Project Insight: Marinade - The First Liquid Staking Protocol on Solana

Marinade Finance has attracted a large community within the Solana ecosystem and grown to become one of the most prominent protocols building on one of the fastest-growing blockchain networks in the cryptoverse, Solana

By
Abhinav Tewari
on
April 9, 2022
Category:
DeFi

Introducing Marinade Finance

Marinade Finance is the first non-custodial liquid-staking protocol on the Solana blockchain. It offers users the ability to stake their SOL tokens using predetermined staking strategies in return for Marinaded SOL tokens (mSOL) which can be used to maximize yield on the protocols DeFi portfolio. The price of the mSOL increases with the value of SOL each epoch, and yields are accrued into the underlying staked SOL. 

Source: Marinade Finance Website

Marinade also allows users to swap the staked SOL back for SOL at any time–a process known as unstaking. It has a zero lockup period which makes the platform highly flexible. Additionally, mSOL can also be swapped for SOL on secondary markets at the prevailing market rate as it is compatible with most decentralized platforms. The platform also boasts an extensive network of validators to maintain security and decentralization. 

Objectives of Marinade

Marinade Finance was conceived with the following three key objectives :

  • Contributing to decentralization: A key proposition of any blockchain is to be censorship-resistant, which implies that no nation, corporation, or a third party should be able to influence the entry of participants and transactions on the network. At the time of writing, the Solana blockchain has 1,674 validators, out of which 21 have the ability to halt the network based on the stake they hold. In order to better this situation, Marinade aims to delegate a stake to a large number of smaller validators, thereby potentially democratizing and decentralizing the network further. 
  • Accelerate adoption of cryptocurrency: Marinade believes that in order to achieve mass adoption of crypto, i.e., more than one billion users, the user experience should be simplified so as to appeal to a wider audience. Therefore, Marinade has designed its interface to make it seamless and easy to use in order to enable audiences to stake at a click of a button.   
  • Create opportunities for the community: Allowing users to stake easily on the platform provides an opportunity for users to earn rewards in terms of SOL. But for the community at large, increasing liquidity in the network will enable lending and borrowing of funds that could be used for other projects and innovations or just to maximize yield, thereby driving growth in the community. 

Value Proposition

Marinade Finance offers the following benefits to its users: 

  • Absolute control over tokens and associated accounts.
  • Ability to unlock stake for a tokenized version of the position, which can be used to generate yield on DeFi.
  • An open-source, permissionless delegation formula with more than 450 validators.  
  • Ability to stake and unstake for no fees
  • A paltry 2% fee on rewards, which is the lowest in the market. 
  • Native Solana community and contributor-driven governance.  

Liquid Staking

Liquid staking enables users to stake without losing access to the liquidity of their tokens. This is achieved by tokenization and issuance of staked assets that are a claim on underlying staking positions. Liquid staking is able to solve the protocol design problems of PoS networks in terms of the following:

  • Increased Opportunity Cost: With fully liquid derivative tokens, users have the ability to participate in DeFi and generate an additional layer of rewards over and above the staking yields, which was not possible earlier as users would have had to choose between staking or depositing their liquidity into an AMM, etc.
  • No Unbonding Period: As the derivative token can be swapped for the underlying staked asset immediately, users do not have to wait for the regular unbonding period to unstake their tokens. 
  • Multiple Validators: Diversifying across multiple validators minimizes exposure and protects against malfunctioning individual validator nodes. 

Web3Wire’s intuitive guide on how to liquid stake SOL on Marinade can be found here

mSOL and MNDE

mSOL is a derivative token representing the user’s stake position in the Marinade stake pool. The supply is maintained through burning and minting operations which are performed in accordance with the principle objectives of the program. Basically, the mSOL tokens represent the staked SOL tokens, acting as a receipt allowing users to swap them for the staked SOL with the earned rewards. mSOL can also be staked in DeFi platforms to generate additional yield, they can be traded for other cryptocurrency tokens, and they can be used as collateral for borrowing/lending activities. 

Source: Marinade Finance Medium

MNDE is a governance token launched by Marinade to establish a strong governance mechanism, thereby empowering early users, protocol builders, and contributors. Holders of these tokens have governance and voting rights over the protocol. All they have to do is, lock their MNDE in exchange for an NFT and voting rights in the DAO. The NFT represents the rights to the locked MNDE and enables users to participate in governance. Additionally, it can be also sold on the open market with the locked underlying tokens and governance rights.  

Marinade’s DAO

A Decentralized Autonomous Organization (DAO) is an on-chain structure that gives users control over a protocol's governance. Users can vote on choices affecting the protocol's future if they own a governance token. These governance principles are implemented on-chain via smart contracts, where all data is open to the public. 

Marinade Finance has a DAO on Discord where it engages with engages with key members of the community. Another way to join the mDAO is to acquire MNDE tokens. These are governance tokens that will represent the user’s vote on Marinade's future. Marinade protocol has already recruited members of the community to actively participate in the initiative. By joining the mDAO, users may not only engage in debates, voice opinions on any topic, and vote on crucial choices, but they can also contribute to the development of the protocol.

On April 4, the liquidity staking protocol opened the minting of the 3,333 Limited Edition Octopus Chefs, the governance NFTs that will allow for on-chain governance within the DAO. The Marinade community has been gearing up for this development since the initial reveal of this announcement earlier in March

Source: Marinade Finance Website

Possibilities on Marinade Finance

Users are offered the following options on Marinade:

Stake SOL to receive mSOL

  • The stake is deposited into a reserve account.  
  • Marinade increases the number of stake orders falling under the ‘current epoch’ and ‘total staked’ respective to the amount of SOL deposited.
  • Marinade mints mSOL as per the prevailing mSOL to SOL ratio.

