A Marinade Deep Dive: Staking on Solana
Introduction
Have you ever wished your money could work harder for you without the volatility? In the crypto realm, ‘staking’ offers a solution. Let’s take a journey through the world of staking on Solana, especially with a fascinating platform called Marinade.
Understanding the Basics
1. What is Staking?
Imagine you put your money in a savings account and earn interest over time. Staking is similar but for the crypto world. You lock a certain number of your cryptocurrencies, in this case, Solana (SOL) tokens, to support the operations of a blockchain network. In return, you earn rewards, typically more of the same cryptocurrency. Read more about staking here
2. Why Staking on Solana?
Solana is one of the fastest-growing blockchain platforms known for its speed and low fees. By staking your SOL tokens, you help secure the network and get rewarded for it.
Demystifying Some Terms
1. DeFi (Decentralized Finance)
Imagine all banking and money-related activities without traditional banks but through cryptocurrencies. That’s DeFi. It’s finance by the people, for the people.
2. DAO (Decentralized Autonomous Organization)
Think of this as a company without a CEO or managers. Decisions are made by token holders (like shareholders in the real world). Marinade’s DAO ensures all its users can have a voice.
3. Validators
In the Solana network, validators are like auditors. They ensure transactions are genuine and maintain the network’s integrity. By staking, you support these validators.
Enter Marinade
With many platforms offering staking services, why Marinade? Let’s break it down.
Marinade’s Ethos: The Genesis and Direction
At its core, Marinade showcases what community and innovation can achieve in the realm of decentralised finance. Funded initially by a mere $80,000 grant, it grew not just in terms of capital but also in its vision. The protocol is governed by a DAO (Decentralized Autonomous Organization), meaning it’s essentially controlled by its community via the MNDE governance token. This structure ensures a democratic, transparent approach to decision-making and protocol evolution. The long-term mission, as one can infer from its operations and community-driven nature, is to make staking more efficient, flexible, and rewarding for every Solana token holder.
How does it work?
Think of MNDE as a membership card. By locking it, you gain influence (veMNDE) to have a say in how the system runs. Marinade was built with the vision to fortify Solana’s network while offering transparent and principled staking strategies.
Marinade’s DAO Constitution: A Community Charter
Let’s make this simple. A DAO, or Decentralized Autonomous Organization, is like a digital co-op. In Marinade’s case, its guidelines and objectives are crystal clear:
- Censorship-Resistance: Marinade is dedicated to ensuring Solana remains free from undue influences, promoting genuine decentralisation.
- Transparent Staking Strategy: Marinade believes in a clear staking strategy that backs validators with a consistent performance record. They aren’t just randomly picking winners but are methodical and principled.
- Separation of Powers: Much like modern democracies, Marinade believes in dividing responsibilities. While the Marinade Governance (MNDE token holders and an ecosystem council) oversees major upgrades and treasury, the core team (team council) handles program parameters, fees, and more.
- Fee Management: Fees are primarily used for team operations and protocol enhancement. Any extra funds are decided upon by the DAO.
- Fair Token Distribution: Marinade envisions a balanced ecosystem, ensuring DAO ownership is spread across various community members.
- Constitutional Amendments: Any changes to these guidelines require a supermajority, with two-thirds voting in favor and at least 1% of all tokens participating.
Getting Started with Marinade’s Governance
Now that you understand the ethos, here’s the practical bit. To be a part of Marinade’s governance:
- Lock your MNDE: Head over to their platform, lock in your MNDE, and earn veMNDE (your voting power). Remember, it’s a 30-day unlock process to retrieve your MNDE, so plan accordingly.
- Use Realms for locking: On Realms, choose the “Lock tokens” option. This is essential for your tokens to have voting power. When locking your MNDE, make sure to choose the following settings.
Join the Conversation: Once you’ve locked in, you can start voting on proposals, participate in discussions, and truly be a part of Marinade’s journey.
What is Liquid Staking?
