What is Solana?

Solana is an open-source, decentralized and highly scalable blockchain protocol that provides a platform for developers to create decentralized applications (dApps). As of October 2021, there are currently over 400 projects being built on Solana. The protocol uses a new timestamp system called Proof-of-History (PoH), which creates a historical record that proves that an event has occurred in a specific point in time, but that also leverages Proof-of-Stake (PoS) consensus mechanisms to help secure the network. Solana can process over 50,000 transactions per second, which is in significant contrast to Bitcoin’s seven transactions per second.

Anatoly Yakovenko began working on the project and published a whitepaper describing Proof-of-History in November 2017. Solana’s continued development is supported by Solana Labs, which is developing the blockchain, and the Solana Foundation, which is a non-profit organization dedicated to the decentralization, growth, and security of the Solana network. Solana’s mainnet beta was officially launched in March 2020 by the Solana Foundation, and in April 2020, Solana Labs transferred the protocol’s intellectual property and 167 million SOL tokens to the Solana Foundation.

What is SOL?

SOL is Solana’s native token serving two primary functions within the network: the token is used to pay for transaction fees and to execute smart contracts. Users can also stake SOLs as part of the proof-of-stake consensus mechanism to validate transactions. SOL is inflationary and there is no maximum supply.

There is currently no timeline for adding on-chain governance so the token is not currently used for voting on development proposals and protocol governance. Solana Labs and the Solana Foundation remain core contributors to the protocol, leading network upgrades and the development of new features. Since March 2018, Solana has raised over 25 million USD through five rounds of token sales, four of them being private sales.

How does SOL staking work?

On Solana, certain nodes called validators process transactions and run the network. Validators on Solana are responsible for the same thing as miners in proof-of-work systems such as Bitcoin: ordering transactions and creating new blocks so that all nodes can agree on the state of the network. Holders of SOL can participate in staking by delegating their SOL to validators. The Solana network pays staking rewards to participants that delegate their SOL.

Wealthsimple allows you to stake SOL with a minimum balance of 0.02 units. SOL staking rewards are automatically staked by the Solana protocol. For a more detailed general explanation of staking and the associated risks of staking, please refer to the Wealthsimple Crypto Product Risk Disclosure. Additional information regarding staking of SOL on Wealthsimple is set out below.

Validator Commissions

Solana validators receive a fee (referred to as a “commission”) based on a percentage of rewards earned by SOL delegated to them. This fee is deducted automatically by the Solana protocol and paid to validators when staking rewards are distributed.

Supported Validators

Wealthsimple arranges to stake SOL with validator nodes operated by the following infrastructure providers:

Infrastructure Provider	Description	Validator Commission
Staked	Based in New York, Staked operates a non-custodial staking platform. Staked was acquired by the Kraken crypto trading platform in December 2021.	10%

 

Epochs

The Solana protocol uses a “leader schedule” to determine which validator is responsible for appending transactions to the Solana ledger at any given time. An epoch is the period of time during which a leader schedule is valid. Each epoch lasts roughly two days. 

Warm-Up & Cool-down Periods 

In Solana, it usually takes one full epoch before staked SOL starts to earn rewards, which is referred to as the “warm-up” period, and a full epoch after being unstaked before the SOL can be transferred, which is referred to as the “cool-down” period. 

Solana imposes a limit on the total amount of SOL that can be staked or unstaked simultaneously. If there is a large increase in staking or unstaking activity, “warm-up” and “cool-down” periods may be longer than one epoch.

Under the Solana protocol, staked assets cannot be transferred until they are un-staked and the cool-down period has elapsed. Despite this restriction, Wealthsimple allows you to sell or transfer SOL immediately after un-staking it.

Network Inflation

The Solana network pays staking rewards from network inflation, that is, the increase in SOL supply over time. The initial inflation rate for Solana is 8% per year. The dis-inflation rate - the rate by which the inflation rate decreases year over year - is -15%. This means that the inflation rate will decrease by 15% each year until the inflation rate eventually reaches the long-term inflation rate of 1.5%.

