Digital asset company 21.co’s analyst Tom Wan believes that liquidity mining is an untapped potential in the decentralized finance (DeFi) field of Layer 1 blockchain Solana, which could increase its total value locked (TVL) from 15 billion to 170 billion US dollars.
Tom Wan pointed out on the X platform that despite a pledge rate of over 60%, only 6% (34 billion US dollars) of the pledged SOL comes from liquidity mining. In comparison, Ethereum has 32% of pledges coming from liquidity mining.
Tom Wan believes that the reason for this difference lies in the existence of an in-protocol delegation mechanism. He stated that Solana provides a simple way for SOL token pledgers to delegate SOL natively, while the liquidity mining platform Lido is one of the few early methods for delegating Ether (ETH) to earn staking rewards.
Overview of Solana liquidity mining market
Tom Wan stated that Solana’s liquidity mining tokens (LSTs) have a more balanced market share compared to Ethereum. On Ethereum, 68% of the market share comes from Lido, while LSTs on Solana are more concentrated, with the top three LSTs accounting for 80% of the market share.
Tom Wan mentioned that in the early stages, the Solana liquidity mining market was dominated by Lido’s stSOL (33%), Marinade’s mSOL (60%), and Sanctum’s scnSOL (7%), with the total market value of LSTs on Solana being less than 1 billion US dollars. He attributed the lack of adoption of liquidity mining to marketing and integration, as there were not many high-quality DeFi protocols supporting LSTs at the time, and the market focus was not on liquidity mining.
However, with the launch of the liquidity mining protocol Jito on Solana in November 2022, which introduced the liquidity mining token jitoSOL, they managed to surpass stSOL and mSOL, becoming the most dominant liquidity mining token on Solana with a 46% market share.
How to expand the Solana liquidity mining market?
Tom Wan believes that the key factors for the success of Solana’s liquidity mining tokens include liquidity, DeFi integration, partnerships, and chain expansion as an option. He pointed out that LSTs have driven the development of the Ethereum DeFi ecosystem and can similarly help significantly increase Solana’s TVL.
Tom Wan gave an example that 40% of the TVL of Ethereum lending protocol AAVE v3 comes from wstETH (wrapped stETH), which can serve as collateral to generate income and unlock more potential for DeFi projects like Pendle, Eigenlayer, and Ethena.
He also made several predictions for the future growth of Solana’s liquidity mining rate in the next one to two years (based on current valuations):
Base case: 10%, increasing available liquidity in DeFi by 15 billion US dollars
Bull case: 15%, increasing available liquidity in DeFi by 50 billion US dollars
Long-term bull case: 30%, with a liquidity mining rate similar to Ethereum, increasing available liquidity in DeFi by 135 billion US dollars
Tom Wan concluded by stating: