What is Solayer?
Solayer is a restaking platform facilitating endogenous Actively Validated Services (AVSs) on the Solana blockchain. Restaking, originally proposed by Eigenlayer, enables stakers to maximize the utility of their assets by opting in to validate external software modules (exogenous) built on top of the Ethereum blockchain. Solayer builds upon this concept, offering a restaking marketplace tailored specifically for Solana and focusing on endogenous AVSs, which directly support on-chain decentralized applications. Leveraging Solana’s stake-weighted quality of service (QoS) infrastructure, Solayer empowers dApps to secure block space and prioritize transactions based on the amount delegated to the dApp. Furthermore, Solayer introduces AVS Token, which not only offers users Solana POS yield but also provides super liquidity through a pooled liquidity design, addressing concerns related to conversion delay and slippage.
AVSs are services that require active validation by network participants, typically involving validation of data, execution of transactions, or other activities supporting the network’s operations and its applications. The term "endogenous" means originating from within a system. In this context, it indicates that these AVSs are developed, operated, and utilized within the Solana blockchain ecosystem, rather than being external services from other blockchain networks.
Solayer is a two-pronged approach:
Restaking: leverage the economic security of SOL to secure other systems
Shared Validator Network: Solana-centric networks sharing Solana security and infrastructure
Why Solana?
As described by Solayer, Solana's high-performing, cost-effective, and high-execution infrastructure is superior for SVN (Shared Validator Network) builders, operators, and restakers. The advantages of utilizing Solana as the foundational platform for SVN include:
Cost-Effective SVN Construction: Utilizing Solana as the native Data Availability layer for SVN significantly reduces the cost of building an SVN compared to Ethereum.
Low latency application: Solana's lower block time production of 0.4 seconds compared to Ethereum's 20 seconds, enables low-latency SVNs resulting in a more responsive user experience. Examples include compute-intensive games, GPU clusters, and high-frequency DeFi applications.
Cheaper state sync/update/finalization: The process of state finalization, sync, and update of SVNs, which is a continual process to ensure the immutability and synchronization of validated applications, is considerably more cost-effective on Solana compared to other viable networks
Cheaper state transition storage: Storing state transitions in SVN is significantly cheaper when powered by Solana, making it a more economical choice for developers and operators.
Solayer’s On-Chain Performance
As of 5th of July, 2024, Solayer has seen 786K SOL and $110M deposited into their protocol which is just 55 days after deposits were opened for early-adopters on 16th of May, 2024. Though the protocol is still not live yet, Solayer has managed to accumulate fairly good numbers.
Solayer’s Growth Analysis
Solayer launched restaking epochs on May 16th, 2024 and the first epoch was called Epoch 0. The initial epoch saw an influx of nearly $ 23.5M before it was followed by Epoch 1. Epoch 1 began on 27th May and was then paused before being resumed on 4th June. In the two phases of Epoch 1, the total USD value and total SOL deposited into the protocol rose up to $ 50M and 360K respectively.
Epoch 2 started on 20th June while prioritizing native SOL deposits and concluded with $ 65.5 M in total USD value and 462K total SOL deposited.
Currently, Epoch 3 is live which started on the 1st of July followed by the release of “Episode 1” or “EP 1” on 2nd July. EP 1, in conjunction with the release of restaking deposits, is where depositors can claim their rewards. At the time of writing, Solayer has crossed $100M in total USD deposited in under 2 months from release.
The percentage increases in total USD value deposited per epoch are as follows:
From Epoch 0 to Epoch 1 (Phase 1): 30.92%
From Epoch 1 (Phase 1) to Epoch 1 (Phase 2): 63.18%
From Epoch 1 (Phase 2) to Epoch 2: 31.07%
Solayer’s Restaking Architecture
Restaking is a concept introduced by Eigenlayer. It enables stakers to contribute their crypto-economic security by reusing their staked assets on Ethereum as collateral in other proof-of-stake systems, also known as Actively Validated Services (AVSs). This not only optimizes the usage of staked assets but also boosts the overall security and efficiency of the ecosystem. Stakers can earn additional rewards through restaking. These rewards may come in the form of proof-of-stake yield from AVS, bridge fees, or a combination of both.
Restaking Pool Manager
The restaking pool manager oversees the flow of assets into the protocol. When users deposit Liquid Staking Tokens (LST) or SOL (first converted to sSOL), they receive a fungible token representation in return, collectively called Solayer assets. Currently, these assets are illiquid to facilitate points calculation for their reward program. However, according to Solayer, they will become liquid in the future to encourage composability with DeFi.
