Demystifying Liquid Staking Tokens: How They Work & Why We're All In

As of today, liquid staking tokens (LSTs) represent a $43B market, with approximately $6B of which is liquid staked SOL, up from $3.6B at the start of the year.¹ Although LSTs are not necessarily a new crypto vertical, they’ve continued to garner increasing attention and adoption as their value proposition has become more obvious and innovation has progressed. On Solana, liquid staking makes up 14.2% of all staking, up more than +100% since June 2024.²

When considering this reality in the broader context of maximizing SOL Per Share (SPS) growth, the adoption of the dfdvSOL LST was a no-brainer. Said differently, LSTs represent a significant opportunity within the cryptocurrency space and one that aligns with our commitment to growing SPS for our shareholders.

Nevertheless, we acknowledge that not everyone fully understands LSTs, their value proposition, the associated risks, and the reasons behind our recent push into this vertical. In this blog post, we’ll cover all that and more. Readers can expect to walk away with a stronger understanding of LSTs and why we’ve decided, amongst other things, to go all in on our recently adopted LST.

What are LSTs & Their Benefits?

Liquid Staking Tokens (LSTs) are the next evolution of traditional Proof-of-Stake (PoS) staking. Before liquid staking, token holders would delegate their tokens to a validator in exchange for staking rewards. However, in the case of Solana, it takes 2 days to unstake your delegated stake and retrieve your SOL. This “unbonding period” can be potentially problematic for market participants. That’s where LSTs come into play.

LSTs are merely a tokenized representation of your staked SOL, one that’s fully liquid and transferable. When staking SOL via an LST protocol, such as Sanctum or Marinade, you receive a liquid staking token that reflects both your original SOL and the yield it earns. This design unlocks a whole host of new opportunities:

• Easily Transferable, Safely Secured: LSTs can be easily transferred and securely stored in standard crypto wallets, meaning users always have convenient access and mobility across devices. Assets remain as liquid as possible.
  

• Tradeable: LST can be traded on DEXs just like other cryptoassets. This enables users to easily swap LSTs for their underlying staked assets or other cryptoassets, providing flexibility and liquidity.
  

• Collateral for Lending: LSTs can serve as collateral in lending protocols, allowing users to borrow against them. This unlocks opportunities to access liquidity without unstaking SOL, while potentially generating additional returns on your portfolio.
  

• Active Use in DeFi: LSTs can be deployed across DeFi applications, like yield farming, lending, and borrowing. These applications allow users to potentially boost their overall return.

In summary, LSTs unlock a plethora of advantages and opportunities for market participants, removing the illiquidity of traditional staking and enabling real-time access to staked capital. This opens the door to various applications in DeFi and enables more efficient capital allocation. However, the latest innovation in the liquid staking token (LST) space, single-validator LSTs, has unlocked significant value for both market participants and validator operators. 

Unlike general-purpose LSTs such as JitoSOL, which often underperform due to the rebalancing process (incurring a 4–6 day lag and effectively creating a 5–10% performance drag as stake is shifted from underperforming validators to better-performing ones), single-validator LSTs avoid this inefficiency. By eliminating the need for constant restaking, they allow users to capture the highest possible staking yields while still benefiting from LST composability and reward opportunities. Additionally, they streamline the user experience by eliminating the need for users to manually search for, delegate to, and later unstake from specific validators, providing a simplified and more accessible entry point into staking and yield participation.

While single-validator LSTs are theoretically superior to general-purpose ones, they won’t always outperform in practice. To succeed, they must offer higher staking yields or rewards and provide enough incentive for DeFi protocols to integrate and support them. In short, not all single-validator LSTs are competitive with general-purpose LSTs.

Risks to Consider

Like any DeFi innovation, LSTs come with their own set of risks that users should be aware of before participating. These risks include the following:

• Smart Contract Risk: Since LSTs rely on smart contracts, any vulnerabilities in the LST platform could put user funds at risk. To minimize the chances of falling victim to smart contract risk, market participants should review the security audits performed by a third-party auditor.

  • Note: Sanctum, the protocol powering the dfdvSOL LST, has been audited 5 times by the industry's top security firms.
    

• Market Volatility/Depegging Risk: The value of LSTs are intended to track the underlying SOL tokens. Extreme market volatility and/or low liquidity can cause LSTs to depeg, resulting in their market price diverging from the value of their staked SOL and staking rewards. Holders can then experience losses, especially if they need to convert their LSTs back to SOL before a repegging occurs.
  

• Validator Performance Risk: As with traditional staking, LST yield depends on the performance of the underlying validator(s). Poor performance can result in a lower staking yield or even a loss of their stake. This risk can be especially heightened for single-validator LSTs, where a staker can lose all their staking rewards if one operator fails to manage the validator properly.

  • Note: Because DeFi Dev Corp. stakes its own SOL treasury holdings via the dfdvSOL LST, interests are aligned to ensure our validators are always performing optimally. 

dfdvSOL: The LST Powering Our Solana Strategy

On May 28, 2025, DeFi Dev Corp. officially adopted dfdvSOL, an LST built by the Sanctum protocol, marking a critical milestone in our treasury strategy. By integrating the LST, representing SOL delegated to our high-performance validator, we became the first publicly traded company to hold an LST on Solana. This move deepened our involvement within the Solana ecosystem while advancing our mission to maximize SPS growth.

dfdvSOL was born out of our belief that SOL staked with us doesn’t need to sit idle. Traditional staking, while rewarding, locks capital and limits its use in other yield-generating opportunities. By contrast, dfdvSOL enables stakers to unlock staking yield and utilize their staked position across DeFi to enhance their yield and earn additional rewards. The dfdvSOL LST also unlocks an additional avenue for attracting stakers to our validators, thereby helping boost SOL earned from validator operations and driving SPS growth.