Provide liquidity in the unstake liquidity pool

Users can provide SOL to the mSOL/SOL pool which can be used to earn a share of the fees generated when other users choose the immediate unstake option.  

The unstake liquidity pool is an internal mSOL-SOL pool. It is deliberately unbalanced and operates at its best if 100% of its liquidity is filled with SOL from liquidity providers. The key highlight of this pool is that it is free from impermanent loos as liquidity providers can only deposit SOL. The pool provides immediate liquidity for unstaking, it matches staking and unstaking orders, and it provides a fair price with no slippage for mSOL liquidations. It charges a swap fee which linearly decreases with an increase in liquidity until the target liquidity is reached. The fee is used to cover operational costs (25%) and incentivize liquidity providers (75%).

Source: Marinade Finance Medium

   

Unstake mSOL immediately or with a delay 

Users can unstake mSOL immediately by selecting the ‘unstake now’ option. In this operation, Marinade converts users’ mSOL to SOL from the liquidity pool. Users then receive SOL based on the mSOL price and after deducting a swap fee of 0.3%-3%.  

Source: Flow of Unstake now

When users choose to ‘delayed unstake’ option, they are provided with a claim ticket which is an NFT indicating the amount and due time. User’s mSOL are then burnt and removed from the supply, and the unstake operation is performed by the bot post, which the SOL can be claimed at the stipulated time. 

Governance 

Marinade has introduced a unique mechanism of community governance in form of NFTs which can be obtained by locking in MNDE tokens. The Marinade NFT represents the amount of underlying locked MNDE, it empowers users to:

  • Trade the NFT on secondary markets 
  • Vote on proposals submitted by contributors on Marinade DAO
  • Use ‘gauges’ to direct the allocation of funds for various projects. 
  • Act as ‘Marinators’ on Discord with access to DAO channels.
Source: 4 Steps of Marinade Governance

In the near future, Marinade intends to implement gauges to further decentralization and governance. Gauge is a mechanism of governance where the users can use their voting power to allocate their share of governance as they see fit. Currently, two types of gauges namely Liquid Mining Gauge and Validator Gauge are in development

Transparent Delegation Strategy

Marinade follows the Solana Foundation's policy of spreading the stake around a number of high-performance, low-commission, non-concentrated validators in order to strengthen Solana's decentralization and censorship resistance thereby Marinade tries not to stake exclusively to already established large validators, instead, it is encouraging greater community participation process in the validation process by selecting a large number of smaller but reliable validators. It has devised a mechanism to select validators based on the score they achieve on parameters such as performance, commission, delinquency (a validator who is 128 blocks behind the tip of the blockchain is flagged as delinquent), and decentralization.

Validators are automatically awarded a percentage of the total stake based on the points they receive. The Marinade bot dynamically distributes stake and unstake operations to match staked percentage with the score as users perform stake and unstake operations. 

Recent Developments

Some of the recent developments in the Marinade ecosystem are listed below:

  • On April 1, 2022, Marinade announced the launch of on-chain governance NFTs. 
  • The protocol sponsored a prize of $30,000 on the Solana Riptide Hackathon. 
  • Marinade recently announced a token exchange program to exchange a portion of the DAO treasury among the builders of Solana in order to accelerate decentralization and promote alignment. 
  • Marinade recently has also partnered with Hubble Protocol to boost capital efficiency and ‘SuperCharge’ decentralization on Solana.

Roadmap - The Path Ahead in 2022

Marinade’s grand design is to accelerate the wheels of change in the larger crypto ecosystem. It solely exists to democratize blockchain security and bridge the gap between making the perceived ‘niche’ aspects of finance and the people at large. It intends to achieve this by facilitating mass adoption by onboarding a billion people on crypto. Therefore, the focus is on making liquid staking extremely simple and accessible, improving interoperability between platforms in DeFi, and democratizing the network via decentralization. It has specific targets it intends to hit. 

By 2023 Marinade Finance aims to reach 30 million SOL i.e. over $3.3 billion in TVL with $30 million in annual recurring revenue and target the percentage of the total staked SOL, staked in Marinade to hit 7.5%. Furthermore, by 2025, the protocol aims to reach 100 million SOL i.e. over $10 billion in TVL with $100 million in annual revenue, and target the percentage of total staked SOL, staked in Marinade to hit 25%. 

Concluding Thoughts

Marinade Finance has grown to become one of the important DeFi protocols building on the Solana network. The protocol ranks 2nd in terms of total value locked amongst all the other protocols developing on Solana, with a TVL of $809.55 million, as per data from DeFiLlama. Marinade hit its all-time high in TVL of $1.25 billion on January 13 earlier this year as per the official statistics dashboard of the protocol that houses various data points relevant for users and analysts like Total SOL and mSOL in the liquidity pool, Net mSOL circulating, Treasury mSOL amount, mSOL mint supply, MNDE circulating supply and Stake Delta amongst various others.

Source: Marinade Finance Statistics

With the increasing involvement of the DAO and thus the extended Marinade community, the DeFi protocol is expected to grow at a consistent rate in the near future and maintain its position as one of the most reputed and efficient DeFi protocols in the Solana ecosystem.

Find more about Marinade Finance here:

Website | Twitter | Medium | Documentation | Roadmap | DAO Forum | Discord | Statistics |

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Abhinav Tewari

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