Staking and Liquid Staking on Sui: A Comprehensive Guide

Staking plays a crucial role in the proof-of-stake network and energizes the DeFi ecosystem built upon it, according to The Sui Blog. With only a wallet and some SUI, users can participate in securing the network and earn rewards simultaneously. Staking can be done directly from most wallets and often only takes a few clicks. Within seconds, users can stake SUI and start earning rewards to fuel their adventures further into the Sui ecosystem.

What is staking?

Proof-of-stake (PoS) networks use a process called staking to prevent sybil behavior and maintain network liveliness. PoS ensures that the network continues to operate securely even if a significant number of validators, entities that participate in the consensus process, become unresponsive or collude. PoS requires active validators to have a significant amount of SUI staked, creating an economic incentive that aligns with the long-term success of the network. Staked SUI is illiquid until unstaked and subject to penalty if sybil behavior is clearly observed by a validator.

Any user can participate in the PoS mechanism to help secure the network and maintain the decentralized nature of Sui. Token holders can stake their SUI with a validator and, in return, earn staking rewards. Staking is not only essential to the network's security but also serves as a foundational source of rewards that feeds an onchain economy such as Sui’s. Staking rewards are often considered one of the more stable sources of rewards and are foundational for DeFi ecosystems.

How to stake

Any general wallet app should offer the ability to stake SUI. This example will show how a user can stake SUI from their Sui Wallet account:

1. Within the wallet app, the portfolio section allows you to stake SUI, assuming you have SUI in your wallet. To begin, select ‘Stake and Earn SUI’.
2. Next, you must select a validator to stake with. A scrolling window will populate with all active validators in a random order, allowing you to browse, sort, and select validators. Validator details can be found on explorers such as SuiVision or Suiscan, and websites like Staking Rewards.
3. Once you’ve selected a validator, enter the amount of SUI you’d like to stake, assess the relevant information, and select ‘Stake Now’.
4. The staking transaction should complete very quickly, leaving you with a message that covers information relevant to the transaction.

What is liquid staking?

Liquid staking is an innovative solution that allows users to stake their tokens while still maintaining liquidity. Unlike traditional staking, where tokens are locked up for a specific period, liquid staking solutions enable users to receive a derivative token representing their staked assets. These derivative tokens can be traded, transferred, or used in other DeFi applications, providing flexibility otherwise impossible with staked assets. Liquid staking tokens (LSTs) offer the benefits of earning staking rewards with the ability to stay liquid and participate in DeFi activities.

There are currently three liquid staking solutions available in the Sui ecosystem: afSUI, haSUI, and vSUI. Liquid staking solutions differ primarily in the selection of validators and the reward distribution method. While some liquid staking solutions allow users to select a specific validator to stake with, others may disperse staked SUI to a subset of the active validators, further helping to reduce centralization of staked SUI on any one validator. For example, using Haedal, users can select a specific validator or choose to stake with a selected subset of validators, with inclusion criteria found in their documentation.

It is important to consider what you want from a liquid staking solution and research which provider offers what you prefer.

How to access LSTs

There are two common ways to access LSTs: 1) Stake SUI directly through the liquid staking solutions app, or 2) purchase the LST from a DEX.

The liquid staking solutions have their own apps where users can simply connect their wallet, choose the amount to liquid stake, select their validator preferences (if available), and stake. This gives users an easily accessible location where they can complete all actions around liquid staking.

The second option is to simply buy LSTs from a DEX. This option gives users the convenience to access LSTs from an app they may frequently use. DeFi users interact with DEXes regularly and may find it more seamless to simply purchase LSTs from a DEX that they are already familiar with.

Continuing the journey

Staking is more than just a way to earn rewards; it’s often a user's first step to active participation in Sui. By choosing the right staking approach for your needs, you not only earn staking rewards but also help to decentralize and secure the network as a whole. Understanding liquid staking and how to access LSTs allows you to plan the next steps in your journey within Sui with a strong understanding of a foundational element of an onchain economy.

Note: This content is for general educational and informational purposes only and should not be construed or relied upon as an endorsement or recommendation to buy, sell, or hold any asset, investment, or financial product and does not constitute financial, legal, or tax advice.