Unbonding Process -
Solayer assets at this layer won't have any unbonding lockups since they unwrap into the respective LSTs. The AVS unbonding process is separately managed by the delegation manager. To offer more flexibility, Solayer allows them to design their own unbonding process with a maximum period of 2 days. Solayer also has a provision to provide an emergency exit mechanism to release the bound stake from users should the AVS cease to function.
Delegation to Secure Additional Networks
Although still not released, the Solayer team indicates that in Stage 2 of the protocol development, Solayer plans to enable users to pledge their assets to secure additional networks by delegating them to Solayer operators, who will manage the AVS nodes. If an operator engages in malicious behavior, they will face penalties. Consequently, users must exercise caution when selecting operators, ensuring that they have a trustworthy track record and meet the necessary criteria of the AVS.
Restaking Portfolio -
According to the Solayer team, once delegation to SVNs and node operators is live, users will be able to construct their restaking portfolio by selecting the node operators to delegate to and SVNs to secure. They will then be issued a non-fungible token (NFT). This token will be non-fungible due to the idiosyncratic risks associated with the selected node operators and the SVNs.
Rewards Accounting
Solayer has implemented a state watcher to keep track of deposits and withdrawals. Rewards accounting will be calculated offline. Together with the invite relationship data, additional rewards will be applied to user accounts in real time.
Permissioned Restake Method
The Restake method on Solayer is permissioned and requires an additional signature from the server to enforce deposit limits in the first few epochs. The Unstake method does not require an additional signature from Solayer.
Native SOL Restaking
For native SOL restaking, Solayer first converts deposited SOL to an intermediary form called sSOL-raw, which is the Liquid Staking Token (LST) issued by the stake pool manager. This entire process is non-custodial, ensuring that staked SOL is delegated to validators who earn MEV-boosted returns. The sSOL-raw is then converted to sSOL after another interaction with the Solayer restaking pool manager. All these steps are executed in a single transaction for efficiency.
Details on the Solayer Stake Pool (As of July 2024)
Stake Pool: po1osKDWYF9oiVEGmzKA4eTs8eMveFRMox3bUKazGN2
Pool Token Mint: sSo1wxKKr6zW2hqf5hZrp2CawLibcwi1pMBqk5bg2G4
Epoch Fee: 7/100 of epoch rewards
Stake Withdrawal Fee: 8/10000 of withdrawal amount
SOL Withdrawal Fee: 8/10000 of withdrawal amount
Stake Deposit Fee: 0/10000 of deposit amount
SOL Deposit Fee: 0/10000 of deposit amount
Stake Deposit Referral Fee: 0% of Stake
Deposit Fee SOL Deposit Referral Fee: 0% of SOL Deposit Fee
As of April 1st, 2024, a significant portion of Solana's tokens are participating in liquid staking, with $2.29 billion worth of SOL having been liquid staked.
The initial Liquid Staking Tokens (LSTs) included in Solayer's restaking infrastructure are listed below
SOL
Infinity-SOL (INF)
JITO-SOL (JITO-SOL)
Marinade-SOL (mSOL)
Blaze-SOL (bSOL)
As we can observe, native SOL accounts for the highest percentage of the staked token on Solayer (46%) followed by INF, JITO-SOL, mSOL and bSOL.
We can further observe in the asset dominance figure, the development and progress of the overall staked tokens portfolio of Solayer. Native SOL initially was not the most dominant token but eventually grew up to be.
Differentiating Solayer and EigenLayer
In Eigenlayer's model, these systems each have their individual networks and function on the main chain (in Eigenlayer's case, Ethereum) where the staked assets are pooled. AVSs can include cross-chain bridges, shared sequencers, and oracle networks, among others. Such systems are typically referred to as exogenous AVSs.
Rather than focusing on exogenous AVSs, Solayer aims to support endogenous AVSs on the Solana blockchain. The goal of the endogenous AVSs is to provide on-chain decentralized applications (dApps) on Solana with a greater likelihood of secured block space and prioritized transaction inclusion.
Explanation through an analogy
We’ll be using an analogy from one of Solayer’s blogs to explain the staking architecture and process in simple terms.
Imagine you have a garden where you grow vegetables, and you decide to share your garden tools with your neighbors to help them grow their gardens too. In return, they give you some of the vegetables they grow, so everyone benefits.
In this analogy:
Your garden represents the main blockchain (Ethereum or Solana).
The garden tools are your staked assets (the tokens you’ve locked up to help secure the network).
Your neighbors are AVSs that need tools to operate efficiently.
The vegetables they give you are the additional rewards you earn for sharing your tools.