As of the time of writing, dfdvSOL is the 25th largest LST by staked SOL, has more than 100 holders, more than 82,000 SOL staked, and offers holders 7.2% APY before any additional yield or rewards. Market participants can get their hands on dfdvSOL by visiting Sanctum and seamlessly swapping their SOL.

In the weeks following our adoption of dfdvSOL, we’ve forged key partnerships to integrate dfdvSOL deeper into Solana DeFi. Each collaboration secured has directly bolstered the token’s utility and, by extension, supports SPS growth. To date, we’ve announced the following partnerships and integrations:

• Kamino (June 2, 2025): We partnered with Kamino, Solana’s premier lending protocol, to integrate dfdvSOL as collateral in their lending markets, making DeFi Dev Corp. the first public company to have an LST onboarded by Kamino. This unlocked borrowing opportunities for dfdvSOL holders, enhancing its liquidity profile.

• Fragmetric (June 4, 2025): We partnered with Fragmetric, a liquid restaking protocol, to extend dfdvSOL into restaking pools, enabling stakers to tap into additional yield streams beyond native staking rewards.

• Drift Protocol (June 9, 2025): We partnered with Drift Protocol, the largest open-sourced perpetual futures exchange built on Solana, to incorporate dfdvSOL into their borrow/lend markets. This integration not only expanded the financial toolkit for dfdvSOL users but also amplified its visibility in one of Solana’s top DeFi hubs.

• Exponent (June 10, 2025): We partnered with Exponent, a yield exchange protocol on Solana, to add dfdvSOL to their fixed yield and yield vaults, opening up pathways for stakers to lock in predictable returns or pursue higher-yield, higher-risk strategies.

• RateX (June 11, 2025): We partnered with RateX, a margin-based yield trading ecosystem, to enable dfdvSOL holders to engage in advanced yield strategies, trading Yield Tokens, locking in fixed returns, and participating in liquidity farming.

• Orca (June 16, 2025): We partnered with Orca, Solana’s leading DEX, to support a dedicated dfdvSOL / SOL liquidity pool on their flagship CLMM (Concentrated Liquidity Automated Market Maker). This integration empowers dfdvSOL holders to provide concentrated liquidity, earn trading fees, and capture yield opportunities directly tied to dfdvSOL’s market activity.

The dfdvSOL Growth Loop

Each and every one of the partnerships and integrations we’ve announced to date has been intentionally secured to expand the usefulness of dfdvSOL. By enhancing dfdvSOL’s value proposition, we can improve our own yield in DeFi, attract new holders, and give existing holders even more reason to increase their exposure. More importantly, these partnerships form a growth loop that aligns with our north star of SPS growth.

How? More integrations unlock yield opportunities for dfdvSOL holders, which in turn attracts more users and demand for the token. This increased demand leads to more SOL being delegated to DeFi Dev Corp.’s validators, boosting validator rewards and revenue potential for the company. These higher revenues ultimately drive SPS growth for shareholders, reinforcing the overall ecosystem’s value even if the loop doesn’t directly result in additional integrations, creating a self-sustaining engine of growth and value creation.

Summary

In this post, we explored the emerging world of LSTs and explain why DeFi Dev Corp. has recently decided to go all-in. As mentioned, LSTs unlock liquidity for staked SOL, transforming it into a liquid, tradeable, and DeFi-ready asset that also compounds yield opportunities. We broke down their benefits, including easier transfers, collateralized borrowing, and active DeFi integrations, as well as the inherent risks tied to smart contracts, market volatility, and validator performance. We also covered how our adoption of dfdvSOL came to be and the impetus behind it.

As the first public company to adopt an LST, we’ve forged partnerships with Kamino, Fragmetric, Drift, Exponent, RateX, and Orca. These partnerships, and those that will follow, are centered around maximizing dfdvSOL’s utility and demand across Solana’s DeFi landscape. These integrations form a growth loop that drives SOL delegation to our validators, boosts revenue, and advances our core mission of growing SPS for our shareholders. In short, our commitment to dfdvSOL aligns perfectly with our mission of compounding SOL yields and driving long-term value for our investors.

Stay tuned, because the best is yet to come.

Sources

1. https://www.coingecko.com/en/categories/liquid-staking-tokens

2. https://blockworks.co/analytics/solana/solana-supply-staking-and-validators/solana-staking-rate 

_{Disclaimer: This is for informational purposes only and reflects publicly announced developments, milestones, and media coverage related to DeFi Development Corp. (“the Company”). The information contained herein does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor should it be relied upon as investment advice or a recommendation regarding any securities. Certain statements in this post may constitute “forward-looking statements” within the meaning of applicable securities laws. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of publication. DeFi Development Corp. undertakes no obligation to update any forward-looking statements, except as required by law. All information is accurate as of the date posted and is subject to change without notice.}