“Underestimated” Solana DeFi: How to break the “ecological consumption” between high-yield staking and lending protocols? – ChainCatcher

Traditional financial giant Franklin Templeton recently released a survey report on the Solana DeFi ecosystem, which points out that although Solana’s DeFi business far exceeds Ethereum in terms of trading volume growth and protocol revenue, its related token market value is severely underestimated. Data shows that the average growth rate of Solana’s top DeFi projects in 2024 reaches 2446% (compared to Ethereum’s 150%), with a market cap-to-revenue ratio of only 4.6 times (Ethereum’s is 18.1 times), making it a clear value pit.

However, while the market focuses on Solana DEX’s impressive achievement of capturing 53% of the total network trading volume, the “other side” of its ecosystem is turbulent. After the MEME craze subsided, on-chain trading volume plummeted by over 90%; the 7%-8% staking yield of validator nodes acts like a black hole, draining liquidity, and lending protocols struggle under yield suppression. Behind this value reassessment game triggered by data paradoxes, Solana’s DeFi ecosystem stands at a critical crossroads—should it continue to play the role of “crypto Nasdaq,” or risk transforming into an all-encompassing financial protocol arena? The upcoming vote on the SIMD-0228 inflation reduction proposal may determine the ultimate direction of this ecological revolution.

In Franklin Templeton’s report, the main argument revolves around Solana’s DEX market share. In fact, Solana’s DEX trading volume has indeed achieved remarkable results over the past year.

In January, Solana’s DEX trading volume surpassed that of Ethereum’s DEX and the total trading volume of all Ethereum Virtual Machine (EVM)-based DEXs, reaching 53% of the total network.

By comparing several top DeFi projects on Solana and Ethereum, it can be observed that the average growth rate of Solana’s top five DeFi projects in 2024 reached 2446%, while Ethereum’s average growth was only 150%. In terms of market cap-to-revenue ratio, Ethereum’s average ratio is 18.1 times, while Solana’s is 4.6 times. From this perspective, Solana’s DeFi projects indeed have better advantages in terms of revenue and trading volume. However, does this mean that Solana’s DeFi is in an undervalued state, and whether the upcoming DeFi development can become the main theme still requires further understanding of the ecological characteristics of both.

Ecological Positioning Choice: Trading Center or Universal Bank?

In comparing the DeFi protocols of Ethereum and Solana, it can be seen that the top five DeFi projects on Ethereum are almost all focused on staking and lending.

On the Solana chain, the top five projects by TVL are mostly aggregators or DEXs. Clearly, trading is the main theme on Solana.

From this perspective, if both are compared to financial institutions, Ethereum resembles a bank, while Solana resembles a securities trading center. One primarily focuses on credit business, while the other focuses on trading business, indicating a significant difference in positioning.

However, currently, both seem to be facing considerable issues. Ethereum, which focuses on credit, has encountered problems in maintaining its value. Meanwhile, Solana, which primarily engages in trading, is clearly experiencing a trend of market liquidity contraction.

In light of the ecological positioning imbalance, it may be a good choice for Solana to enhance its credit-related business. However, this transformation is fraught with challenges. The TVL on the Solana chain has dropped by 40% since January, but this decline is mainly due to the drop in SOL prices; in terms of the number of SOL, the change in on-chain TVL is not significant.

Since the issuance of personal tokens by Trump, the DEX trading volume on the Solana chain has been on a downward trend. On January 18, the DEX trading volume reached a historical high of $35 billion, but by March 7, it had fallen to $2 billion.

After the MEME Craze, Capital Competes for Staking Yields

Conversely, as SOL prices decline and MEME coins cool down, the number of tokens staked on-chain has actually been on the rise recently. Taking Jito, the top-ranked project by TVL, as an example, the amount of SOL participating in staking has consistently increased, currently reaching a total staking amount of 16.47 million tokens, with recent inflows also showing a trend of token inflow. Since January 1, 2025, the net inflow of staked SOL has increased by 12% year-on-year. Clearly, this growth in TVL primarily comes from token staking rather than trading activity.

