This page describes how withdrawals in Lido on Solana work, and why we went with this approach. If you haven’t done so yet, now is a good time to review how stake accounts work on Solana.
Background: Solido staking
For Solido, we require validators to set up a new vote account, with 100% commission, and the withdraw authority set to a Solido-controlled address. (See also the commission page.) This means that all validation rewards are controlled by the Solido program. Solido then computes fee amounts and distributes those to validators. This is a bit different from a typical non-pooled validator setup, where validators set themselves as withdraw authority, and fee distribution happens automatically due to the commission/delegator split. Because for Solido all validation rewards are paid as commission into vote accounts, rewards do not compound automatically, so the Solido maintenance bot withdraws the rewards from the vote accounts and stakes them, just like it stakes deposits.
Background: Solido rewards
On Solana, vote accounts gain rewards proportional to how many times they voted, and proportional to the stake delegated to them. The stake amount is the active stake at the start of the epoch (so active and deactivating stake, but not activating and inactive stake). Rewards for votes in epoch k, are then paid by the runtime at the start of epoch k + 1. In the optimal case, this means that if you activate (delegate) stake in epoch k, it will be activating for the remainder of epoch k, it will be active in epoch k + 1, and the rewards gained over epoch k + 1 will be paid at the start of epoch k + 2.
Solido splits validation rewards into two parts: fees, that get paid in the form of stSOL, and rewards that benefit stSOL holders implicitly, by making the SOL value of stSOL go up. Solido maintains a fixed exchange rate per epoch, that is updated once at the start of the epoch.
At the start of epoch k, the maintenance bot triggers an exchange rate update. Solido then reads the SOL balance managed, and the amount of stSOL in existence, and this becomes the new exchange rate for epoch k. The SOL balance managed by Solido does not yet include rewards received at the start of epoch k.
After the exchange rate update, the maintenance bot triggers fee collection for every validator. This looks at the vote accounts, and withdraws the rewards in there into the Solido reserve. These rewards are the rewards over epoch k - 1. Solido mints stSOL fees according to the current (just updated) exchange rate, and the remainder goes to stSOL value accrual, which will go into effect when the next exchange rate update observes the new balance.
A user who deposits in epoch k, can withdraw more SOL than initially deposited, in epoch k + 1. Therefore, the user benefits from rewards in epoch k + 1. This benefit is not due to the user’s own deposit, because that stake only started being active in epoch k + 1; it’s the reward over epoch k - 1, that benefits stSOL holders at the transition from epoch k to k + 1. This means rewards are “shifted in time”: users can already benefit, even though their share of the pool is not yet active and gaining rewards.
On the flip side of this, users do not benefit from rewards gained over the epoch where they withdraw. If a user withdraws and deactivates in epoch k, then the stake still gains rewards over epoch k. The stake is deactivating, but that counts as active stake for the purpose of rewards. Those rewards over epoch k get paid at the start of epoch k + 1, and they will benefit stSOL holders at the exchange rate update of epoch k + 2. A user who withdraws in epoch k, therefore benefitted for the last time at transition from epoch k - 1 to k, and that benefit was due to the stake active in epoch k - 2.
Aside from reward differences due to differences in activating stake, Solana has an inflation schedule that reduces the reward slightly with every epoch.
This section describes how withdrawals work in Lido on Solana. In the next section, we can then investigate possible concerns to see if they are a problem for this withdrawal method.
Withdrawals withdraw an active stake account. When a user withdraws, we take the stSOL and burn it. Then we split one of the Solido-managed stake accounts, to split off the corresponding amount of SOL. (The amount is determined by the internal exchange rate, see below.) We set the stake and withdraw authority of this new stake account to the withdrawing user’s address, so the user is now in full control of this stake account. The stake remains active, and delegated to one of the Solido validators. It is up to the user to deactivate the stake, and then withdraw from the stake account. We might automatically include a deactivate instruction from the withdraw widget or CLI command, to save users the deactivate step.
Solido picks the validator to withdraw from. Solido maintains a target stake balance and actual balance for every validator. It only allows withdrawing from a validator, if there is no other validator whose stake balance is further above its target than the one we try to withdraw from. If the maintenance bot kept the stake exactly balanced, this could be any validator, but in practice, due to the minimum stake amount, validator balances can differ slightly.
Withdrawal amounts are constrained. Because withdrawal splits a stake account, the maximum amount to withdraw is the amount of stake in the target stake account, minus the minimum stake balance. If users want to withdraw more, they should do multiple withdrawals. Also, because of the minimum rent-exempt balance of stake accounts, the minimum amount to withdraw is the minimum rent-exempt balance.
Withdrawal amounts are capped further. Aside from the above limitations, we cap withdrawals so users can withdraw at most 10% of a validator’s stake.
The exchange rate is fixed per epoch. Solido uses a fixed SOL/stSOL exchange rate that is updated once per epoch. The net effect of this is that the relative order of deposits and withdrawals within an epoch no longer matters. Effectively, time is discrete, and only epochs matter.
Withdrawals are for advanced users. Because withdrawals are subject to some constraints, and because they require multiple advanced steps from the user (deactivate and withdraw from the stake account), we don’t expect regular users to withdraw from Solido. Those users can withdraw on the open market (e.g. Orca or Aldrin) instead. We mainly expect power users such as market makers to withdraw directly from Solido.
Consequences of this approach:
- Solido gains rewards over stake that was withdrawn, over the epoch that the stake was withdrawn in. (And possibly longer, if the user doesn’t deactivate the stake.)