In Eigenlayer's system on Ethereum, you share your tools with neighbors who have their gardens elsewhere (exogenous AVSs). This helps secure various services like cross-chain bridges or oracle networks and you earn rewards from these services.
On the other hand, Solayer on Solana focuses on sharing tools with neighbors within the same garden (endogenous AVSs). These neighbors are decentralized applications (dApps) on Solana that benefit from better block space and transaction prioritization, making the whole garden (Solana) more secure and efficient.
So, by restaking your tools in both systems, you maximize the use of your garden tools and get more vegetables in return.
Solayer’s Stake-Weighted Quality of Service Infrastructure
Stake-weighted Quality of Service (swQoS) refers to the allocation of network resources, such as block space and transaction processing capacity, based on the amount of stake committed by validators or stakers. Under this model, a validator with a 1% stake would have the right to transmit up to 1% of the packets to the epoch leader and would be capable of resisting Sybil attacks from the rest of the network. Commercial RPC infrastructure operators and entities hosting their own validator nodes and RPC nodes would benefit the most from this, as RPC nodes could include more transactions in blocks by agreeing to peer with validators, and validators may sell more capacity to RPC nodes.
Simply put: the more stake, the higher the probability of submitting transactions.
For example, if there are 2 validators - the first one, holding 2% of the stake and the second, having 0.2%. The former will be able to submit up to 2% of the packets to the block producer, taking priority over the latter. This will provide the higher-quality validator with better performance and increased Sybil Resistance.
Solayer’s restaking design functions similarly to a cloud or blockspace marketplace
Stake used to secure the Solana network can be restaked into applications to improve localized quality of service, specifically through enhanced block space provisioning and prioritized transaction inclusion. In this model, each application functions as a localized sidecar, akin to a virtual cluster instance deployed by a developer. Clusters with a higher stake weight have a better chance of processing transactions efficiently. This is analogous to how developers on AWS can pay for additional storage or RAM to boost their applications' performance; in the Solana ecosystem, the equivalent resources—block space and transaction throughput—are allocated based on stake weight.
Staker is the supply side of the market
App is the demand side of the market
Validator is the facilitator
Every unit of SOL staked inherently is a unit of blockspace supplied to the developers. Restakers are supplying stake and delegating across e-AVSs, giving them higher weight and hence probability of guaranteed blockspace and transaction inclusion.
Staked SOL to Endogenous AVS Tokens
General Flow of sSOL
Deposit and Receive sSOL:
Users deposit their stake into the native SOL pool and receive sSOL tokens in return.Delegate sSOL:
Restakers delegate their sSOL into the e-AVS (endogenous Actively Validated Services) pool and receive AVS wrapper SPL tokens.Provision and Inclusion:
e-AVS directly receives the delegated stake with an assigned validator, increasing the probability of block space provisioning and transaction inclusion.Incentives:
e-AVS can reward and incentivize more delegates to enhance participation.Yield Commission:
e-AVS earns a commission from the staking yield.
Super Liquidity
Liquidity is the most important factor for the adoption of any asset. Conversion delay and slippage are two key considerations. In an ideal world, there would be no slippage and instant conversion, so all Solana users should hold yield-bearing LSTs instead of SOL. What prevents this from happening is the liquidity of such LSTs. Each LST needs to have a deep pool with low swap fees and a significant amount of trading volume to offset LP’s capital costs. To address this problem, Solayer introduces Superior Liquidity for AVS Tokens using a pooled liquidity design.
Solayer AVS LST Tokens can be instantly unwrapped (or undelegated) back to the underlying representation, sSOL. Unlike others that use a multi-LST pool, where the liquidity for each LST depends on their LP pools (a less efficient design), Solayer consolidates all liquidity for Solayer AVS Tokens using the sSOL-SOL pair. This strategy results in a significantly smaller price impact and significantly improved liquidity.
Solayer Restaking for Dummies
Imagine a highway with eight lanes. The first lane on the left is the most expensive, and the lanes get progressively cheaper as you move to the right. Naturally, the cheaper lanes on the right have more cars than the expensive ones on the left.
In this analogy:
Highway is the layer 1 blockchain.
Highway lanes represent different staking tiers on the blockchain.
The toll to get through a highway lane is the stake required for that tier.
Cars are the applications trying to use the blockchain.
Restakers delegate their stake to projects, earning multiple streams of rewards in project tokens for their service.
Validators are the lanes of the highway, allowing cars (applications) to pass through.
Solayer is the infrastructure that coordinates the toll (restakers), cars (applications), and the highway (validators).
Restakers are crucial as they provide the necessary stake (toll) for applications (cars) to use the blockchain (highway). By doing so, they facilitate the smooth operation of the blockchain and earn rewards for their participation.
