise of a series of successful projects like Jito, Kamino, Jupiter, and Helium. But this is just the beginning, as the number of projects choosing to build in the Solana ecosystem continues to grow.

If Solana is becoming the preferred public chain for developers, then staking will undoubtedly have a place in it. It can extend Solana's economic security to a range of key services in its ecosystem, such as oracles, cross-chain bridges, and sequencers, even though these components usually do not directly run on L1 but are still crucial parts of the ecosystem.

Although smart contracts and their interactions benefit from Solana's security, these peripheral components often still require independent economic security guarantees. This means that they either need to raise a significant amount of capital to incentivize validators or compromise on security. This could lead to a paradox: while the smart contract layer may be secure, and computation results are correct, if an oracle provides incorrect data, the entire system is still at risk. From a security perspective, the overall security of the entire system ultimately depends on its weakest link.

Therefore, some key services in the Solana ecosystem can leverage Solana's staking to enhance their security. For example, @switchboardxyz, a permissionless oracle network on Solana, is collaborating with Jito (Re)staking to ensure the reliability of its data sources. If this pattern successfully establishes itself, it will simultaneously improve the security and stability of the Solana network.

Staking Optimization Enhances DeFi Users' Capital Efficiency

Compared to regular staking on Solana, staking optimization offers a higher annualized yield. Since one of the core goals of DeFi users is to optimize capital efficiency, staking optimization has become a highly attractive option. It allows DeFi users on Solana to unlock new yield opportunities without additional capital investment. For example, instead of purchasing liquidity staking tokens to earn SOL staking rewards and use in the DeFi ecosystem, users can choose to buy liquidity staking optimization tokens, not only gaining a higher APY but also continuing to freely operate within the DeFi ecosystem.

Looking at the rapid growth of DeFi in the Solana ecosystem, we can conclude that a mechanism that optimizes capital efficiency will help attract a significant amount of liquidity in the long run. In fact, DeFi activity on Solana is surging, with the total value locked in Solana DeFi increasing from $1 billion to $10 billion over the past year, and the growth trend remains strong. This further demonstrates the market potential of Solana staking optimization.

Summary

Re-staking on Solana is still in the early experimental stage, but it has already shown tremendous potential, with many interesting use cases gradually emerging. Assuming that Solana can, in the long run, capture a market share comparable to Ethereum's staking market, its market opportunity will be significant.

Currently, Solana's re-staking infrastructure is primarily dominated by two core protocols: Solayer and Jito (Re)staking. As a pioneer, Solayer has already built a full re-staking stack and achieved over $3.5 billion TVL. However, in the long run, Jito is more likely to become the dominant player in this narrative. With a strong technical foundation, the highest TVL in the Solana ecosystem, and a clear vision, Jito has established its leadership position in the Solana ecosystem. Furthermore, Jito's re-staking stack is highly flexible, built-in with liquidity re-staking token integration from the start, and supports multi-assets, further enhancing its future growth potential.

Related Reading: "Solana Inflation Model Amendment Proposal, Can It Further Boost SOL Price?"

Nevertheless, I would like to conclude with a quote from Freeman Dyson:

"When a great innovation appears, it will almost always be in an untidy, incomplete, and confusing form. To the discoverer, it will be half obvious, and to everyone else, it will be a mystery. If an idea is initially not seen as crazy, there is no hope for it."

This quote perfectly describes the current state of Solana re-staking: early-stage, full of potential, and nurturing brand-new DeFi opportunities.

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