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FEB 29, 2024

SolBlaze: Liquid Staking & DeFi

by Nova Research

Discover Solana's revolutionary Proof-of-Stake and BlazeStake's liquid staking solution, blending blockchain security with DeFi liquidity

Introduction

Introduction to Proof-of-Stake

Solana is a high-performance blockchain that operates on a Proof-of-Stake (PoS) consensus mechanism. 
How Proof Of Stake works
How Proof Of Stake works
This consensus model is fundamental to maintaining the network's integrity and efficiency. In Solana's PoS system, validators, running on specialized softwares, play a crucial role in processing transactions and securing the blockchain. These validators are responsible for voting on and appending new blocks, ensuring the network remains cohesive and accurate despite receiving disparate information globally.

How Proof-of-Stake Works on Solana

In Solana's PoS, every validator participates in consensus by casting votes on block validity. The influence of a validator’s vote is stake-weighted, meaning validators with more staked SOL (the native cryptocurrency of Solana) have greater sway in the consensus process. 
How Solana Consensus mechanism works
How Solana Consensus mechanism works
Staking, therefore, becomes a process where SOL holders delegate their tokens to validators, enhancing these validators' voting weights without relinquishing token ownership or control.

The Importance of Staking

Staking serves several purposes: securing the network, participating in governance and earning rewards
Importance of staking
Importance of staking
By delegating SOL to validators, token holders contribute to the network's security. This distributed stake makes it challenging for malicious actors to accumulate enough influence to disrupt the consensus process. In return for their contribution to network security, stakers receive staking rewards, further incentivizing participation in the staking process. 
As of today APY from Staking is around 7,2%.

Risks Associated with Staking

While staking is integral to network security, it's not without risks. Solana has a mechanism known as slashing, a punitive measure for validators undertaking malicious actions. This mechanism can impact token holders who have delegated to a penalised validator. However, slashing on Solana isn't automatic and is employed under specific circumstances, like network halts caused by validator actions.

Current Status of Staking on the Solana Network

As of the latest data, Solana boasts a robust number of 1,860 validators, a testament to the network's commitment to decentralization and security. These validators are spread across different geographies and are run by various individuals and entities, each contributing to the network's resilience. A critical metric that must be scrutinized when evaluating the health of a Proof-of-Stake (PoS) network is the distribution of stake across its validators.
Status of Staking on Solana
Status of Staking on Solana
In the context of Solana, the concept of a 'superminority' is particularly salient. This term refers to the smallest number of validators that cumulatively control more than 33% of the total stake. In theory, this superminority holds enough power to exert significant influence over the network, which could lead to potential censoring or halting of the network if these validators were to collude.
An examination of the current stake distribution on Solana reveals that the superminority threshold is held by 21 validators. While this number indicates a relatively healthy distribution compared to more centralized networks, it also highlights the importance of ongoing efforts to further decentralize the stake. In an ideal decentralized network, no small group should be capable of dominating the consensus process.

Liquid Staking: Flexibility Meets Security

Introducing Liquid Staking

The innovation of liquid staking stands as a revolutionary stride in the domain of blockchain staking mechanisms. 
Why Liquid Staking is important
Why Liquid Staking is important
Traditional staking on networks like Solana has been a double-edged sword; while it bolsters network security and offers rewards for stakers, it also imposes liquidity constraints, locking up digital assets and rendering them inactive in the broader cryptocurrency market.

Bridging Staking and Liquidity

Liquid staking emerges as a solution to this dilemma, artfully blending the foundational benefits of staking with the indispensable need for asset liquidity. By allowing holders to stake their SOL through a smart contract or a staking pool, liquid staking injects flexibility into the system. Users no longer have to choose between contributing to the network's security and maintaining fluid control over their assets.

