Recipe of Marinade: Bringing liquid staking on Solana to light with Marinade Finance
Introduction
My father always told me the key to the perfect BBQ is the perfect marinade. Similar to a chef marinading the meat to get the perfect taste you can marinade your crypto to get more value. In traditional banking one can use one’s holdings to get yearly interest on them, why can’t we do the same with our crypto? We can and usually with much higher APY. In this article, we will dive into the magical world of crypto staking with an example of Marinade finance, the first non-custodial liquid staking protocol built on Solana.
History
Before diving deeper into the technical part, let’s take a moment to explore one of the most inspiring startup stories within the Solana ecosystem. Like a lot of startups in the crypto world, Marinade’s rise started from a hackathon in early 2021. A new team of builders from all over the world was able to win 3rd place in the Solana x Serum DeFi hackathon and kickstart the development of the first non-custodial liquid staking protocol on Solana, which eventually became the absolute TVL leader on the chain (~$150m at the time of writing).
Nowadays attracting funding is becoming the number one goal for many startups so they start putting too much effort into marketing their company to potential investors while overlooking the product and the end user. That was not the case with Marinade. Instead of wasting resources trying to raise VC money, they utilized the power of the ecosystem and survived with grants awarded by Solana and Serum till the official Mainnet launch on August 2nd, 2021.
As a true DeFi organization, Marinade’s culture is built on 4 main pillars:
- Decentralization
- Independence
- Interoperability
- Adoption
To Secure this principle Marinade launches its DAO governance in the spring of 2022. We will talk about Marinade DAO and the structure of its governance on Realms a bit later. First, let’s get familiar with some DeFi concepts.
Staking explained
If you know what staking and liquid staking is you can skip this paragraph, otherwise, you are lucky to start this journey in the right place. DeFi can sometimes be ruthless to newbie adventurers like you in understanding the concepts but don’t worry, we have your back here.
Let’s go back to the BBQ example. In order to make better BBQ you should season the meat and put it in the fridge for some time. It will add some taste and texture. In the case of tokens, you can do the same to add more value to it by staking. You lock your tokens and you get more in reward since you are helping to secure the network and participating in the decentralization of the blockchain. In the case of native staking the “fridge” is the validator who holds your token in indication of trust, this acts as “proof” to the network that the validator’s consensus votes are trustworthy. This concept is the base of a Proof-of-Stake (PoS) consensus mechanism that secures and validates transactions on a blockchain network. The Solana network, like the majority of modern networks, also uses a PoS consensus mechanism. Validator’s consensus votes are stake-weighted, meaning the more stake an individual validator has, the more influence that one validator has in determining the outcome of the consensus voting. That’s why they are interested in holding your staked SOL. You can read more about PoS and SOL staking here.
Liquid staking
So what if you want to enjoy your SOL while it is staked? Well, you can’t, you need to wait for the “cool down” period so it will be accessible again. Here is where liquid staking comes in handy. It enables users to enjoy a staking reward while getting some other token in exchange for their staked tokens, giving their staked assets more flexibility. With Marinade’s liquid staking, you are exchanging your staked SOL with mSOL which can be used for your usual DeFi activities.
It’s like having a special token that helps you earn a yield while you use it. More than that, you can swap it back anytime you want and get your SOL along with rewards without waiting for the unbounding period. I recommend reading more about mSOL and its value formation here.
Marinade Native
We got an understanding of native and liquid staking so let’s talk about Marinade Native. With liquid staking, you stake your SOL on the Marinade protocol in exchange for mSOL that you can continue using with Marinade’s partner dApps on the Solana network. You secure your investment while saving time by allowing Marinade to automate the delegation of your staked SOL for you.
In case you are not actively using all your tokens but still want to get the most out of staking with Marinade you should consider Marinade Native. It does not rely on a smart contract and uses only native Solana functionality which means fewer risks without any fees. Also with Marinade Native, you are the only authority to withdraw your funds since you are creating Solana stake accounts in your own wallet and delegating the management of your stake to Marinade Finance.
Delegation and Risks
So what happens with your staked SOL with Marinade? it will be distributed across multiple validators using Marinade’s, carefully tailored, automated staking strategy. Don’t put all eggs in the same basket, right? Well, sometimes you have a favorite basket and you want to put the eggs in that one. If you select the Direct Stake option instead of Automated you will be able to choose a single validator to direct the stake from your wallet to this validator. The Direct Stake is more liquid than regular staking, as users can unstake their tokens at any time and withdraw them from the validator.