Solana is a unique blockchain that uses less energy than Bitcoin. It does this by letting people stake their tokens instead of using energy-intensive methods. But when you stake tokens, there are some things to consider. You might have to wait a bit before you can use your tokens again, and you can’t use them in some money-making ways.
This is where the concept of liquid staking tokens comes into play, exemplified by tokens like Marinade’s mSOL and Cogent Crypto’s cgntSOL. These tokens make staking easier. When you stake SOL and use these tokens, you get rewards and flexible assets. These tokens can be used as money or for deals in Solana’s finance system. They also make the math simpler compared to staking SOL directly.
To put it simply, if the SOL price is around $22, then the mSOL price is about $24. This is because mSOL follows SOL’s value but adds extra earnings from Marinade’s staking. These tokens work smoothly in the DeFi world, much like SOL, while also earning from staking.
Marinade solves a common problem with staking — lack of liquidity. When you stake SOL with Marinade, you get mSOL in return, representing your staked SOL and rewards. The difference is that mSOL can be traded, used in DeFi, or changed back to SOL. This new approach ensures that staking doesn’t mean losing liquidity.
Marinade Native: Staking Minus the Smart Contract
It’s a different way to benefit from staking without using smart contracts. Unlike liquid staking, Marinade Native doesn’t rely on smart contracts but instead uses Solana’s built-in features. With Marinade Native, you keep control of your SOL and can withdraw it whenever you want. There are no fees like deposit or management fees, and you can exit without a fee after waiting a cooldown period.
You can even instantly exit by paying a small fee based on liquidity. Unlike with liquid staking, you won’t receive mSOL. Instead, you create Solana stake accounts in your wallet and let Marinade manage them.
Since it’s native staking, rewards go straight to your stake accounts every epoch (about 2–3 days).
Directed Stake: Power to Choose
Directed Stake, especially within the context of Marinade and the Solana ecosystem, offers an innovative approach to how stakeholders interact with and influence proof-of-stake (PoS) blockchain networks.
Here are the core benefits of the Directed Stake mechanism:
- Democratized Staking: Directed Stake provides token holders the ability to direct their staked assets towards specific validators. This empowers individual stakeholders, allowing them to support validators that they believe are beneficial for the network.
- Increased Decentralization: By allowing stakeholders to select which validators they want to support, Directed Stake can enhance the decentralization of the network. It can prevent the concentration of staking power among just a few popular or well-known validators.
- Support for Smaller Validators: Through Directed Stake, lesser-known or newer validators have a chance to gain support and recognition, ensuring they have an opportunity to participate actively in block production and consensus, which in turn diversifies and strengthens the network.
- Enhanced Network Security: A more decentralized set of validators increases the network’s resilience against attacks. With a broader spread of stake across multiple validators, the cost and complexity of attacking the network increase.
- Incentives for Validator Performance: Validators are incentivized to perform better, offer clearer communication, and add value to the network, knowing that stakeholders have the power to shift their staked assets based on validator performance and behavior.
- Flexibility for Token Holders: Directed Stake offers token holders flexibility in managing their staked assets. If they disagree with the actions or performance of a particular validator, they can easily redirect their stake to another.
- Enhanced Community Engagement: Giving token holders the power to direct their stake fosters a deeper sense of community engagement and ownership. It encourages more active participation in governance and the overall health and direction of the blockchain network.
- Transparency and Accountability: Validators are held more accountable for their actions, performance, and contributions to the ecosystem. This can lead to a more transparent ecosystem where validators actively communicate and engage with their stakeholders.
- Economic Benefits: For networks like Marinade, the Directed Stake mechanism, when combined with other tools, can result in additional economic benefits such as increased yields, potentially drawing more participants into the staking ecosystem.
- Integration with DAO Governance: In systems like Marinade, where DAO governance is integral, Directed Stake acts as a bridge, aligning staking decisions with broader governance objectives and decisions.
DAO Governance on Realms: Decentralization in Action
DAOs, or Decentralized Autonomous Organizations, represent the heart of decentralized governance.
