Note: This article is not financial advice. Hubble Protocol does not endorse any tokens or platforms mentioned in this article.
Key Takeaways
- Liquid staking tokens allow users to earn staking rewards and participate in DeFi at the same time.
- Several Solana protocols offer ways to earn additional yield with liquid staking tokens.
- Users can find ways to optimize their staking rewards using liquid staking tokens across the Solana ecosystem.
This post is Hubble’s fourth article on staking crypto. It would be a good idea to check out the protocol's previous articles on staking to get a better understanding of the strategies to increase Solana staking rewards described here:
- What is Crypto Staking and How to Stake Cryptos
- Solana Liquid Staking vs. Classic Staking
- Where to Safely Stake on Solana
This article will focus on increasing SOL staking rewards. Increasing Solana staking rewards is primarily possible by using liquid staking tokens and putting them to work by participating in several different protocols and strategies.
This article is not financial advice nor an endorsement of the protocols mentioned herein. Always research any position when participating in decentralized finance (DeFi).
Earn Rewards by Borrowing USDH with Lido Finance’s stSOL
Hubble Protocol allows users to borrow USDH against a wide array of assets, including Lido Finance’s liquid staking token, stSOL. Users who deposit stSOL to borrow USDH can earn LDO rewards when borrowing above a 40% loan-to-value (LTV) ratio.
When users borrow USDH, they can use their stablecoins in all sorts of ways to earn yield. By borrowing USDH with stSOL, users can mitigate the costs of borrowing and then some with additional rewards in LDO.
Increasing Solana Staking Rewards by Providing Liquidity for Trades
Kamino Finance provides opportunities for earning additional yield on liquid staked tokens. For example, as shown in the vault below, users can provide stSOL that will be used to facilitate trades between SOL and stSOL on Orca’s concentrated liquidity Whirlpools.
Looking at the vault statistics, most of the APY earned from the SOL-stSOL vault is based on LDO, Lido Finance’s native token, and the rest are generated from fees paid in SOL and stSOL by traders on Orca. Subtracting Lido’s incentives, there is around 4% APY produced solely from real yield and economic activity.
The fees earned from providing liquidity vary and depend entirely on market activity, so the more users trade SOL and stSOL through this pool, the more stSOL and SOL liquidity providers (LP)s) can capture.
By providing liquidity for trades between SOL and stSOL, it’s possible to increase yield while holding stSOL, which accrues staking rewards while holding it. In a previous article on liquid staked tokens and DeFi, it was mentioned that users could earn APY from staking as well as APY from DeFi, and Kamino is a prime example of this feature.
Other protocols where users can directly provide liquidity for trading liquid staked tokens include:
Earning Yield from DeFi Options Vaults
DeFi options vaults allow users to take positions in automated options strategies. These vaults generally automate covered calls and secured put strategies on users’ behalf. Users may have to lock their liquid staking tokens into the options vault smart contract for the duration of the strategy, with payouts/withdraws occurring weekly.
Options vaults are slightly riskier methods to generate additional yield on liquid staking tokens, since the market could move faster than predicted, and the strategy could fail. There are several different options for participating in options vaults on Solana, including:
Earning Additional Yield on Liquid Staking Tokens by Lending
The last method for increasing yield on liquid staking tokens is lending. It’s also the strategy with the least yield potential, since few users are willing to borrow an asset programmed to accrue rewards over time, so the rates for lending mSOL or stSOL, for instance, on Solend and Port Finance, are quite low.
However, users may want to borrow liquid staking tokens to participate in leveraged yield farming (LYF). Protocols like Francium and Tulip each offer users ways to set up different strategies to optimize yield farming through borrowing different assets, including liquid staking tokens.
With LYF, other users are participating in strategies mentioned above that provide liquidity in return for fees and rewards, but they’re adding leverage to their position to either long, short, or go delta-neutral on the tokens in the strategy. So it’s possible to earn from their strategy and generate yield by lending on Francium or Tulip.
Earn Yield on Top of Yield Through DeFi Composability
The development of liquid staking tokens is a technological achievement in DeFi that combines the optimization of capital efficiency with maximizing network decentralization. Then, the magic of DeFi composability makes it possible to increase yields earned from liquid staking tokens by putting them to work.
By providing liquidity, participating in options vaults, or lending, users can earn an additional yield on top of their staking rewards. These yields can come in the form of other project tokens or additional liquid staking tokens from fees, and they can accumulate additional tokens for positions over time.
It should be noted that sometimes things can go wrong, and if any of the protocols mentioned in this article are hacked, users can lose their funds. Therefore, the additional risk added to the additional rewards for participating in DeFi with liquid staking tokens should be factored into any decisions made with a well-balanced approach to crypto.
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