- Solana’s annual inflation rate is 5%, reducing to 1.5% over 15 years, affecting unstaked $SOL holders’ purchasing power.
- Staking $SOL offers 8-12% annual returns, offsetting inflation and providing net positive gains for holders.
- Liquid staking allows $SOL holders to earn rewards while maintaining liquidity for trading and decentralized finance (DeFi) activities.
Many Solana ($SOL) users are often unaware of the effects inflation has on their investments. In the Solana network, validators receive rewards for protecting the network through a proof of stake (POS) system. However, the rewards contribute to boosting the total amount of $SOL available, which results in inflation.
At present, inflation is at 5% per year, projected to decrease to 1.5% in the next 15 years. Therefore, not staking $SOL will decrease its purchasing power over time, just like fiat currency loses value. However, users have the ability to reduce this loss by staking.
Utilizing Solana Staking to Address Inflation
Holders have the option to delegate their tokens to a validator and earn rewards by staking $SOL. Staking usually yields approximately 8% annually, while certain validators can provide up to 12%. This cancels out the 5% inflation rate enabling stakers to gain net positive returns.
The two ways to stake are native staking and liquid staking. Native staking requires locking $SOL for a minimum of 48 hours, whereas liquid staking offers flexibility for stakers to have liquidity.
Advantages of Staking in a Liquid Form
The flexibility of liquid staking is causing it to become more popular. Liquid staking allows users to earn rewards while still having the flexibility to trade and utilize their assets in DeFi protocols without having to lock them up.
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Tokens such as $mSOL and $jitoSOL symbolize assets that have been staked and are capable of producing extra yield on different DeFi platforms. Liquid staking allows users to offset inflation while optimizing their earnings.
Prospects of Staking in Solana’s Future
As inflation effects are increasingly acknowledged by users, staking options are predicted to become more prevalent. Big platforms like Binance and ByBit have already started incorporating liquid staking features, which is broadening its usage.
Staking gives Solana users a viable option to address inflation. Through staking, individuals can safeguard their assets, uphold liquidity, and enhance returns by utilizing more DeFi possibilities.
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