The Mechanics of Liquid Staking on Solana

Upon staking their SOL, participants receive a new breed of token, often referred to as a Liquid Staking Token (LST) or a Liquid Staking Derivative (LSD). 
Liquid Staking on Solana
Liquid Staking on Solana
This token is a representation of their staked SOL and carries with it the power to be traded, used within DeFi applications, or simply transferred, all while the underlying SOL continues to earn staking rewards. This process ensures that the staked SOL remains productive in securing the network, while the corresponding LST serves as a beacon of liquidity and utility.

Why Liquid Staking Matters

The implications of liquid staking for the Solana ecosystem are profound. It addresses a fundamental pain point for stakers by liberating their capital. This freedom enables a dynamic environment where assets can move seamlessly between staking and various DeFi applications, fostering a vibrant economy where capital efficiency is paramount.
Moreover, liquid staking aligns with the ethos of decentralization, offering every participant the opportunity to contribute to network security without locking away their financial agency. It democratizes the staking process, ensuring that even those who wish to remain active in the market can support the network's integrity.

The Role of Liquid Staking in Solana's Future

As the Solana network grows and its DeFi ecosystem matures, liquid staking is poised to play a crucial role. It offers a resilient foundation for innovative financial products and services, catalyzing growth and participation. The flexibility provided by liquid staking could potentially lead to increased staking participation rates, thereby enhancing the overall security and robustness of the network.

BlazeStake Protocol: Innovating Solana’s Liquid Staking

What is BlazeStake?

Introduced in 2022, BlazeStake stands at the forefront of Solana staking innovation, offering a suite of products for Solana Holders. The main product is BlazeStake, a  non-custodial staking solution that promotes decentralization across validators. It also enhances liquidity and DeFi integration for Solana stakers. 
Suite of product of SolBlaze
Suite of product of SolBlaze
Supported by the Solana Foundation, BlazeStake is more than just a staking pool; it is a protocol that embodies the ethos of decentralized finance. It provides SOL holders with the opportunity to participate in network validation while maintaining liquidity through BlazeStake Staked SOL (bSOL) tokens.

BlazeStake's Approach to Staking

Upon staking SOL with BlazeStake, participants receive bSOL tokens, which are inherently designed to appreciate in value against SOL. This appreciation is a direct result of the staking rewards compounding every epoch. BlazeStake's commitment to automatic delegation across a diverse set of validators fortifies the network against centralization, distributing influence and reducing the risk of control by a minority.

The Advantages of Using BlazeStake

Staking SOL traditionally limits the staker to a single validator, often leading to an imbalance where a small number of validators control a significant portion of the stake. 
BlazeStake disrupts this by spreading stakes across a vast array of validators, thereby enhancing the blockchain's security and optimizing reward distribution. The issuance of bSOL as liquid tokens opens a gateway for stakers to engage with DeFi applications, augmenting their earning potential beyond static staking rewards.

Dual Strategies for Enhanced Flexibility and Decentralization

BlazeStake revolutionizes Solana liquid staking with two distinct approaches: the Standard Delegation Strategy and the Custom Staking Solution, each designed to meet different user needs while promoting network security and decentralization.
Delegation strategies of BlazeStake
Delegation strategies of BlazeStake

Standard Delegation Strategy: Maximizing Decentralization

The Standard Delegation Strategy is BlazeStake’s core approach to supporting the Solana network, leveraging its large and diverse validator set. This strategy is centered around distributing stakes across a broad spectrum of validators, from high-performing to smaller, nascent ones. The aim is to maximize decentralization and network security, minimizing the risks of centralization and the undue influence of any single 'security group.' Validators are selected through a rigorous process that combines automated systems for continuous performance monitoring with human oversight to ensure integrity and reward optimization. This strategy is dynamic, adjusting the stake allocation based on validators' performance and their contribution to decentralization, ensuring a judicious balance that benefits the network and stakers alike.

Custom Staking Solution: Personalized Staking Preferences

On the other side, the Custom Staking Solution offers stakers the flexibility to personally select the validators for their stake. This model caters to those who prefer a more hands-on approach to staking, allowing for targeted support of specific validators. It embodies the principle of giving stakers greater control over their contributions to the network, fostering a more engaged and personalized staking experience.

