Background
Last updated
Last updated
Pye is building bond markets for validators and stakers, enabling validators to offer better rates for long-term lock-ins while providing stakers liquid composable assets they can use in Solana’s DeFi ecosystem.
This comes at a critical time as the validator stack is being commoditized, with proposals like SIMD 123 & 228 pushing the Solana validator ecosystem to mature in order to stay competitive. Validators must adapt by lowering fees, sharing block rewards, and integrating DeFi options to attract delegators.
Pye is built on two core insights:
Validators are willing to share block rewards with delegators in exchange for longer-term deposits. Validators seek reliable, inelastic TVL, which in turn leads to predictable cash flows.
Stakers are willing to lock into longer-term contracts if they get the best yield and can access DeFi (restaking, lending, yield splitting).
Market forces are pushing the market in this direction, with Lido V3 announcing modular liquid staking and a more competitive environment that benefits both stakers and validators.
These types of products are essential for onboarding TradFi and maturing the space, but they require a crypto-native twist to unlock more utility for a larger audience.
Solana’s APY is decreasing by 15% every year, and proposals such as SIMD 228 are accelerating this process.
Historically, delegators have received the standard staking reward rate on Solana, which is about 7%. The remaining rewards - block rewards and MEV - have generally been kept by validators, and can reach up to 15%. When you combine staking rewards, MEV, and block rewards, the APY is closer to ~17%.
With Solana’s native inflation decreasing, validators are starting to compete at the pricing and block sharing level for the same pool of capital.
Whereas delegators used to only receive staking rewards, now validators are starting to share both block rewards and MEV in exchange for longer-term stakes. These relationships have traditionally been captured at the SLA level through legal agreements, but there are no on-chain mechanisms to granularly track block rewards and MEV or configure how they are split between validators and delegators.
Anecdotally, we have heard from validators that they manually transfer out block rewards to their delegators once a month.
New initiatives, such as SIMD-0123, are being proposed to track these fees at the protocol level and provide operators with interfaces to configure reward splits.
Each validator operator has a unique cost of production and is exposed to different risks.
Factors like deposit duration, validator uptime, geo-location, regulatory jurisdiction, cluster infrastructure (e.g., AWS), fee structure, node client, and eventually slashing history contribute to each validator operator having a distinct risk profile.
As Solana’s staking ecosystem matures, we can expect validators to compete on new grounds beyond just pricing:
Cost of Production
Risk Profile
Validator utility (e.g., restaking, looping, and loans)
We stand on the shoulders of giants. LSTs emerged from the idea that staking capital could be separated from validator nodes without altering the underlying consensus of the PoS network.
This breakthrough unlocked over 44B on Ethereum alone and over 80 billion across all major chains. Currently, about 40% of all staking capital on Ethereum is wrapped into LSTs.
Liquid staking is a growth sector This ratio is much smaller on Solana, where the staking-to-LST ratio is just under 10%. This represents a significant opportunity, with liquid staking projected to grow 4x as it catches up to EVM levels.
On Solana, stake itself is composable (Stake accounts), unlike Ethereum, where stakers do not receive a receipt token for their stake. This tokenization enables the stake to be transferred, traded, or used in various financial products, making it more liquid and flexible. We have already seen lending protocols accept native stake as collateral for loans. This unique treatment of stake allows users to engage in more granular financial activities, such as trading or using staked assets as collateral.
Additionally, Solana’s delegation model allows stakers to deposit directly into an existing validator node, unlike Ethereum, where stakers must run validators capped at 32 ETH and require smart contracts or bespoke infrastructure to exceed this limit. This is one of the key reasons why there are over 1,400 validators on Solana.
This emerging trend on Solana mirrors a similar phenomenon observed in the Ethereum ecosystem after the merge, where validators were compelled to collaborate with DeFi apps to remain relevant and secure stake.
We believe this paradigm is arriving on Solana, and that Pye is well-positioned to work with validators in creating a high-yield DeFi ecosystem for validator stake.
