Staking rewards and lack of utility for validators and LSTs

In proof-of-stake (PoS) networks like Solana, staking rewards are generated as an incentive for both validators and delegators to secure and maintain the network. Validators are responsible for validating transactions and producing new blocks, and they earn rewards based on the amount of stake delegated to them. On Solana, these rewards are distributed to validators in proportion to their performance and the total stake they manage. Delegators, who are users that entrust their tokens to a validator, receive a share of these rewards proportional to their stake, thereby aligning the incentives of both parties to maintain network integrity.

Solana Liquid Staking

At the time of writing, nearly 10% of all staked SOL is held with validators and not in some liquid staking form (eg. LSTs).

Source: https://dune.com/queries/3698958/6224056

Composability issues with validator staking

The current structure of staking on Solana reveals a lack of utility at the validator level. Validators operate in a relatively isolated manner compared to other crypto assets. They typically only earn staking rewards without having the ability to interact with other DeFi protocols. Unlike fungible tokens that are inherently composable—meaning they can be integrated seamlessly into liquidity pools, used as collateral for loans, or involved in yield-boosting strategies—validators themselves do not have this level of interoperability. This limits their capacity to benefit from DeFi protocols such as automated market makers (AMMs), lending protocols, or restaking mechanisms.

This lack of composability for validators results in missed opportunities for enhanced returns and financial innovation. In the broader DeFi landscape, composability is a key driver of increased capital efficiency and layered yield strategies, where assets can be leveraged across multiple platforms to maximize returns. For validators, being confined to staking rewards means they miss out on additional liquidity and earning potential provided by platforms that allow assets to be used as collateral or traded in secondary markets. Addressing this gap—such as through innovations that tokenize staking positions or enable validator-derived assets to be used within the DeFi ecosystem—could unlock new revenue streams and further incentivize the secure operation of PoS networks like Solana.

Pains for valdiator stakers

• Can't hedge against stake

• Can't sell future yield

• Can't get loans

• Can't get more yield beyond staking apy + mev rewards