Simplified Guide To Marinade Finance
Table of content
- Introduction to Marinade Finance
- What is Marinade Finance?
- The mission
- Governance in Marinade Finance
2. Liquid Staking in Marinade Finance
- What is staking?
- The concept of liquid staking
- Types of staking in Marinade Protocol
- Who are Validators?
- Stake delegation strategy
3. Why stake in Marinade Finance?
4. Risk management
5. Getting Started
6. Conclusion
Introduction
The Solana Blockchain is home to exciting and innovative Decentralised Finance projects. Among the many outstanding projects is the Marinade Finance protocol, which offers users a new approach to liquid staking.
This article will dive deep to provide you with a comprehensive understanding of Marinade Finance and the exciting opportunities it offers.
- What is Marinade Finance?
Marinade Finance is a protocol on the Solana Blockchain that allows users to stake Solana tokens ( SOL ) and earn rewards.
The project was initiated in March 2021 during a Solana & Serum Hackathon. It was finally launched on mainnet on the 2nd of August 2021 and has experienced tremendous growth and adoption in the Solana ecosystem ever since.
The project deployed the Marinade token ( MNDE ) to serve as its governance token and also created a derivative liquid version of SOL known as ‘Marinated SOL’ ( mSOL ). Users are rewarded with mSOL when they stake SOL in the marinade staking pool.
It is important to note that Marinade finance is fully funded with grants from Solana and Serum.
- The Mission
The goal of Marinade is to build a liquid staking protocol that is accessible to users and other projects within the Solana ecosystem. To achieve this on a grander scale and attract more investors, the project recently launched a native staking service that allows users to stake SOL over multiple network validators.
- Governance in Marinade Protocol
You might wonder:
“Who’s in charge of Marinade?”
Marinade Finance is a decentralised protocol. It is not operated by a single person or a particular group of persons, rather it is governed as a Decentralised Autonomous Organisation ( DAO ).
To participate in the governance of Marinade, you must have veMNDE. veMNDE is a derivative of MNDE and you can obtain some after locking-up MNDE tokens on Realms.
Owning veMNDE gives you voting power to participate in the governance of the Marinade protocol and vote on proposals. In order words, any holder of veMNDE is a member of Marinade DAO and can equally contribute to the governance of the protocol.
Where is governance carried out?
On July 2023, veMNDE holders proposed and unanimously voted to migrate from Tribeca to a new on-chain DAO management platform on Solana known as Realms.
Migrating to Realms allows for a direct link between Marinade DAO treasury and MNDE holders thereby enabling decentralization and transparent governance in the community, both of which are core values of the Marinade protocol.
Liquid Staking in Marinade Finance
The primary objective of Marinade Finance is to become the liquid staking protocol of choice for the Solana ecosystem. To understand the significance of the solutions being developed by the project, you a thorough understanding of liquid staking and how it works.
- What is Staking?
Staking is a process of locking up cryptocurrency in a protocol for a specific period to generate commissions from the locked funds.
It is like a fixed deposit bank account in a traditional banking system where a customer deposits funds in an account that is inaccessible for some time, while earning interest for keeping it there.
When it comes to conventional staking, the locked-up crypto can not be accessed by the owner until the end of the lock period which can vary from days to months as the case may be.
- The Concept of liquid staking
We have established above that staking is a process of locking up cryptocurrency for a specific period while earning rewards.
However, there is an improved type of staking known as liquid staking. Unlike regular staking, the staked funds in a liquid staking pool are not locked up as it can be accessed by the owner at any time.
When you stake in a liquid staking pool, you instantly receive a derivative version of the staked token, and this derivative can function independently of the staked token. This implies that the derivative tokens are more useful and flexible than the staked tokens. Hence, it is referred to as ‘liquid’. This form of staking involves the use of smart contract.
Liquid staking is a smart form of staking because it gives stakers the opportunity to generate multiple revenues rather than relying solely on yields from the staked funds.
- Types of staking in Marinade Finance
There are currently two types of staking in Marinade Finance Protocol:
- Liquid Staking
- Marinade Native
Liquid Staking
In Marinade, users stake SOL to receive an equivalent derivative of SOL known as marinated SOL (mSOL). For instance, if you stake 200 SOL tokens, you automatically get 200 mSOL.
mSOL functions independently of the staked SOL. As a result, it can be used for yield-generating activities outside of Marinade, such as trading on decentralized exchanges and swapping. Additionally, it can be used to provide liquidity for various DeFi options within the Marinade DApp without affecting the original SOL deposit.
In summary, while the staked SOL is yielding commissions, mSOL can be used simultaneously to generate more revenue for the user from other activities.
However, to withdraw the original SOL deposit, a user is required to return the mSOL equivalent that was given to him at first.
Recall that the staked SOL tokens are not locked up. Hence, there is an instant unstake feature in Marinade, which means that stakers can access their staked tokens at any time.
Marinade Native
The protocol recently launched a native staking option which serves as an alternative to liquid staking. It combines features from both liquid staking and direct staking and is considered a less risky option for investors.
How it works
Marinade Native operates by allowing users delegate their SOL tokens to validators who participate in securing the network and maintaining its operations, while they earn rewards in return. This way, users can choose their preferred validators and support them.
In addition, users have full custody of their staked SOL tokens and can access them whenever they wish to.
Also, the yield generated from Marinade Native is solely from staked SOL tokens. This is because mSOL tokens are not given out in Native staking.
Both staking options in the Marinade protocol share a few similarities, however, they are different in many ways.
The table below highlights key differences between the Liquid and Native staking options.
- Who are validators?