Through the Realms platform, Marinade operates as a DAO, with decisions driven by community consensus. Token holders of MNDE can propose changes, vote on proposals, and essentially have a say in the protocol’s direction.
Risks of Single Validator Staking
When staking with a single validator, users expose themselves to specific risks:
- Performance Risks: If the chosen validator underperforms, rewards could be lower.
- Centralization Risks: Over-relying on one validator can go against the decentralization ethos of blockchain.
- Slashing Risks: If a validator acts maliciously, the staked tokens could be partially confiscated.
How to Start Staking with Marinade
Step 1: Launch the Marinade app and connect your wallets. It supports popular wallets like Phantom, Glow, Coinbase Wallet, Solflare, and many more.
Step 2: After connecting your wallet, you will see two strategies for staking mSol and Marinade native tokens. You can also view information about what you stake and the corresponding APY%.
Step 3: Once you have selected an option (let’s take mSol as an example), you will see different options such as Delegation method, Staking mode, APY (which includes a 6% performance fee), Conversion rate, and what you will receive.
Marinade’s Unique Stake Delegation Strategy
Marinade’s unique stake delegation strategy is a testament to its commitment to the Solana ecosystem’s decentralization, security, and overall health.
Let’s delve into the specifics of this strategy and how it sets Marinade apart:
- Empowering Independent Validators: Unlike other staking platforms that might delegate solely based on validator fees or uptime, Marinade emphasizes supporting independent validators. By doing so, they help ensure a diverse range of nodes in the network, which in turn fosters decentralization.
- Bypassing Top Validators in Max Security Group: One of Marinade’s notable strategies is to intentionally bypass the top validators in the max security group. The rationale behind this is to enhance censorship resistance. By not solely focusing on the top-performing validators, they ensure that the power doesn’t get overly concentrated, which increases the Nakamoto Coefficient — a measure of decentralization.
- mSOL Integration: mSOL (Marinade’s liquid staking token) plays a pivotal role in their delegation strategy. When users stake SOL in the Marinade stake pool, they receive mSOL, which represents their staked SOL. This mSOL can then be utilized for additional yield through various DeFi strategies. By integrating mSOL into their staking process, Marinade offers users flexibility, liquidity, and multiple earning opportunities.
- Directed Stake Mechanism: As discussed earlier, Marinade’s Directed Stake mechanism allows holders of mSOL and MNDE to influence the delegation of SOL to specific validators. This strategy represents a significant portion of Marinade’s overall delegation to validators. Such a mechanism empowers the community and reinforces decentralization.
- Validator Delegation Algorithm: Marinade employs a sophisticated algorithm to determine which validators receive delegated SOL. This isn’t a one-size-fits-all approach; the algorithm takes into account various factors to ensure the health and security of the Solana ecosystem.
- Support for New Entrants: By not just focusing on established or large validators, Marinade provides newer validators with a chance to participate actively in the Solana ecosystem. This helps to foster innovation and ensures a dynamic and evolving validator set.
- Commitment to Censorship Resistance: At its core, Marinade’s delegation strategy is geared towards enhancing the censorship resistance of the Solana network. By ensuring a wide range of validators and avoiding over-reliance on the top few, the network becomes more resilient to potential threats and censorship attempts.
- Continuous Review and Adaptation: The world of blockchain is dynamic, with new developments and challenges arising regularly. Marinade’s approach is not static; they continuously review and adapt their strategy to best serve the Solana ecosystem’s needs and ensure its long-term health.
Pros/Cons of Marinade
Let’s explore the pros and cons of using Marinade for staking within the Solana ecosystem:
Pros:
- Decentralization Emphasis: Marinade’s unique delegation strategy promotes decentralization by avoiding concentration of stake in a few validators. This enhances the network’s security and censorship resistance.
- Directed Stake Empowerment: The Directed Stake mechanism allows users to actively participate in the network’s governance by selecting validators to support. This empowers the community and aligns with the principles of decentralization.