Governance and Evolution of Delegation Strategies

BlazeStake’s governance model is set to evolve into a more decentralized framework, with BLZE token holders playing a significant role in shaping the delegation strategy. This evolution is evident in the governance proposal 001, which outlines the future allocation of stakes:
  • 80% of stakes are managed through an algorithmic strategy, aiming to increase network decentralization by distributing stakes across hundreds of validators.
  • 10% of stakes are allocated to the BlazeBoost matching pool, incentivizing the use of the Custom Liquid Staking by boosting stakes for selected validators.
  • The remaining 10% is directed by BLZE gauges, allowing token holders to vote on validator allocation, introducing a novel, gauge-based model for stake distribution.
This comprehensive approach to liquid staking, combining the Standard Delegation Strategy's focus on leveraging a large validator set for maximum decentralization with the Custom Staking Solution’s flexibility, positions BlazeStake as a leader in Solana staking innovation. The detailed governance proposal further highlights BlazeStake’s commitment to community-driven decisions, ensuring that both staking strategies not only support the network's security and performance but also align with the broader community's interests.

Maximizing DeFi Opportunities through Liquid Staking with bSOL

One of the primary advantages of engaging in liquid staking, especially with tokens like bSOL, lies in the broad access it provides to the DeFi ecosystem. Liquid staking tokens such as bSOL are supported by an extensive array of DeFi protocols, offering holders a versatile platform to employ their capital effectively, even while it remains staked. This integration into various DeFi platforms allows users to maximize their capital utilization, ensuring that their staked assets are not idle but rather actively contributing to their financial growth and offering a multitude of avenues for investment and yield generation. By participating in these protocols, bSOL holders can engage in lending, liquidity provision, trading, and more, all while earning staking rewards. 
DeFi Protocols that supports bSOL
DeFi Protocols that supports bSOL
The following breakdown categorizes some of the major DeFi protocols that support bSOL, highlighting the diverse opportunities available for liquid stakers.

DEX/AMM Protocols:

  • Orca: Facilitates bSOL use in liquidity pools, allowing holders to earn trading fees and ORCA tokens alongside their staking rewards.
  • Raydium: An automated market maker that integrates bSOL to enhance liquidity and enable yield farming and participation in staking pools.
  • Crema: Offers liquidity pools for bSOL holders to earn transaction fees, improving yield-earning potential.
  • Sanctum: Supports bSOL to provide traders the opportunity to perform instant unstaking.

Lending Protocols:

  • Solend: Solana's leading decentralized lending platform supports bSOL, enabling users to lend or borrow against their staked assets, unlocking liquidity and facilitating financial management.
  • Mango Markets: Allows bSOL users to engage in leveraged trading and sophisticated financial strategies through its permissionless lending, borrowing, and margin trading services.

Concentrated Liquidity and Trading Platforms:

  • Kamino: Empowers bSOL holders to become liquidity providers, engaging in market-making strategies and earning fees.
  • Jupiter: A comprehensive aggregator that simplifies swapping between different assets for bSOL holders, ensuring optimal trade execution.
  • Meteora: Supports bSOL on its trading platform, enabling diversified trading strategies without the need to relinquish staked positions.
  • Oasis: Integrates bSOL to provide a versatile DeFi hub for staking, swapping, and accessing a variety of DeFi products.

Yield Farming and Algorithmic Trading:

  • Hawksight: Leverages bSOL in algorithmic trading and yield farming strategies, broadening the scope of financial instruments available to holders.
  • Saber: Utilizes bSOL in its stablecoin exchange, facilitating swaps between stable pairs with minimal slippage.
  • LP Finance: Incorporates bSOL into its liquidity provision services, rewarding stakers for contributing to the protocol's ecosystem.
The extensive support of bSOL across these DeFi protocols underscores the significant advantage of liquid staking: it not only preserves the capital's productive capacity through staking rewards but also opens up a landscape of investment and yield opportunities in the thriving DeFi sector. This dual benefit positions bSOL holders to maximize their financial strategies and engage with the DeFi ecosystem in a dynamic and profitable manner.