Staking Rewards

Solana computes and issues staking rewards once per epoch. Rewards accrued in a given epoch are issued in the first block of the following epoch.

When rewards are received, Wealthsimple will calculate and distribute your share of SOL staking rewards to your Crypto Account. For each epoch, your share of SOL staking rewards is proportionate to the amount of SOL that you had staked and was warmed up when the epoch began. If you un-stake SOL during an epoch, you will not receive any rewards for that epoch.

SOL staking rewards are automatically staked by the Solana protocol and do not need to be manually staked to compound staking rewards.

Staking Fees

Commission rates charged by supported validators are set out above under “Supported Validators”. The validator commission is automatically deducted from staking rewards before they are received by Wealthsimple. Under commercial agreements between Wealthsimple and supported validators, validators pay a portion of the validator commission to Wealthsimple.

Wealthsimple also charges you a fee equal to a percentage of staking rewards received by you. The amount of the fee for SOL is set out in our Fee Schedule. This fee is deducted when rewards are distributed to you and is in addition to the validator commission.

Custody of Staked SOL

In Solana, a stake account is used to delegate tokens to validators. Stake accounts are different than a traditional Solana wallet address, known as a system account. A system account is only able to send and receive SOL from other accounts on the network, whereas a stake account supports more complex operations needed to manage a delegation of tokens.

SOL staked using the Staking Functionality is delegated from dedicated stake accounts held with one or more of Wealthsimple's custodians. Wealthsimple's custodians will continue to hold the private keys required to control SOL held in these stake accounts.

Slashing

On Solana, slashing is a penalty for a validator’s intentional malicious behavior, such as creating invalid transactions. When a validator is slashed, all token holders who have delegated SOL to that validator lose a portion of their delegated SOL. 

Currently, slashing is not automatic in Solana. After a safety violation, the Solana network will halt. Other validators can propose that the stake delegated to the validator responsible for the safety validation be slashed after the network restarts.

In the event that a supported Solana validator is slashed, Wealthsimple has no obligation to replace any lost SOL or otherwise provide compensation for any losses. To the extent that Wealthsimple receives any compensation from validators in connection with a slashing event, Wealthsimple will distribute that compensation to affected clients. The negative impact of slashing will be allocated to all clients using the Staking Functionality at the time of slashing event, in proportion to the amount of SOL they had staked. 

Risk statement

Before trading or staking any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.

No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform. 

Wealthsimple has performed an assessment of whether SOL can be supported by Wealthsimple’s platform, including whether SOL is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.

We evaluated SOL based on publicly available information, including (but not limited to):

• The creation, governance, usage and design of SOL, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Solana;
• The supply, demand, maturity, utility and liquidity of SOL;
• Material technical risks associated with SOL, including any code defects, security breaches and other threats concerning SOL and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
• Legal and regulatory risks associated with SOL, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of SOL; and
• Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether SOL, or generally about whether the type of crypto asset, is a security and/or a derivative.

As part of its assessment, Wealthsimple reviewed and considered:

• the design and operation of staking SOL, including:
• bonding/unbonding or warm-up/cool-down periods;
• any limits on the number of active validators;
• the mechanism for selecting validators;
• slashing or similar penalties; and
• token inflation;
• any publicly available security assessments; and
• where feasible, the number and identity of validators participating in staking.

Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to SOL may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support SOL.

Like all other crypto assets, there are some general risks to investing in SOL. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.

Additional Risks / Information

SOL has elevated regulatory risk. The United States Securities and Exchange Commission (SEC) has alleged that SOL is a security under U.S. federal securities laws in one or more enforcement proceedings pending before U.S. courts against crypto trading platforms. None of the Solana Foundation or Solana Labs are parties to this proceeding, and the U.S. courts have not determined that SOL is a security. In the event that a U.S. court determines that SOL is a security or there are other material developments affecting the treatment of SOL under securities laws, Wealthsimple may cease to support SOL and/or the market for SOL may be adversely affected.

WSII emphasizes that this Crypto Asset Statement is not exhaustive of all risks associated with trading or staking SOL. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.

Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision). 

The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.

 

Last updated: January 1, 2024