- Innovative mSOL Integration: Marinade’s creation of the mSOL token enables users to stake their SOL and receive a liquid representation of their stake in return. This allows for flexibility, liquidity, and the opportunity to engage in DeFi strategies.
- Support for New Validators: Marinade’s strategy to include a diverse range of validators supports the growth of the Solana ecosystem by giving newer validators a chance to participate actively.
- Transparent Governance: Marinade’s governance structure through MNDE token holders provides transparency and community-driven decision-making, ensuring the network evolves in line with the community’s interests.
- Strong Community Engagement: The ability to participate in governance and select validators fosters community engagement and active involvement in the network’s development.
Cons:
- Learning Curve: For newcomers to blockchain and staking, Marinade’s unique features like mSOL and Directed Stake may require a learning curve to fully understand and utilize effectively.
- Complexity: While Directed Stake offers enhanced decentralization, it can also introduce complexities in decision-making for token holders, as they need to evaluate and choose validators.
- Lack of Flexibility: Marinade’s delegation strategy may not align with all users’ preferences. Some users might prefer a more simplified or hands-off approach to staking.
- Liquid Staking Risks: Although mSOL provides liquidity, it’s still a relatively new concept and might carry some level of risk when compared to traditional staking methods.
In conclusion, Marinade offers innovative solutions for staking on Solana, with a strong focus on decentralisation and community empowerment. While its unique features offer benefits like liquid staking and Directed Stake, users should be aware of potential complexities and the evolving nature of the Solana ecosystem. As with any financial decision, careful consideration of the pros and cons is recommended.
Open-Source and Transparent Ethos
Marinade takes pride in its commitment to transparency and open-source principles. This not only engenders trust but allows for community-driven evolution, scrutiny, and improvement. The public can inspect their codebase, ensuring they operate in the best interests of their users and the broader Solana ecosystem.
In sum, Marinade is a pioneering force in the Solana staking landscape, blending innovation, transparency, and community governance to deliver a powerful staking platform. However, as with all investments, due diligence is crucial.
Conclusion
The world of crypto can seem like a maze. Yet, platforms like Marinade make the journey simpler and rewarding. As with all financial decisions, do your research, understand the risks, and step into the future of finance with confidence.
Marinade Finance: Dive Deeper with Our Official Links
Interested in learning more about Marinade Finance or joining our ever-growing community? Look no further! This is a handy list of all the platforms where you can interact, stay updated, or even contribute.
Connect & Converse with the Marinade Community:
- Discord: Join the conversation here
- Twitter: Stay updated with latest tweets
- Forum: Engage in in-depth discussions with the community
Stay Updated on Progress & Initiatives:
- Blog: Read our latest articles and updates
- Github Repository: Explore our code and contribute
- Marinade Stats: Stay informed with real-time data
- Validators Dashboard: Track network’s performance
For Valued Validators:
- Staking Reports: Check out detailed staking insights
- Staking Estimates: Forecast staking returns
- Delegation Strategy: Understand delegation principles and methodology
Marinade Finance is more than just a protocol; it’s a community of like-minded individuals pushing the boundaries of decentralized finance on Solana.
Whether you’re a user, developer, validator, or just a crypto enthusiast, Marinade welcome you with open arms. Dive in and explore!
That concludes my deep dive into Marinade and how it is making waves in staking.
If I missed anything or if you have any suggestions, or simply want to engage in interesting conversations about web3, please don’t hesitate to reach out. I would love to hear from you.
See you at the next one!
References:
- Marinade docs
- https://medium.com/marinade-finance/introducing-marinade-native-fdb641d98e64
- https://medium.com/the-oasians/marinade-analysis-the-pioneer-of-liquid-staking-on-solana-ec463ae383de
- https://cryptoinvesting.art/liquid-staking-on-marinade
- https://www.coinbase.com/learn/crypto-basics/what-is-staking
- Links and other third-party sources are linked in their respective sections.