The Blaze Token: Fueling and Ruling the bSOL Adoption

The Blaze Token (BLZE) stands at the core of the Blaze ecosystem, serving as the pivotal utility token that drives governance, rewards, and incentivizes the adoption of DeFi protocols supporting bSOL. 
The BLZE Token
The BLZE Token
This chapter delves into the multifaceted roles of BLZE, the innovative "Blazenomics" behind its distribution, and the integral SolBlaze Score system that underpins the rewarding mechanism of the ecosystem.

Governance and Rewards: The Dual Role of BLZE

  • Governance: BLZE tokens empower holders with voting rights and the ability to make proposals within the SolBlaze Decentralized Autonomous Organization (DAO). This governance function ensures that token holders have a say in the future direction and development of the SolBlaze ecosystem, fostering a community-driven approach to decision-making.
  • Rewards: Beyond governance, BLZE tokens are instrumental in providing additional rewards to stakers and incentivizing the adoption of supported DeFi protocols. By leveraging BLZE tokens, the ecosystem encourages participation and investment, enhancing the utility and circulation of bSOL across the DeFi landscape.

Blazenomics: The Economy of BLZE

The economic model of BLZE, termed "Blazenomics," features a total supply of 10 billion units, strategically allocated to foster community engagement and reward participation:
  • 30% Initial Airdrop: A significant portion of the BLZE supply is allocated for initial distribution through airdrops, encouraging early adoption and community building.
  • 70% Ongoing Rewards: The lion's share of BLZE tokens is dedicated to ongoing rewards, ensuring a continuous incentive for community participation and contribution to the ecosystem's growth.
This distribution strategy supports the long-term sustainability of the Blaze ecosystem, with real-time tracking of BLZE rewards and the SolBlaze Score available through a dedicated rewards portal.

SolBlaze Score: The Core of BlazeRewards

At the heart of the BlazeRewards system lies the SolBlaze Score, a dynamic metric designed to quantify and reward each participant's involvement in the ecosystem. 
The SolBlaze Score
The SolBlaze Score
This score system plays a crucial role in determining a user's influence within SolBlaze governance and their eligibility for rewards.

Calculating the SolBlaze Score:

  • Holding bSOL: +1 point for each bSOL held in a wallet.
  • Lending Protocols: +1.5 points for each bSOL utilized in supported lending protocols.
  • Liquidity Pool Participation: +2 points for each bSOL (or its equivalent) engaged in supported bSOL LP positions.
Additionally, the referral system enhances the SolBlaze Score by an extra 10% for each successful referral to the SolBlaze platform, further incentivizing community growth and engagement.

Validators and DeFi Protocols in BlazeRewards:

  • DeFi Protocol Participation: +1 point for each bSOL (or equivalent) in bSOL LP positions.
  • Validator Support: +1 point for every SOL of Custom Liquid Stake directed at validators, linking the score to the validator's identity key.
This comprehensive approach to rewarding participation and contribution underscores the Blaze ecosystem's commitment to fostering a vibrant, engaged community. By integrating BLZE tokens, the Blazenomics model, and the SolBlaze Score, the ecosystem not only incentivizes involvement but also ensures that every stakeholder's contribution is recognized and rewarded, laying the groundwork for a thriving decentralized finance landscape.

On-Chain Metrics Analysis of Blaze Protocol

Growth Trajectory of Total Value Locked (TVL)

The Blaze Protocol has experienced an impressive increase in Total Value Locked (TVL), which is a primary indicator of the protocol's adoption and trust within the Solana ecosystem. According to on-chain data, there has been a near-vertical rise in TVL over the past year, showcasing a robust increase of 98.91% on a yearly basis, with over 2.6 million SOL staked through Blaze for a dollar value of over $300 million. This substantial growth in TVL underscores the confidence stakers place in the protocol, reflecting both the success of its delegation strategy and the efficacy of its liquid staking solutions.
bSOL on-chain metrics
bSOL on-chain metrics

Validator Participation and Decentralization

An analysis of the validators participating in the Blaze Protocol reveals a deliberate effort towards achieving broad network decentralization. The validators list demonstrates that the protocol is not only supporting established validators but also integrating smaller ones, which is crucial for reducing the risk of centralization. The data shows a diverse range of validators with varying degrees of staked assets, reflecting Blaze Protocol's commitment to a decentralized and secure network.

