Solana staking faces new challenges from ETF: non-staking funds may drive up APY, institutions become the big winners of Decentralization?

Solana has long established a strong staking culture, with over two-thirds of the circulating supply delegated to validators, earning an annualized yield of about 6%. However, the emergence of non-staked Solana ETFs is challenging this on-chain participation model. For instance, Hong Kong's ChinaAMC Solana ETF explicitly states that it does not stake its held SOL, while several staked ETFs are already operating in the United States. This competition between staked and non-staked ETFs has sparked a new debate about staking yields and the centralization of Solana's consensus power, concerning how billions of dollars in institutional funds will reshape Solana's decentralization landscape.

Stake and Non-Stake ETF Models: Balancing Revenue and Costs

The staking culture of Solana faces competition from exchange-traded funds (ETFs) that cannot or will not stake. The pure fee drag brought by this non-staking ETF sharply contrasts with the positive spread of staking ETFs.

• Cost of non-staked ETF: Taking the ChinaAMC Solana ETF as an example, its first year ongoing expense is 1.99%, which effectively converts 6% of staking yield into a tracking difference of -2% relative to the spot price.
• Advantages of Staking ETFs: Staking funds like Bitwise BSOL and Grayscale GSOL can still provide investors with a positive return of approximately 4.8% to 5.1% after fees are deducted.
• Centralization Risk: However, the convenience of staking funds brings about centralization risk. If a few custodians guide billions of dollars in delegated staking, the Solana consensus power and MEV routing may become concentrated in the hands of institutional gatekeepers.

Mechanism of Non-Staked ETF: As the Staking Rate Decreases, APY Mildly Increases

The staking reward model of Solana has a self-correcting characteristic. When the staking rate decreases, the APY of each staker actually increases because the same reward pool is being divided among fewer participants.

• Mathematical Principle: If $1.5 billion of non-staked ETF assets under management (approximately 7.5 million SOL) are held non-staked, Solana's staking rate will drop from 67% to about 65.7%.
• APY Increase: This will gently raise the APY from 6.06% by about 12 basis points to 6.18%. If the non-staked AUM reaches $10 billion, the APY will increase by about 88 basis points.
• Conclusion: Non-staked ETF will not stifle on-chain returns; instead, it will gently increase yield. For users who can directly hold SOL and delegate, the larger the non-staked pool, the more attractive native staking becomes. This is in stark contrast to the initial concern of “ETF depleting staking” dynamics.

The Impact of Staking ETFs: Delegated Centralization and the Transfer of Decentralized Power

In contrast, staking ETFs pose a more direct challenge to the Solana decentralization landscape.

• Principal Authority: The custodian of the staking ETF will select validators based on its policies and custodial relationships, rather than community signals or performance metrics.
• Layered Structure: This design allows for multiple intermediaries such as fund sponsors, custodians and ETP issuers to participate, who extract fees from the stake and decide the direction of the stake.
• Lido Concentration Risk: This operates similarly to how Lido concentrates Ethereum staking through a selected group of node operators. If a few custodians receive a large amount of institutional delegation, the collection of Solana validators will tend to favor entities with strong compliance infrastructure and legal standing in the United States, which changes the control of block production and transaction ordering.

Conclusion

The ETF landscape of Solana is pioneering a new staking dynamic. Non-staking funds incentivize individual participants by raising the native APY, while staking funds may transfer consensus power to institutional gatekeepers through delegated centralization. This shift is not inherently “worse,” but it changes the focus on Solana's security and decentralization. As the U.S. SEC relaxes restrictions on spot crypto ETFs, the AUM size and delegation flow of Solana ETFs will be key variables in determining the future shape of the Solana validator economy.

Disclaimer: This article is for informational purposes only and does not constitute any investment advice. The cryptocurrency market is highly volatile, and investors should make decisions with caution.