Solana has cultivated a robust staking culture over the years, with more than two-thirds of its circulating supply delegated to validators, yielding approximately 6% annually from inflation and fees. However, the emergence of Solana Exchange-Traded Funds (ETFs) is introducing a new dynamic, challenging the traditional on-chain participation model. These ETFs fall into two main categories: those that stake their holdings and those that explicitly do not.
Non-Staking vs. Stake-Enabled Solana ETFs
The global market currently features both types of Solana ETFs. Hong Kong's ChinaAMC Solana ETF, for instance, launched with a clear mandate not to stake its SOL holdings. This non-staking approach means investors incur a pure fee drag, such as ChinaAMC’s 1.99% charge, effectively turning a potential 6% staking yield into a negative tracking difference compared to the spot price. This implies that holding a non-staking ETF could result in an underperformance relative to Solana's price movement, net of fees.
In contrast, stake-enabled products in the U.S., like the REX-Osprey SSK, Bitwise BSOL, and Grayscale GSOL, direct their custodians to delegate SOL and distribute rewards, net of fund expenses. These funds aim to deliver a positive carry, with SSK, for example, passing through roughly 4.8% to 5.1% after its 0.75% expense ratio and infrastructure fees. This split creates a unique experiment: will non-staking capital dilute Solana’s validator economy, or will the allure of yield draw liquidity back on-chain?
The Counterintuitive Boost from Non-Staking ETFs
Interestingly, non-staking Solana ETFs don't deplete on-chain yields; they can subtly increase them for native stakers. Solana's staking reward model is inherently self-correcting: when the staked ratio falls, the same reward pool is divided among fewer participants, consequently raising the Annual Percentage Yield (APY) per staker. For example, if $1.5 billion in non-staking ETF AUM (roughly 7.5 million SOL) shifts the staked ratio from 67% to 65.7%, the APY could rise from 6.06% to approximately 6.18%.
The larger the unstaked pool, the more attractive native staking becomes for those able to hold SOL directly and delegate. This suggests non-staking funds act as a subsidy, concentrating rewards among on-chain participants while institutional capital remains passive in brokerage accounts.
Centralization Risks with Stake-Enabled Funds
While stake-enabled ETFs offer yield, they introduce potential centralization risks. Funds like SSK allow their custodians to choose validators, and they can also hold stakes in other ETPs that delegate large blocks of SOL. If a few custodians control billions in delegations, Solana’s consensus power and transaction ordering (MEV routing) could concentrate in the hands of institutional gatekeepers rather than being distributed by community choice.
This structure differs from Ethereum's Lido, which, despite initial centralization concerns, still allowed for a liquid staking token and on-chain governance. Solana's stake-enabled ETFs often come with multiple layers of intermediaries, each taking a fee, leading to lower net yields (e.g., 3% for some ETPs) compared to native liquid staking tokens like JitoSOL or Marinade (5-6%). These ETFs primarily appeal to institutions or retirement plans that cannot directly custody crypto, not to users seeking maximum rewards and full on-chain composability.
Regulatory Outlook and AUM Pathways
The SEC's adoption of generic listing standards for spot crypto ETFs (beyond Bitcoin and Ethereum) opens the door for major issuers like BlackRock and Fidelity to potentially offer Solana products. JPMorgan projects $1.5 billion in first-year U.S. inflows for SOL ETFs, a significant amount representing about 1.3% of Solana’s circulating supply. If this capital predominantly flows into non-staking funds, native APY will see a modest bump. However, if stake-enabled products dominate, the concentration of validators accelerates.
A more ambitious scenario, such as $5 billion in AUM (over 4% of supply), would further magnify these effects. If unstaked, it could lift on-chain APY by 41 basis points, making native staking even more appealing. If staked via ETFs, the chosen validator set becomes a structural feature of Solana’s consensus, with custodians influencing billions in stake based on operational rather than economic signals.
Key Variables to Monitor
- Delegation Choices: Observe which validators receive ETF delegations. If a few large, compliant validators capture the bulk of institutional stake, Solana’s validator economics will tilt towards entities servicing ETF custody.
- AUM Growth Rate: A faster-than-expected AUM run-rate will accelerate the reshaping of the validator set.
- Governance Decisions: Future policy proposals, similar to Solana’s debated SIMD-228, could alter the APY feedback loop, potentially impacting the economic incentives for native staking versus holding ETFs.
Ultimately, Solana ETFs offer distinct value propositions: non-staking funds provide liquidity without yield, while stake-enabled funds offer yield without on-chain composability. The adoption hinges on the type of buyer. While native stakers will continue to pursue full rewards and control, institutional capital flowing through ETFs will undoubtedly shift the dynamics of Solana's validator economy from within, presenting both opportunities and new challenges for decentralization.
Source: CryptoSlate
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