When it comes to staking, validators usually earn the highest rewards. This is because validators help secure the proof-of-stake ( PoS ) network by running nodes. There are currently over 100 validators on marinade with varying APY.
Validators with better performance tend to attract more delegation as they usually have high scores.
For transparency, Marinade provides a dashboard containing data about each validator, including their score, amount staked, previous performance, and more. That way, users can easily decide to delegate tokens to any validator of choice or manage assets between various validators.
- Stake delegation strategy
There are three kinds of delegation strategy in Marinade. They are as follows:
i. Directed stake
The directed stake is a feature on marinade that gives individuals the option to delegate stakes to their preferred validator and support them while earning mSOL rewards. This feature only allows one validator per wallet. And accounts for 20% of the marinade stake pool. Marinade Native employs the use of directed stake.
ii. Performance-based stake
The protocol automatically delegates stakes to high-performing validators.
How are they selected?
Marinade arranges active validators in descending order based on score. This score, is an average of the APY performance of each validator and the protocol recalculates it from time to time. This periodic evaluation is carried out to ensure that the validators do not compromise the network.
Validators suspected of malicious activities are blacklisted, and in most cases, the stakes delegated to them are redelegated to other validators.
This measure is put in place to protect the protocol from bad actors and to build trust among DAO members and prospective users.
The performance-based stake strategy accounts for 60% of the Marinade staking pool.
iii. MNDE voting-based staking
The DAO can delegate stakes to an eligible validator after voting. If there is an overflow of MNDE to a particular validator, the votes are split to other eligible validators. This account for 20% of the Marinade stake pool.
Why Stake in Marinade Finance?
The Marinade protocol is an innovative liquid staking platform that presents an opportunity for users to earn passive rewards.
Here are a few reasons why you should stake on Marinade:
- Attractive interest rate
The principal aim of staking is to yield good profit. With an average interest rate of 7%, Marinade guarantees high returns for users.
- Non-custodial
Marinade is a noncustodial protocol. This entails that users have control over their tokens and can access them anytime whenever they wish to unstake.
- Staking options
With the introduction of the Marinade Native stake service, the protocol provides an alternative to liquid staking with no smart contract exposure. Users can choose whichever option they consider suitable, earn rewards and grow their portfolio.
- Wide range of validators
Currently, there are over 100 validators on marinade protocol with varying APY, the average of which is 7%. This allows users to compare and contrast within an array of validators and delegate tokens to those they prefer.
- Censorship resistant DAO
Every holder of veMNDE is an equal contributor to Marinade and therefore, can participate in the governance of the protocol without interference from any party.
- High Total value locked ( TVL )
One major criteria to consider before deciding a platform to invest in, is the total value locked of that platform. Marinade Finance is the leading liquid staking protocol in Solana boasting a TVL of over $142 million. According to statistics in Defillama, Marinade Finance reached an all time high TVL of $1.8 billion in November 2021. This is proof of massive adoption.
- No impermanent loss
Liquidity providers in Marinade only deposit SOL tokens, hence no impermanent loss occurs when users unstake their SOL tokens.
Risk Management
Investing in any sector carries inherent risk and the world of DeFi is no exception. It is important to be cognizant of potential risk you may encounter. This awareness will help you improve your investment strategies and enable you make smart investment decisions.
Note:
Marinade is working continually to prevent any risks that will affect the protocol and its users.
Risk factors to be aware of include:
- Loss of mSOL
To withdraw your staked SOL would require returning your mSOL tokens. Therefore losing your mSOL automatically means the staker can no longer access the original SOL deposit.
- Smart contracts risks
Smart contracts are used to facilitate liquid staking. These smart contracts can be affected by bugs which may create an opportunity for hackers to exploit them.
- Malicious validators
A staker could be tricked by dishonest validators who may change the commission rate before the rewards are calculated. Any validator found in such foul play is tracked and blacklisted in Marinade.
In addition, staking all your SOL to a single validator indicates that your commissions will be determined by a single node and this may prove to be risky. Hence, it is advisable to spread your investment by delegating to more than one validator.
- Blockchain risks
An attack on the Solana blockchain can affect Marinade protocol since it is built on the Solana blockchain. To prevent this from happening, marinade conducts regular audits and bug bounties to ensure the security of the protocol.
- Volatility of crypto assets
It is important to have in mind the volatile nature of cryptocurrency. The price of crypto assets fluctuates from time to time and this will inadvertently affect a user’s portfolio, especially in a bear market when prices of tokens experience a downward trend. This may cause a decline in the initial capital invested.
Getting Started on Marinade
Marinade presents an opportunity for generating passive income in Solana. With only a smartphone or a PC, you too can start earning rewards.
Here are a few steps to getting started:
- Install a Solana wallet e.g Phantom, Sollet etc
- Fund your wallet with SOL tokens from either a centralised or decentralised exchange.
3. Visit the Marinade DApp and connect your wallet https://marinade.finance/app/
4. Start staking!
Finally. you can buy MNDE tokens on any exchange and stake it on Realms to receive veMNDE , in order to participate in the governance of the protocol.
Conclusion
Marinade Finance is a liquid staking DAO in Solana that allow users to stake SOL tokens and generate yields. Stakers of SOL tokens will receive its equivalent in mSOL which can be used to carry out other yield-generating activities independent of the staked SOL, thereby providing multiple revenue sources for the staker.
Furthermore, the protocol offers Native staking, allowing users to manually delegate tokens to preferred validators without any smart contract risks.
Marinade is keen on open source building and transparency in its governance. Any holder of veMNDE can take part in the governance of the protocol.
With over 100 validators, Marinade presents diverse options for investors and enthusiasts alike and has grown to become the choice liquid staking protocol in the Solana ecosystem.
