Marinade Finance — A Deep Dive Into Solana’s Leading Staking Protocol
The cryptocurrency industry is a place that has become synonymous with constant growth and evolution, and perhaps the most significant indicator of this is the recent commitment of blockchain networks to abandon the energy-consuming Proof of Work (PoW) consensus mechanism in favour of the more eco-friendly Proof of Stake (PoS) model. Solana, a leading network within the blockchain industry, is one of the biggest exports of this model and is home to Marinade Finance.
Marinade Finance is widely regarded as Solana’s leading non-custodial staking protocol. It is, in essence, a platform that allows SOL token holders to participate and contribute to the security and growth of the Solana network through staking. Marinade Finance is most notable for introducing liquid staking to the Solana ecosystem, an exciting alternative to native or traditional staking.
Source — Marinade Finance
The story of Marinade Finance is one that truly captures the possibilities of decentralization through community building and the potential that exists within the Solana network. It became the first liquid staking protocol to go live on Solana after winning an $80,000 grant from the Solana Foundation and Serum, two hackathons in which its founding team participated. Interestingly, that is the only funding the project has received thus far, making it a completely decentralized, self-sufficient Web3 project — a true community success story on the Solana network.
Since its launch in August 2021, the staking protocol has gone from strength to strength, hitting significant milestones such as achieving the number one position for TVL (Total Value Locked) on Solana (over $1 billion as of the time of writing) and deploying a host of tools and services that makes it easier for users to stake, secure, participate in the Solana ecosystem and contribute to censorship resistance — like Marinade Native, Liquid staking and a host of others.
This article, therefore, takes an in-depth look into the Marinade Finance liquid staking protocol, including its features, key concepts and much more.
A Brief Introduction To Staking
Staking is a process that involves SOL token holders allocating or delegating all of their SOL tokens or a portion of them to a validator or several validators of their choosing in order to contribute to the security of Solana and earn staking rewards.
In Proof of Stake blockchain systems, individuals can participate in the maintenance and security of the network by running validators, which are computers that meet specific hardware and software requirements. Running a validator provides individuals with certain perks and responsibilities, such as validating incoming transactions, a chance at winning block rewards, and ultimately contributing to how the network operates.
A Proof of Stake blockchain can have many validators, as anyone with the means and resources can effectively run one. Since validators are responsible for running the network, there needs to be a decision-making system. In a blockchain system, democracy rules, so validators reach agreements on what is best for the network by casting votes. Validators will vote on essential updates to the network, such as the next block of data to add to the blockchain.
However, not all votes in a Proof of Stake blockchain network are equal. Votes are stake-weighted, meaning that a validator with more staked tokens will have a greater influence on decisions within the network than a validator with less staked tokens.
Running a validator is one of the ways that users can participate in Solana staking. However, it requires a lot of resources that may only be available to some users. In these cases, a product like Marinade Finance can come in handy. As Solana’s leading non-custodial staking protocol, Marinade Finance is an ideal environment for interested parties to stake their SOL tokens for rewards and other benefits in several ways. Here’s a quick overview of the different staking options available on Marinade Finance.
Native Staking
Native Staking UI on Marinade Finance
With native or traditional staking, users manually delegate their SOL tokens to validators. This means they would have to choose the validator or validators they want to stake their tokens to themselves.
Staking SOL tokens to a validator increases that validator’s stake weight and gives it a more significant influence on decisions within the Solana network. It also increases the amount of stake rewards the validator is entitled to, which, in turn, benefits the users who have delegated their tokens to it. Additionally, it goes a long way in securing the Solana network and ensuring it remains decentralized.
However, there are a few issues with native staking. First, there is no way for users to verify whether or not a validator on the network is malicious, leaving them open to the risk of slashing — a form of punishment that Proof of Stake blockchain networks mete out to validators found guilty of malicious intent. A portion of the validator’s stake is destroyed, thereby reducing their influence over the network and the amount of rewards they are eligible for. If a user stakes tokens to a malicious validator and it gets slashed, they could potentially lose out on some or all of their tokens.
