Sanctum: Resolving Liquidity Fragmentation in Solana's Liquid Staking Ecosystem

In the traditional Proof-of-Stake (PoS) framework, users delegate their tokens to validators by staking them on the network, earning token-based rewards in return. While effective in securing blockchain networks, this model locks assets for specific durations, creating delays and friction when unstaking tokens.

To counter these limitations, liquid staking protocols were introduced. Through these protocols, users stake tokens such as Solana (SOL) and receive Liquid Staking Tokens (LSTs) at a 1:1 ratio in exchange. Prominent examples of LSTs include mSOL and jitoSOL. These tradeable tokens are collateralized by staked assets, allowing holders to earn staking rewards while leveraging LSTs in decentralized finance (DeFi) environments for trading, collateralization, or yield generation. Although liquid staking has streamlined staking efficiency, it has unintentionally led to a major ecosystem challenge: liquidity fragmentation.

Understanding Liquidity Fragmentation in LST Ecosystems

The emergence of multiple liquid staking protocols, each issuing distinct LSTs, has created a fragmented liquidity landscape within DeFi ecosystems like Solana. These fragmentation issues manifest in several ways:

• High Slippage: When liquidity pools for specific LSTs are shallow, large trades can result in substantial price slippage, increasing transaction costs for users.
• Capital Inefficiency: The dispersion of capital across numerous LST pools weakens overall liquidity utilization and reduces ecosystem-wide efficiency.
• Complex User Experience: Navigating between different LSTs, comparing exchange rates, and identifying optimal trading pathways can be cumbersome for users, leading to inefficiencies.

This fragmentation hampers the scalability and accessibility of liquid staking in the Solana ecosystem.

Introducing Sanctum: Solana’s Unified Liquidity Solution

Sanctum provides a groundbreaking approach to address liquidity fragmentation, acting as Solana’s largest unified liquidity layer specifically designed for LSTs. Additionally, Sanctum serves as a “white-label LST issuer,” enabling ecosystem partners to launch new LSTs without logistical barriers. Through its state-of-the-art infrastructure, Sanctum innovatively consolidates liquidity and improves the accessibility of liquid staking projects.

Sanctum’s ecosystem is built on three essential components:

1. Infinity: A multi-LST liquidity pool that aggregates liquidity across all LSTs.
2. Router: A mechanism that automates seamless conversions between LSTs and SOL to enhance trading efficiency.
3. Reserve: A system leveraging a SOL reserve fund to provide instant liquidity for users requiring immediate unstaking.

Infinity: Aggregating LST Liquidity Across Protocols

Infinity is the foundation of Sanctum, engineered to consolidate fragmented LST liquidity into a single, robust pool. Users deposit their LSTs into this pool and receive INF tokens in return, which represent their proportional stake within the aggregated liquidity. INF holders benefit from distributed exposure to diverse LST assets across the ecosystem, all while earning staking rewards and fees.

A unique pricing mechanism distinguishes Infinity from conventional Automated Market Makers (AMMs). Rather than relying on external market data, the protocol calculates the intrinsic value of staked SOL by referencing on-chain metrics. It measures the total SOL staked and compares it against the circulating supply of LSTs to ensure precise valuations.

To ensure liquidity stability, Infinity employs a dynamic fee model that discourages imbalances. Transaction fees are reduced for trades that restore equilibrium to the pool, while higher fees are imposed on those further skewing liquidity. These safeguards stabilize liquidity during times of high market turbulence or substantial disparities within the pool.

Router: Simplifying LST-to-SOL Conversions

The Router is a vital component of Sanctum, automating complex interactions between LSTs. Historically, individual LSTs needed dedicated liquidity pools on decentralized exchanges (DEXs), presenting liquidity challenges for newly issued tokens.

Sanctum’s Router eliminates these challenges by ensuring efficient LST conversions. When users want to swap LSTs or convert them into SOL, the Router manages the backend operations seamlessly. By automating unstaking and pool redepositions during swaps, users need only initiate a “swap” action, while the Router determines the best trading path behind the scenes.

This system is further enhanced by integration with DEX aggregators like Jupiter. Even when direct trading pairs between specific LSTs are unavailable, the Router identifies alternative pathways to execute swaps. For example, if XSOL (a newly issued LST) doesn’t trade directly with jitoSOL, the Router first converts XSOL into SOL, then swaps SOL into jitoSOL to complete the transaction. Such mechanisms ensure optimal efficiency for all LST trades.

Reserve: Instant Liquidity for Unstaking SOL

In most liquid staking protocols, unstaking SOL comes with a waiting period of two to four days, creating liquidity constraints for users with urgent needs. Sanctum’s Reserve solves this problem by maintaining a substantial SOL reserve fund for immediate liquidity.

When users request instant unstaking, Reserve exchanges the LSTs for SOL without delay, allowing the user to access their funds immediately. Reserve retains the redemption rights over the original staked assets during the withdrawal period and later reclaws the equivalent SOL back from the protocol. A small service fee is charged for this expedited liquidity access.

Acting primarily as a liquidity backstop, the Reserve ensures users can rely on immediate liquidity when other layers like Infinity or Router aren’t available.

Sanctum Tokens: INF and CLOUD

Sanctum’s ecosystem operates on two distinct tokens—INF and CLOUD—designed to offer users unique benefits and governance opportunities:

• INF Token: Representing proportional stakes in Infinity’s pooled LST liquidity, INF tokens generate returns from accumulated staking rewards and swap fees. INF is poised to become a cornerstone asset within Solana’s DeFi landscape, offering growth potential and ecosystem-wide utility.

• CLOUD Token: CLOUD is Sanctum’s governance token, empowering holders to influence protocol decision-making processes. Participants can introduce new LSTs into the Infinity pool, adjust fee parameters, or allocate treasury resources. CLOUD also serves as an incentive mechanism, rewarding contributors to the protocol’s expansion and success.

Revolutionizing Solana’s Liquid Staking Landscape

Sanctum addresses the critical problem of liquidity fragmentation within Solana’s evolving liquid staking ecosystem. Through Infinity’s aggregated liquidity model, Router’s automation capabilities, and Reserve’s instant liquidity provisions, Sanctum redefines accessibility and capital efficiency for users and liquid staking projects alike.

By empowering partners to launch LSTs seamlessly and strengthening liquidity infrastructure, Sanctum enhances the scalability of Solana’s DeFi landscape. Users benefit from reduced costs, simplified stake management, and broader opportunities for returns, while new projects can navigate the ecosystem without liquidity bottlenecks.

Supported by its robust token model, Sanctum ensures sustainable growth while driving unparalleled maturity in the Solana ecosystem. Positioned at the cornerstone of unified liquidity solutions, Sanctum plays a pivotal role in evolving the capabilities and accessibility of Solana’s DeFi framework—ushering in a new era of innovation and efficiency.