What Is Phantom?
A Step-by-Step Guide to the Digital Wallet for Solana
By: Rahul Nambiampurath •DeFi Explainers
Phantom is the main digital wallet for the Solana blockchain. An Ethereum rival, Solana offers faster transaction speeds and more affordable transfer fees.
Phantom is a hot, non-custodial wallet:
- Hot wallets are online wallets, connected to the internet, in contrast to cold wallets that are offline. For example, writing your wallet’s seed phrase on a piece of paper means that you have created a cold wallet.
- Software wallets act as another app on your computer/smartphone. In the case of Phantom, it is available as an app on both App Store and Google Play. For desktops and laptops, it is available as a Web3 browser extension, supporting Chrome, Brave, Firefox, and Edge.
- Non-custodial wallets give you ownership of your private key. In contrast, cryptocurrency exchange accounts are custodial wallets in which the company (Binance, Kraken) holds your private key for you.
All cryptocurrency transactions are unlocked with private keys. Every private key is matched with a public key, which it generates. When a transaction is made with a public key, your private key verifies it as valid.
Phantom Wallet as Solana’s Web3 Gateway
Just as MetaMask is the most popular wallet for Ethereum, Phantom is its Solana equivalent. Thanks to its performance, Solana has an ecosystem of hundreds of dApps: NFT marketplaces, play-to-earn games, lending, borrowing, and decentralized exchanges (DEXs).
For example, when visiting Raydium dApp, you would get the option to “Connect Wallet” in either the upper right or center screen.
Assuming the Phantom wallet is already installed in the browser, you would see the password prompt appear as a pop up.
This is merely the app password, not the private key. After clicking on “Unlock,” another pop up window would appear to confirm the wallet’s connection to the Raydium dApp.
After clicking on “Connect” to confirm, a small confirmation window appears that the connection was successful. You are then ready to use the Raydium dApp. It is quite similar to Ethereum’s Uniswap DEX.
Not only can you swap tokens on Raydium, but you can also deposit tokens in liquidity pools. For instance, a token pair SOL/USDC is a liquidity pool for traders who wish to trade for either SOL (Solana’s native currency) or USDC stablecoin.
In exchange for providing liquidity in such token pair pools, users receive SOL tokens as a reward. This principle is the core of decentralized finance, whether it applies to DEXes like Raydium or lending dApps like Solend. Reward yields vary depending on market conditions and demand. Here is what they typically look like on Solend.
Of course, to receive a loan, a collateral has to be deposited. This is expressed by the liquidation-to-value (LTV) metric, representing the percentage of collateral needed for one token borrowed. If the value of the LTV ratio reaches a certain threshold, the borrower faces liquidation of their collateral before they pay back the loan.
Such a process is equivalent to banking, but in the blockchain world, everything is more efficient and instantaneous because smart contracts do all the work automatically.
Nonetheless, before you can connect to any Solana dApp, you first have a funded Phantom wallet.
How to Fund a Phantom Wallet?
There are two ways to fund a Phantom wallet. One way is to directly transfer crypto funds from another wallet or a crypto exchange. For instance, if you were to exchange USDC for SOL on Binance, you would be able to send those SOL tokens directly to the Phantom wallet.
The first step is to click on the Phantom extension icon. A window appears with the option to deposit tokens. After clicking on Deposit, select the Solana (SOL) token, which appears as the first listed one.
After selecting it, this is where you receive your QR code for funds transfer. Alternatively, you can copy the address and paste it into your exchange’s receiver address box.
But what if you don’t want to fund your Phantom wallet with SOL tokens, but with stablecoins? After all, in a volatile market, SOL tokens may depreciate while stablecoins remain…stable. In that case, the process requires an extra step.
The problem is, both USDC and USDT stablecoins are commonly traded as ERC-20 tokens. Because that is the smart contract format for Ethereum, the largest DeFi network. So, the exchange from which you transfer USDC to Phantom would have to support Solana SPL.
On the FTX exchange, that would look like this.
Binance has similar support, which would have to be selected. Otherwise, the transaction will fail. Alternatively to both of these funding methods, Phantom has an integrated option to directly buy three types of tokens (SOL, USDC, USDT) via three methods.
If you already have some of these accounts, that would be the most convenient way to fund a Phantom wallet.
If your Phantom wallet is funded with SOL tokens, it is possible to use them to receive staking rewards. After all, Solana is a Proof of Stake network that relies on economic staking to secure the network and process transactions.
In your main wallet menu, click on the bottom dollar icon, SOL token, and then on “Start earning SOL.”
After some loading time, Phantom will list available validators to choose from. Typically, they exert a 10% fee on staking rewards.
That’s because in the Solana ecosystem, most people choose to pick validators as their delegators. The reason for this is that Solana validators have to pay up to 1.1 SOL per day for voting purposes when adding new blocks.
In turn, validators need a fee to cover their losses. After delegating the validators and selecting the SOL amount, the tokens will be locked for a period of time. Meaning, they won’t be able to be moved or spent in dApps.
You can use this calculator to determine SOL staking reward for any given amount and lock-up period. On average, one should expect 5–6% annual percentage rate (APR), which is more than one receives by depositing in a savings bank account.
This series article is intended for general guidance and information purposes only for beginners participating in cryptocurrencies and DeFi. The contents of this article are not to be construed as legal, business, investment, or tax advice. You should consult with your advisors for all legal, business, investment, and tax implications and advice. The Defiant is not responsible for any lost funds. Please use your best judgment and practice due diligence before interacting with smart contracts.