Marinade Finance: Unleashing Solana’s Potential Through Liquid Staking
Introduction
Liquid Staking Derivatives Finance (LSDFi) is the next phase in the evolution of Decentralized Finance (DeFi), with Marinade Finance as the head chef in the Solana ecosystem. DeFi catalyzed the 2020 bull run, ushering in an era of institutional interest, heightened engagement, and soaring crypto valuations.
Liquid Staking will trigger the next crypto bull run.
But what exactly is LSDFi? What does its inherent risks and potential rewards entail? How does one embark on this innovative journey? And why is Marinade Finance at the top of the menu? This article aims to untangle these complexities, simplifying intricate concepts.
Unveiling LSDFi
Proof-of-Stake blockchains have an advantage over Proof-of-Work blockchains as they require less energy and machinery. The cost mainly goes into buying the crypto asset for staking. The more stakes a validator has, the higher the chances of proposing blocks. Proof-of-Stake blockchains are potentially more profitable than Proof-of-Work blockchains.
Users who do not have the minimum required amount to stake or the technical knowledge to run a validator node can still help secure the blockchain and earn staking rewards by delegating their stakes to an existing validator. Delegation allows for more network participants and enhances decentralization.
However, it presents a problem of opportunity cost. Choosing between staking rewards or participating in other yield-generating activities within the ecosystem.
Staking offers the most sustainable yield, but the staked assets are locked. Staked assets are illiquid unless they are unstaked. Unstaking involves an unbonding period (ranging from days to weeks, depending on the blockchain) when no rewards are earned, rendering Proof-of-Stake blockchains capital inefficient.
The solution to this problem of opportunity cost and capital inefficiency is “Liquid Staking”, just as the name implies it makes staking liquid.
Decoding LSDs
Before delving into the concept of LSD, it is crucial to clarify that we are not exploring mind-altering substances. We are delving into Liquid Staked Derivatives — also known as Liquid Staked Tokens (LSDs/LSTs). LSTs are representations of staked assets that mirror the utility of the underlying asset.
DeFi is a collective term for financial products and services that facilitates peer to peer trades and similar banking transactions on a blockchain using smart contracts. Staking is similar to funds in a fixed deposit account. In traditional finance, a fixed deposit account might have a higher yield. It is different in the world of blockchain and cryptocurrency.
Imagine LSTs as equivalent to funds in a savings account. Customers deposit money into a bank and subsequently transact through a debit card or bank app, LSTs function similarly. Validators (Banks) safeguard the staked assets, allowing users continued access via LSTs (debit card or bank app).
LSDFi are simply DeFi products that utilize liquid staking. Setting itself apart from traditional banking and staking, LSTs offer a unique advantage of higher, sustainable yields tied to the underlying asset’s growth. This innovation empowers users to earn by securing the blockchain without sacrificing liquidity, effectively embodying the adage, “eating your cake and having it.”
The Expanding LSDFi Narrative
The LSDFi narrative is rapidly expanding. It currently holds the category with the highest Total Value Locked (TVL) on Defillama. Its applications span a spectrum from lending and self-repaying loans to leveraged staking, yield-bearing stablecoins, and more.
Despite its numerous advantages, it has its risks including; Stake Centralization, Price Volatility of the Underlying Asset, and Smart Contract risks.
Navigating Crypto’s Currents
In the fast-paced world of cryptocurrency, many are searching for the next big airdrop, 100x shitcoin, or gem but are often disappointed. In contrast, seasoned investors adhere to well-established strategies. While LSDFi contents are abundant on platforms like X (formerly Twitter), the true potential of this groundbreaking concept often remains elusive as most people never get to have a taste of liquid staking.
Reasons like high transaction fees show that most users have the wrong focus and are not looking at the bigger picture.
Beyond Ethereum: The Untapped Potential of Solana
The buzz about Ethereum and its Layer-2 scaling solutions is understandable. On the other hand, it is imperative not to overlook the untapped potential of the Solana blockchain and its ecosystem. Despite the challenges faced by Solana, its latent capabilities continue to beckon.
Solana’s fast transactions and low transaction fees make it a natural scalable solution primed to onboard the next billion crypto users. The in-built scalability features of the Solana blockchain increase its decentralization and security. In the chain of events, it effectively increases demand and liquidity.
Marinade Finance: Infusing Flavor into Solana
In the vibrant Solana ecosystem, Marinade Finance emerges as a formidable contender. Marinade Finance offers a buffet of yield-generating opportunities that captivate crypto enthusiasts’ senses and satisfy their cravings.
Marinade Finance is the pioneering non-custodial liquid staking protocol within the Solana ecosystem. By staking SOL tokens, users receive “marinated SOL” tokens (mSOL), which wield multifaceted utility within the Solana DeFi ecosystem.
The team’s prominence took off during the Solana x Serum DeFi Hackathon in March 2021 securing the third position. There was a later collaboration with Smart Pool, another team focused on liquid staking led by Lucio Tato and Marco Broeken. Lucio had a working prototype of liquid staking on NEAR. Marco had an excellent dev-ops background, experience running validator nodes, and also completed a new RPC infrastructure for Solana. The synergy between the two teams sealed the decision to unite under the brand “Marinade Finance.”
Central to Marinade Finance’s mission is the decentralization of Solana, promoting protocol interoperability, and driving adoption. Delivering a secure, functional product was a set priority, unlike most other projects that focused on raising funds during the crypto boom. The Marinade Finance team was self-funded with support from the Solana hackathon grant.
On August 2nd, 2021, Marinade Finance’s mainnet launched following successful devnet and testnet phases. The initial limit of 100,000 SOL staked was swiftly filled in less than three days. A mere two weeks after launch, Marinade Finance amassed over $23 million in Total Value Locked (TVL), with 300,000 SOL staked and 1,000+ mSOL holders, bolstered by strategic partnerships.