Direct staking is giving the opportunity to support your favorite validator while keeping the liquidity of your funds, but as a staker you need to be conscious about choosing the validator and understand the risks. There are various scenarios when “bad” validators scam stakers one or another way. Even if you are sure in the honesty of the validator, there can be some issues on their server that will lead to outage and downtime that causes them to miss out on leading slots and lose staking rewards. More than that, all validators must go offline at some point to perform upgrades or maintenance. Those can be reasons for you to miss out on your staking yield. On the other hand algorithmic delegation strategy is designed permissionless so all validator details and their Marinade score can be viewed on Marinade’s dashboard. For beginners, it’s recommended to use the automated option.
Marinade DAO
We touched DAOs at the beginning. Decentralized Autonomous Organizations (DAOs) are the entities that make decentralized governance on blockchain networks possible. This is the true form of digital democracy fully hosted on the network allowing a group of people to come together and make decisions based on the authority given and automatically controlled by blockchain. No wonder a company like Marinade, which adopted decentralization as one of its key principles has chosen this way of managing their company. The whole DAO setup delivers transparency over the treasury movements and empowers owners of the native governance token of Marinade Finance, MNDE, with control over the funds within.
MNDE was launched in November of 2021 and has a total supply of 1 billion. Marinade migrated its governance to Realms, a platform for builders on Solana to create a DAO, in July of 2023.
After acquiring MNDE from any DEX in the Solana ecosystem one can lock them for veMNDE on Realms to be able to vote and make an impact on decisions over fees, treasury, and validators receiving SOL, but also to direct stake by using Marinade’s app.
Marinade DAO has its own constitution. It has split the powers and responsibilities in the following way:
- MNDE holders — All MNDE holders that locked their MNDE to obtain governance power.
- Marinade Council — A set of 7 contributors elected internally to drive operations.
To balanced and secure process for making important decisions, the Marinade Council employs a multi-sig (multi-signature) method using Realms, where 4 out of 7 members’ consensus is needed. Meaning that essential decisions or actions necessitate digital signatures from a minimum of 4 out of the 7 council members. This strategy strengthens accountability, reduces vulnerabilities, and unites the collaborators within the Marinade community.
DAO governance thru NFTs
If you think owning MNDE for voting is too boring I have some good news for you. Marinators(that’s what Marinade calls its community members) can mint Chef NFTs by locking their MNDE and participating in governance processes as MNDE holders.
There are different animals and different levels of NFTs depending on the number of MNDE locked. When you decide to unlock your tokens, you will have to initiate a 30-day unlocking period. Return after 30 days and you will be able to burn the NFT and get the MNDE back to your wallet.
Hands-on Marinade
Now let’s taste the dish we’ve talked about so much. Open Marinade.finance dApp, connect your wallet, and start cooking!
You just put in an amount and click stake. Within a couple of seconds, the transaction is approved and you get your mSOL on your wallet if you have chosen the liquid staking option. Here you go! You can now go get mad with your freshly cooked mSOL!
At the time of writing APY for liquid staking was 7.01% and 7.45% for native staking with an average of 7.04% on the network. It’s pretty good, considering all the benefits of Marinade and the fact that you can make your mSOL work for you.
In my case, you can see that Marinade has also analyzed my stake from Solflare and it is showing an issue. That’s because Solflare staked my funds with one single Superminority validator.
Those are a small number of validators controlling 33% of all staked SOL. If they all shut down the chain would stop. This is, of course, extremely unlikely given they’re independent and there’s no incentive for them to do so, but this is an important reason why you should distribute your stake within validators below the so-called halt line (i.e. outside Superminorities group) so the chain will be more decentralized. Thanks to Marinade for warning us!
Conclusion
Staking is what keeps any PoS Blockchain network alive. For users, it is one of the best ways to participate in security and robustness. Liquid staking makes it much more convenient and adaptable for a huge number of end users.
Without a doubt, Marinade is the go-to platform for staking SOL. Aside from a user-friendly platform and high yields, you should keep in mind Marinade’s true dedication to the Solana ecosystem and continuous efforts to make the network safer and more decentralized.
