Liquid staking frenzy reaches Solana with Drift’s ‘Super Stake’ offering one-click leverage.

Risk-tolerant crypto traders on the Solana blockchain are leveraging their SOL token derivatives to pursue high yields, inspired by Ethereum’s “Liquid staking token” craze. Their process involves staking SOL tokens for a proxy receipt token called mSOL, using mSOL as collateral to borrow SOL, and then swapping that SOL for mSOL again. This approach is similar to the leverage-on-steroids strategy seen in other digital asset markets.

Drift Protocol, a crypto trading project for Solana, has introduced a new service called “Super staking,” which simplifies this re-leveraging cycle into a one-click service to attract a wider audience. The offering has quickly gained popularity, with Drift reporting a surge in daily active users immediately after the launch. The market is hungry for annualized yields that can reach up to 10%.

The demand for the trade was so high that Drift almost ran out of SOL tokens to lend out. Co-founder Cindy Leow described it as a huge overnight success, indicating people’s strong interest in passive/leveraged yields.

Furthermore, SOL’s token price has increased by 8.8% in the past 24 hours, making it one of the top-performing digital assets with a market cap of at least $500 million.

The yields generated by Drift’s Super Stake come from mSOL, a Liquid staking token issued to SOL stakers using Marinade Finance. As the underlying SOL tokens accrue interest from Solana’s proof-of-stake processes, mSOL tokens appreciate over time. By borrowing new SOL against their mSOL and staking that SOL for more mSOL, Super Stake amplifies the yield potential. However, there is also increased risk, as a rapid price movement could lead to losses and liquidation.

Drift’s Super Stake simplifies a yield loop that savvy mSOL holders previously performed manually. This convoluted procedure is representative of the Liquid staking token economies emerging on various proof-of-stake blockchains. Ethereum, in particular, has a mature landscape with Lido’s staked ETH tokens worth $14 billion.

There are risks associated with DeFi looping. If mSOL loses value relative to SOL, SOL borrowers who use mSOL as collateral could face liquidation. Each turn in Super Stake’s loop-de-loop lowers the liquidation threshold, increasing risk for users and the protocol itself. The collapse of FTX last November highlighted these risks when Solend, the leading on-chain lending venue for borrowing against mSOL, almost imploded due to an mSOL depegging.

Drift directs 10% of borrow fees into an insurance fund to mitigate potential losses. However, some individuals, like Soju, who previously worked at Solend, have a distaste and distrust for leveraged yield loops, believing that they underestimate the risk for little gain.

Loew, who refers to the addition as “a highly requested public good,” stated that Drift is better equipped to handle market volatility than Solend was during FTX’s collapse. A significant and sustained deviation in the value of mSOL would be required to disrupt the protocol or its users.

“If there are any shortfalls, the protocol automatically addresses them through insurance or social loss, without the need for external intervention, which Solend did not do,” she explained.

Edited by Bradley Keoun.