- Withdrawals are instant for Solido, we do not need to store ongoing withdrawals anywhere. Withdrawals are instant for users too, in the sense that the funds immediately move to an account controlled by the user, but users still need to deactivate their stake and wait for it to cool down before they can spend the SOL. This is enforced by the Solana network, Solido is not involved in the cooldown.
This section lists some possible issues, and explains how they affect Solido’s withdrawal approach.
[Non-issue] Withdrawals causing churn, which cause Solido to miss rewards. If stake that is withdrawn no longer incurs rewards, then a user could withdraw x SOL, and then deposit x SOL. (They might be different users too.) The end result is the same balance for Solido, except that we gain fewer rewards, because newly deposited SOL needs to be activated first, and it’s not gaining rewards while it is activating. This turns out to be a non-issue, because deactivating stake still gains rewards, so when users withdraw, even though they are in control of the stake account from that point on, Solido still gets the rewards that epoch. Therefore, withdrawing does not cause Solido to miss rewards.
[Non-issue] Users who have knowledge about future slashings can withdraw to avoid the penalty. This is not a problem, because slashing does not exist on Solana.
[Non-issue] Bank run. Aside from the minimum mentioned above, nothing prevents users from withdrawing, and users who withdraw do not have a negative impact on Solido.
[Low impact] Users can disturb the stake balance. Even though Solido only allows withdrawing from the validator with the most excess stake, users can withdraw a large amount that disturbs the stake distribution by a lot. This is less of a problem with more validators. Users could also wait for their target validator to be the one with the most excess stake, and then withdraw. A validator with less stake is not a problem for that validator, because Solido distributes validation rewards among all validators, so the validator will still have income, even if it temporarily has less stake. Still, to limit the impact of this issue, we cap the amount per withdrawal to a percentage of the validator’s stake. For larger withdrawals, the user needs to break them up, and then Solido enforces that the parts are withdrawn from different validators. Furthermore, in v1, the only way to return to the target stake distribution is by staking more new deposits, but in v2, we plan for the maintenance bot to actively redistribute stake, which will limit the possibility for imbalance at larger timescales.
[Low impact] Solido balance cannot be fully withdrawn. Because we require a minimum amount to remain in every stake account, not all funds can be withdrawn. We need to keep at least one stake account, with the minimum stake account balance, per validator. In the long term, this can be resolved by implementing validator removal. Because the “locked” amount is proportional to the number of validators, it can be reduced by reducing the number of validators. But even without validator removal, this is not a problem in practice. The minimum stake account balance is only 1 SOL, so if every validator who joins deposits 1 SOL without the intention of withdrawing it, then all users who wish to withdraw can do so.
[Unknown impact] Time shift of rewards. When users deposit at epoch k and withdraw in epoch k + 1, the reward is really the reward over the stake active in epoch k - 1, see also the earlier section on Solido rewards. When the balance managed by Solido is steady, and when deposits and withdrawals are small with respect to size of the pool, the rewards over those epochs will be very similar. However, when the pool is growing or shrinking a lot, this difference might be significant. Let’s consider three scenarios:
- In epoch k - 1, the pool size was a lot smaller than x, and in epoch k, it’s x. (The pool is growing fast.)
- In epoch k - 1, the pool size was about x, and in epoch k, it’s x. (The pool is steady.)
- In epoch k - 1, the pool size was a lot larger than x, and in epoch k, it’s x. (The pool is shrinking quickly.)
For a user who deposits SOL in epoch k, and withdraws all of it in epoch k + 1, the benefit in scenario 1 is smaller than scenario 2, and the benefit in scenario 3 is larger than in scenario 2. In other words, it’s more lucrative to jump in and out when the pool is shrinking to x, than when the pool is growing to x. (Note, this compares growing and shrinking to x, not just growing or shrinking in general!) We don’t know how this impacts long-term stability; withdrawing in epoch k + 1 is still more lucrative than withdrawing in epoch k, regardless of whether the pool is growing or shrinking. Also, due to the fixed exchange rate, withdrawing x SOL in epoch k and depositing the same amount again in epoch k, is equivalent for the user to just holding the stSOL. There might be other interesting behaviors though, this needs more analysis.
Comparison to Lido for Ethereum
We also investigate some of the concerns that were investigated for Lido for Ethereum, to benefit from the analysis done there. This is not an apples-to-apples comparison because Solana and Ethereum are very different, but it is good to still go over the scenarios, to see if and how they affect Solido.
[N/A] Discrete withdrawal amounts. On Ethereum 2, withdrawal amounts are less flexible than on Solana. On Solana, we can split off a stake account for almost any amount of SOL, but limited by the constraints mentioned before.
[N/A] Oracle reports on network state. Solido does not involve any oracles, everything happens on-chain.
[N/A] Network turbulence. Ethereum 2 can lose finality. This is not a problem on Solana; in the worst case the network halts.
[N/A] Ongoing slashings. Slashing does not exist on Solana.
[Non-issue] Ongoing rewards. Rewards on Solana are paid once per epoch. Solido discretizes time such that only epochs matter. Users who deposit in epoch k, benefit (from the new exchange rate) in epoch k + 1. Users who withdraw in epoch k, can access their funds at the earliest in epoch k + 1 (and possibly later, if cooldown takes longer, this depends on the state of the entire network). Users who withdraw in epoch k, do not benefit from the rewards incurred over epoch k. To benefit from rewards, users need to stake with Solido for at least one epoch boundary.
[Non-issue] Unbonding period. Stake on Solana is subject to a cooldown period. We move this problem to the user, by making withdrawals return an active stake account, so we don’t need to keep track of the cooldown.