Staking and Liquidity Dynamics

The on-chain metrics provide insight into the liquidity dynamics underpinning the Blaze Protocol. The increase in the number of bSOL tokens, representing staked SOL, indicates a growing trend of stakers seeking liquidity without forfeiting their staking rewards. This reflects the attractiveness of Blaze Protocol's liquid staking mechanism, which allows for participation in the DeFi ecosystem while still contributing to the security and operability of the Solana network.

Staker Engagement and Adoption

The growth in the number of active stakers is another critical metric that highlights the health of the Blaze Protocol. The metrics indicate a positive trend, with the number of active stakers of bSOL rising sharply. This increase suggests that the protocol's features, including non-custodial staking, diversified validator selection, and additional DeFi earning opportunities, are resonating well with the community.

Decentralization and Security

Importantly, the protocol's approach to validator selection is evidently effective in combating the risk posed by the 'security group' — the small number of validators that could, in theory, control the network. By pre-qualifying validators outside of this group, Blaze Protocol enhances the security and resilience of Solana's blockchain against potential collusion and centralization.

Explore Blaze Protocol on Dune Analytics

As we conclude our on-chain analysis of Blaze Protocol, we've traversed the intricate landscapes of its metrics, delved into the mechanics of its staking and liquidity dynamics, and underscored its commitment to decentralization and security within the Solana ecosystem. The journey through Blaze Protocol's architecture reveals a platform not just thriving on innovation but also fostering a robust, secure, and decentralized network that resonates with the community's ethos.
For enthusiasts, investors, and researchers desiring a deeper dive into the empirical data that underpins our analysis, we invite you to explore our dedicated dashboard on Dune Analytics. Our dashboard provides an interactive exploration of Blaze Protocol's on-chain metrics, offering real-time insights into its Total Value Locked (TVL), validator participation, staker engagement, and much more.

bSOL's Integration and Utility in DeFi Protocols

The Expanding Utility of bSOL in DeFi

Blaze Protocol's native token, bSOL, has established a significant presence across an array of DeFi platforms, showcasing its multifaceted utility and integration within the Solana ecosystem. The recent on-chain metrics indicate that bSOL is not just a staking derivative; it's a key player in the burgeoning field of decentralized finance.

bSOL Across Major DeFi Protocols

  • Solend: As Solana's leading decentralized lending platform, Solend has integrated bSOL, allowing users to lend or borrow against their staked assets, thus unlocking liquidity and creating new avenues for financial management within the ecosystem.
  • Kamino: With Kamino’s concentrated liquidity solution, bSOL holders can participate as liquidity providers, contributing to the protocol's market-making strategies and earning transaction fees in return.
  • Jupiter: Jupiter's position as an aggregator enables bSOL holders to efficiently swap between different assets. bSOL's integration into Jupiter's ecosystem facilitates seamless transactions, providing users with the best possible trade executions.
  • Orca: As a user-friendly decentralized exchange, Orca utilizes bSOL within its liquidity pools, offering stakers the opportunity to earn trading fees and ORCA tokens on top of their staking rewards.
  • Hawksight: Hawksight leverages bSOL for algorithmic trading and yield farming strategies, expanding the utility of bSOL beyond simple staking and into more complex financial instruments.
  • Mango: Mango Markets, known for its permissionless lending, borrowing, and margin trading, has opened doors for bSOL users to engage in leveraged positions and sophisticated trading strategies.
  • Raydium: As an automated market maker, Raydium's acceptance of bSOL contributes to the token's liquidity and allows stakers to participate in yield farming and staking pools.
  • Saber: Saber's role as a stablecoin exchange in the Solana ecosystem enables bSOL holders to swap between stable pairs with low slippage, ensuring stable liquidity provision.
  • Crema: With Crema’s liquidity protocol, bSOL holders can utilize their tokens in liquidity pools to earn transaction fees, enhancing their yield-earning potential.
  • Meteora: Meteora's trading platform supports bSOL, allowing stakers to diversify their portfolio and engage in trading strategies without relinquishing their staked positions.
  • Oasis: Oasis, a versatile DeFi hub, integrates bSOL to allow users to stake, swap, and engage with a variety of DeFi products under one roof.
  • Sanctum: As a decentralized exchange, Sanctum's support for bSOL provides additional liquidity and trading options for the Solana community.
  • LP Finance: LP Finance has incorporated bSOL in its liquidity provision services, offering stakers a chance to earn rewards for contributing to the protocol's financial ecosystem.

The Impact of bSOL in DeFi

The diverse usage of bSOL across these protocols not only underscores its versatility but also amplifies its intrinsic value as a derivative of SOL. The integration of bSOL into these various DeFi applications contributes significantly to the liquidity and stability of the Solana ecosystem. The on-chain metrics, particularly the Total Value Locked (TVL) and volume across DeFi protocols, reflect a sustained and growing interest in bSOL's utility.
The presence of bSOL within these protocols enhances the token's liquidity and stakers' ability to engage with the wider DeFi space without sacrificing their staking rewards. It represents a paradigm shift where the lines between staking and active DeFi participation are blurred, providing users with a seamless financial experience.
As of today the protocols that are leading the DeFi adoption of bSOL are: Kamino, MarginFi, Solend.

Conclusion

The evolution of blockchain technology through Proof-of-Stake (PoS) consensus models, as exemplified by Solana, marks a pivotal shift towards more secure, efficient, and user-empowered networks. Validators, through their specialized software and staking mechanisms, are the linchpin of such networks, ensuring integrity and cohesion even as disparate information flows through the system.
The rise of liquid staking, as pioneered by protocols like BlazeStake, addresses the inherent liquidity constraints of traditional staking. This innovation allows users to contribute to network security without sacrificing the ability to freely control and utilize their assets. The issuance of Liquid Staking Tokens (LSTs) like bSOL signifies a leap forward, binding the robustness of staking with the fluidity of the DeFi ecosystem.
BlazeStake’s model of decentralization pushes the boundaries by spreading stakes across numerous validators, diluting the concentration of power and reducing the risks of centralization. This strategy, coupled with real-time oversight and automated systems, ensures not only security but also maximizes staking rewards for participants.
On-chain metrics from Blaze Protocol reflect a burgeoning confidence among stakers, as evidenced by the sharp increase in Total Value Locked (TVL) and the rising number of active stakers. These indicators, along with the protocol's proactive stance against the 'security group' risk, showcase a strong commitment to a balanced and equitable network.
The introduction of the Blaze Token (BLZE) further catalyzes the ecosystem, serving a dual purpose in governance and rewards distribution. Blazenomics, the economic structure behind BLZE, is carefully crafted to incentivize ongoing engagement within the ecosystem, rewarding contributions and ensuring a vibrant community-driven growth.
The SolBlaze Score system underpins this economy, valuing every form of participation, from holding bSOL in a wallet to active involvement in DeFi protocols. The score not only quantifies contributions but also democratizes governance, allowing stakeholders to shape the future direction of the ecosystem.
In conclusion, SolBlaze, through BlazeStake and the BLZE token, exemplifies the synergy between staking and DeFi. It stands as a testament to the transformative potential of liquid staking in enhancing network participation, driving decentralization, and empowering users. As the Solana ecosystem matures, SolBlaze is poised to play an integral role in its growth, offering a foundation for innovation, security, and community-led development in the world of blockchain and decentralized finance.
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⚠️ Disclaimer ⚠️ : Nova Research is an independent research entity and is not affiliated with any related organizations mentioned in the article.
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