Crypto traders on the Solana blockchain are taking a page from Ethereum’s Liquid staking token (LST) craze by leveraging their SOL token derivatives in pursuit of lofty yields. Drift Protocol, an on-chain crypto trading project for Solana, released a new service Tuesday known as Super staking, which packages the entire re-leveraging cycle into a one-click service. Digital asset traders have quickly taken up the new offering, according to the team, with daily active user base hitting all-time highs immediately after the launch.
The trade became so crowded that Drift nearly ran out of SOL tokens to lend out, co-founder Cindy Leow told journalists. Definitely a huge success overnight, Leow said in a Telegram message. It shows that people are extremely keen on passive/leveraged yields.
The yields generated by Drift’s Super Stake come from mSOL, a LST issued to SOL stakers that use Marinade Finance. mSOL tokens appreciate over time as their underlying SOL tokens accrue interest from Solana’s proof-of-stake processes. Super Stake levers up this market math by letting holders borrow new SOL against their mSOL – and then staking that SOL for more mSOL. More mSOL means more yield-bearing upside, but also more risk: A rapid price move could lead to fast losses and possibly liquidation.
People have been doing this manually ever since mSOL came out, said Marinade’s Head of Communications, Brandon Tucker. Drift just finally built a nice UI for it.
If mSOL loses value relative to the price of SOL, those SOL borrowers who post mSOL as collateral could get liquidated. Each turn around Super Stake’s loop-de-loop lowers the threshold at which this might happen – increasing risk for the user and the protocol too. Those risks were on full display during FTX’s collapse last November when Solana’s top on-chain lending venue Solend nearly imploded from an mSOL depegging.
The pseudonymous Soju, who formerly worked at Solend, had to coordinate between lenders and market makers to defend the peg and save the protocol. We came very, very close to dying that day, Soju said of Solend this week. He said he emerged with a distaste and distrust of leveraged yield loops.
Drift’s Super Stake is not taking a profit from the feature, but directs 10% of borrow fees into an insurance fund that would backstop the protocol if things go south. Co-founder Cindy Leow said Drift is better-suited to handle market madness than Solend was during FTX’s collapse.