Secondly, once a user stakes their tokens, it becomes inaccessible until a stipulated period elapses (commonly referred to as bonding time). About 70% of the SOL token’s total supply is currently staked, which could lead to a supply issue. Other concerns include a validator going offline, the risk of falling victim to commission-related scams, and a host of others. To combat the pitfalls of native staking, Marinade Finance has introduced a suitable alternative — Liquid Staking.
What Is Liquid Staking?
Liquid Staking is Marinade Finance’s answer to the shortcomings of traditional or native staking. It is an alternative carefully designed to avoid the issues that have become synonymous with the former.
Unlike native staking, where you have to manually choose a validator to stake your tokens to and face the risk of slashing, with liquid staking, Marinade Finance takes up that responsibility. The platform automatically delegates your tokens to the highest-performing validators within the network, which are determined through an ultra-effective delegation strategy that considers essential data, such as validator performance, yield and decentralization.
After every epoch (a specific time period), Marinade Finance reevaluates validators based on these metrics and redistributes the stake provided by SOL token holders based on the results. This way, the stake is evenly distributed within the network, and the risk of slashing and falling victim to malicious validators reduces significantly. You can read more about Marinade’s delegation strategy here.
Additionally, users no longer have to deal with the fact that their tokens are inaccessible to them since Marinade Finance allocates a secondary token, the mSOL token, which users can use to interact within the Solana network and participate in profit-generating activities, such as De-Fi, NFTs and yield farming.
Liquid staking also allows users to stake and unstake their tokens whenever they choose to, eliminating the need for bonding time (a stipulated period a user must wait for before receiving their staked tokens with native staking). Furthermore, users that do not want to utilize Marinade Finance’s delegation strategy but still want to participate in liquid staking can do that, thanks to a feature called Directed Stake.
What Is Directed Stake?
Directed Stake is all about giving SOL token holders the freedom of choice. It is a feature that allows users that want to participate in liquid staking and enjoy its benefits but would also like to choose what validators their tokens go to do just that.
This means that users that choose the Directed Stake option will be able to receive mSOL tokens for secondary use, stake and unstake their SOL tokens at will and can choose what validator their tokens go to. Additionally, this option does a lot to help the cause of reducing the amount of SOL tokens that are staked away or illiquid.
How to use direct stake in Marinade Finance
While liquid staking addresses the pitfalls of native staking, it is not without its issues, most notably smart contract interaction risk. Smart contracts, the tech that makes liquid staking possible, are notoriously prone to bugs and attacks, causing investors to shy away from the activity. Marinade Finance addresses this concern through Marinade Native.
What Is Marinade Native?
Marinade Native is a product that combines features from both native and liquid staking to provide SOL token holders with the best of both worlds while addressing the issues with both staking options, such as smart contract interaction risk and over-reliance on single validator performance.
With Marinade Native, users can stake their tokens directly to a pool of over 130 network validators that are determined using the delegation strategy of liquid staking. Additionally, users will not lose or give up custody of their staked tokens, thanks to the non-custodial nature of native staking.
how to use Marinade Native on Marinade Finance
Governance on Marinade Finance
Marinade Finance is a project with decentralization at the heart of all its activities. Governance of the platform falls on the shoulders of the Marinade DAO, a decentralized autonomous organization of which anyone can become a member by virtue of ownership of its governance token, MNDE. To gain voting rights and active participation in the Marinade DAO, MNDE token holders must lock their MNDE tokens.
Locking MNDE tokens gives holders voting rights and a free NFT, which they can sell for added liquidity on a secondary market. Doing so unlocks MNDE liquidity in the same manner that mSOL unlocks staked SOL tokens.
Marinade DAO uses Realms, a Solana-based platform for builders, to manage its members, vote on important decisions, allocate funds, and perform other government-related activities. Click here to view more information on Realms.