However, this asset growth does not seem to flow into lending protocols but continues to be directed towards validator staking yields. Even though validator staking yields are on the decline, they still attract a significant portion of SOL token TVL.

According to data from Jito, since February, the APY of JitoSOL has been on a downward trend, along with a decline in the number of bundled transactions and priority fee income across the network. As of March 7, the APY of JitoSOL has dropped to 8.41%. However, compared to other categories of staking yields on Kamino, it is still at least 3 percentage points higher.

8% Validator Yields Suppress DeFi Liquidity, SIMD-0228 Proposal Aims to Break the Deadlock

In fact, the staking yield of nodes on the Solana chain has generally maintained around 7%-8%, which is higher than the yields of other types of DeFi protocols. This is why a large amount of funds on the Solana chain choose to stake with various validator nodes rather than invest in lending protocols like Kamino.

Recently, the Solana chain launched the SIMD-0228 proposal, attempting to reduce the annual inflation rate of SOL by 80% through dynamic adjustments, while also promoting the flow of funds to other DeFi by lowering staking yields. (Related reading: Solana Inflation Revolution: SIMD-0228 Proposal Sparks Community Controversy, Hidden “Death Spiral” Risks Behind 80% Reduction in Issuance)

According to the simulation results of the new proposal, if the same staking amount is maintained, the staking yield on-chain will drop to 1.41%, with a yield reduction of 80%. Therefore, the vast majority of funds may withdraw from validator staking and choose other DeFi yield products.

However, there is a logical problem here: the best way to promote the flow of funds to DeFi should be to enhance the yields of other DeFi products, rather than lowering the yields of existing staking products. It should be noted that once funds are withdrawn from validator nodes, they do not necessarily have to remain within the Solana ecosystem; driven by the pursuit of profit, it is more likely that they will seek higher-yield products.

By comparing several of the largest TVL products on the ETH chain, such as AAVE and Lido, it can be seen that the annualized yield of mainstream assets generally ranges from 1.5% to 3.7%. In contrast, Kamino on the Solana chain still has a certain yield advantage.

However, for large amounts of capital, another important consideration is the depth of liquidity. Currently, Ethereum remains the largest reservoir of funds among all public chains. As of March 7, Ethereum’s TVL accounted for 52%, holding half of the market. Solana’s TVL accounts for about 7.53%. The highest TVL project on the Solana chain is Jito, with a TVL of approximately $2.32 billion, which ranks only 13th within the Ethereum ecosystem.

At present, Solana’s DeFi still needs to rely on high yields. The SVM and re-staking platform Solayer recently announced the launch of native SOL staking, with direct yields reaching around 12%. However, PANews observes that this high yield is still achieved through a combination of validator staking.

If the SIMD-0228 proposal is implemented, those DeFi protocols that rely on validator staking yields may face the “stampede risk” of capital withdrawal. After all, these main high-yield products are primarily achieved through validator staking.

In the evolution of Solana’s DeFi ecosystem, although the temporary peak of DEX trading volume confirms the explosive power of its technical architecture, the negative coupling relationship between staking yields and DeFi development hangs like the sword of Damocles over the ecosystem. The SIMD-0228 proposal attempts to cut this deadlock, but a forced yield reset may trigger more complex on-chain butterfly effects than expected. Lily Liu, chair of the Solana Foundation, expressed concerns about this proposal on the X platform, stating that “the 0228 proposal is too much of a half-baked product,” which may lead to more uncertainties.

From the perspective of ecological strategy, Solana needs to build not only a re-anchoring of the yield curve but also a revolution in the underlying value capture mechanism. When validator staking transforms from a yield fortress into a liquidity hub, or when lending protocols can create composite yield models that surpass simple staking, Solana may truly unlock the value closed loop of DeFi. After all, true ecological prosperity does not lie in the numerical stacking of funds in staking pools, but in the perpetual cycle of capital formed among lending, derivatives, and combination strategies—this may be the “Goldbach conjecture” that the “Ethereum killers” need to solve together.