As expansion surged, Marinade Finance transitioned to a Decentralized Autonomous Organization (DAO) on October 7th, marked by the launch of its governance token, “MNDE.” Recognizing true decentralization as pivotal to Solana’s triumph, MNDE token distribution prioritized community involvement. The distribution followed a fair launch model via strategic liquidity mining campaigns.
This approach paid off as Marinade Finance replaced Alameda and Serum as signers on its multi-sig, safeguarding against FTX exposure during the LUNA — FTX/Sam crisis. Other projects might have been gravely affected by the contagion.
The transfer of ownership to the DAO was done in stages, empowering MNDE holders to lock tokens for governance influence and contribute to on-chain decisions. To ensure broad token distribution, Marinade Finance initiated a token exchange program with notable Solana builders and Dapps such as Raydium, Solend, and Port Finance, alongside validators like Blockdaemon and Staking Facilities, solidifying their commitment to comprehensive inclusion.
The governance power initially rested in Chef NFTs on Marinade Finance but was recently transitioned to veMNDE tokens on Realms. This transition allows users to swap their locked MNDE tokens from Chef NFTs to veMNDE without the to unstake.
A cornerstone of Marinade Finance’s prominence in the Solana ecosystem lies in its adept approach to addressing inherent challenges while simultaneously offering users an array of DeFi opportunities that would captivate even the most discerning crypto enthusiasts.
The Marinade Buffet
Native Staking: One risk tied to proof-of-stake blockchains is Stake Centralization, where a minority of validators possess a disproportionate share of staked assets, rendering the network susceptible to 51% attacks. Central to Marinade Finance is decentralization, evident in its unique approach.
Instead of operating a validator node, Marinade Finance embraces native staking, delegating stake accounts to validators based on a scoring algorithm recalculated each epoch. This method spreads delegations among top-performing validators beyond the super minority, mitigating the risk of validator centralization on Solana.
This strategy also diversifies risks for users in case of a slashing event. Take the example of two users with 100 SOL each. The first user stakes all 100 SOL on a single validator. If the validator gets slashed by 5%, the user will lose 5 SOL. The second person uses the Native staking function on Marinade Finance, the 100 SOL are distributed across 100 validators. If one validator gets slashed by 5%, the user will only lose 0.05 SOL.
This distribution not only disperses risk in slashing incidents but also streamlines the process of validator selection for users. The strategy caters to passive investors seeking to diversify risk across multiple validators.
Liquid Self-Staking and Directed Stakes: Running a validator node can be capital-intensive. Liquid self-staking enables validators to unlock their staked asset’s liquidity, providing access to funds that can generate additional yield and amplify profitability. Liquid Self-Staking ensures ecosystem capital efficiency while unifying liquidity that would be fragmented otherwise due to varied validators offering different liquid staking options.
Directed Stakes, similar to Liquid Self-Staking, allow users to delegate all their stakes to a specific validator, sidestepping Marinade Finance’s delegation strategy algorithm.
Liquid Staking: As previously discussed, liquid staking offers advantages surpassing traditional staking, including the appreciation of LST values over time. mSOL, Marinade Finance’s LST, integrates seamlessly into diverse DeFi strategies detailed in the Marinade Finance Cook Book. These strategies are delectable in their complexity. They range from Single-sided mSOL staking and Lending mSOL to supplying mSOL-SOL liquidity pairs and other enticing possibilities.
An interesting low-risk strategy is staking mSOL to earn MNDE tokens. The MNDE tokens can then be locked for veMNDE to participate in Marinade Finance on-chain governance on Realm.
One of my favourite strategies is “Leveraged Staking”, although it involves more risk than staking mSOL to earn MNDE tokens. SOL is liquid staked on Marinade Finance for mSOL. The mSOL is then used as collateral to borrow SOL. Borrowed SOL is subsequently liquid staked on Marinade Finance for more mSOL, and the cycle loops continuously.
Super Stake SOL automates leveraged staking. Super Stake SOL is a platform built on the foundation of the Drift Protocol, which facilitates mSOL lending, borrowing, and leveraged trading. It is a prime example of protocol interoperability on Solana, facilitated by Marinade Finance.
NFT Liquidity Unlock: Marinade Finance caters to NFT enthusiasts, offering the opportunity to unlock their NFTs’ liquidity by using them as collateral to borrow mSOL. The NFT strategies underscore Marinade Finance’s dedication to the holistic growth of the Solana ecosystem.
Marinade Finance is an embodiment of innovation, ushering in a new era of DeFi that elevates user experience while mitigating risks. As the broader crypto landscape continues to evolve, ventures like Marinade Finance epitomize the potential for reshaping the financial horizon.
Marinate Your SOL
This article has done an excellent job debunking any myths or excuses you might have for not taking advantage of Liquid Staking to fatten your portfolio.
All you need to get started are the following steps:
- A Solana-compatible wallet app or extension like Phantom 👻 wallet and create an account (remember, if it is not your keys, it is not your coins).
- Get SOL from any of its listed centralized exchanges and transfer it to your Solana wallet.
- Go to Marinade Finance and connect wallet.
- Click on “Starting Earning SOL Now”
- Select between “Liquid” or “Native Stake”
- For liquid staking, you can vote to direct your stake to a validator or use the Marinade strategy
- For Native Staking, keep the delegation strategy on Automatic.
- Select a suitable DeFi strategy from the Marinade Finance Cook Book for your perfect recipe.
Follow the official Marinade Finance social media pages for more updates.
https://discord.com/invite/QU3acbjFem
