This episode reveals Sanctum's strategic pivot from dominating Solana's liquid staking to building its core transaction infrastructure, signaling a major shift in the network's competitive landscape.
Sanctum's Core Thesis: A Future of Infinite LSTs
- FP Lee, co-founder of Sanctum, begins by outlining the project's core business in liquid staking. Liquid Staking is the process of creating a tokenized, tradable version of a staked asset, like Solana (SOL), allowing users to maintain liquidity while earning staking rewards.
- Lee explains that Sanctum's founding thesis was built on a key technical difference between Solana and Ethereum. On Solana, unstaking returns a stake account—a semi-fungible asset representing the staked SOL—almost immediately, unlike Ethereum's lengthy withdrawal queue.
- This structural difference led Lee to believe that the liquid staking market on Solana would not be a "winner-take-all" environment like Ethereum's, which is dominated by Lido.
- Instead, he envisioned a future with "infinite liquid staking tokens" (LSTs), where the marginal cost of creating a new LST is extremely low. Sanctum built a unified liquidity layer to support this proliferation, ensuring all LSTs remain liquid.
- Lee argues this model fosters healthy competition. "When you have like a 100 LSTs as opposed to one, then all of these LSTs have to compete... they have to be creative, and I think that that overall is better for the consumers."
Market Dynamics and Liquid Staking Penetration
- The conversation shifts to the current state of liquid staking on Solana and whether Sanctum's thesis has been validated.
- Despite Sanctum's efforts, which include powering Binance's BN Soul (the second-largest LST on Solana), liquid staking penetration remains relatively low. The host notes that liquid-staked SOL has grown from ~3% to 9% of the total supply, but the majority (over 60%) is still natively staked.
- FP Lee views this 9% figure as bullish, highlighting the massive room for growth. He points out that institutional players and ETFs entering the space will likely favor the maturity and flexibility of liquid staking.
- He also references Solana co-founder Anatoly Yakovenko's public support, stating, "He goes like, 'Oh, like I think that all SOL should be liquid staked.' So I think he's probably even more bullish on liquid staking than I am."
- Lee suggests the primary reasons for native staking are an overblown fear of smart contract risk and a lack of desire to use the staked SOL in DeFi. For users who simply want to stake and hold, native staking remains a viable option.
Sanctum V2: The Pivot to Transaction Infrastructure
- The discussion introduces Sanctum's major strategic expansion, marked by the all-cash acquisition of Iron Forge, a transaction infrastructure startup.
- FP Lee explains this move was a "bottom-up" decision driven by customer feedback. While creating LSTs for partners like Jupiter and Drift, he learned their primary motivation was to control SOL to ensure their transactions would land on the often-congested Solana network.
- This insight led Sanctum to build a solution that directly addresses transaction delivery, skipping the intermediate step of LST creation.
- The new product, Gateway, is positioned as a "transaction delivery aggregator." It allows developers to plug into multiple transaction landing services (like Jito, BoxRoute, and RPCs) through a single interface.
- Gateway's value proposition is to abstract away the complexity of transaction submission, helping developers optimize for cost, speed, and reliability without needing to manage multiple integrations.
Strategic Implication: Sanctum's acquisition of Iron Forge and the launch of Gateway represent a significant vertical integration. Investors should monitor Gateway's adoption by developers, as it signals a move into a new, potentially more lucrative market beyond liquid staking.
Gateway's Role in the Solana Stack
- FP Lee clarifies how Gateway fits within Solana's existing infrastructure, particularly in relation to dominant players like Jito.
- He emphasizes that Gateway is agnostic and complementary, not a direct competitor to services like Jito. It acts as a routing layer, allowing developers to choose the best delivery method for their specific needs.
- For example, an oracle transaction needs to land reliably but is not latency-sensitive and cannot afford high per-transaction fees. Gateway allows developers to route such transactions through the most cost-effective channel.
- Lee draws a parallel to Jupiter's impact on DeFi: "Maybe the DEXes weren't that happy that Jupiter was aggregating them... but I think like everyone should be clear like that was actually a huge benefit to the user."
Revenue Models and Future Growth Verticals
- The conversation explores Sanctum's current revenue streams and future opportunities, including the rise of Digital Asset Treasuries (DATs).
- Sanctum's primary revenue comes from its white-label LST service, where it charges an AUM-based fee, split with partners like Jupiter and Bybit.
- Another key product is Infinity, a high-yield strategy that holds a basket of partner LSTs. It earns both staking yield and interchange fees from swaps between LSTs, consistently outperforming standard LSTs.
- Lee identifies DATs (Digital Asset Treasuries) as a major new growth area. These entities, which hold hundreds of millions in SOL, are looking for sophisticated yield strategies. Sanctum offers them custom, white-glove LST solutions with full control over validator delegation and other parameters.
Actionable Insight: The emergence of DATs creates a new, high-value customer segment for LST providers. Researchers should track how these institutional treasuries engage with liquid staking protocols, as their needs will drive product development and innovation.
Governance, Tokens, and Solana's Future
- The final section covers Sanctum's unique governance model, broader tokenomic trends, and upcoming changes to the Solana network.
- Sanctum uses Futarchy, a governance model where participants trade on the predicted outcome of proposals, letting the market decide the best course of action. Lee shares an example where the community voted against his proposal to build a mobile app, a decision he now believes was correct.
- On the topic of token buybacks, Lee views them as an imperfect but effective solution to the "incentive alignment problem" between protocols and token holders, but cautions against protocols sending all revenue to tokens at the expense of R&D.
- Regarding network upgrades, he sees client diversity from Firedancer as a net positive, leading to faster block times and higher staking yields. He also notes that major changes like the AlpenGlow consensus rewrite force protocols to stay innovative and avoid complacency.
Conclusion
Sanctum is strategically evolving from a dominant liquid staking provider into a core Solana infrastructure player, betting on transaction delivery as its next growth engine. Investors should monitor Gateway's market penetration as a key indicator of revenue diversification, while researchers can analyze this as a case study in protocol expansion.
