Marinade: Getting Started

TABLE OF CONTENTS

Introduction
Liquid Staking
Marinade Native
Directed Staking
Unstake Mechanism
Marinde’s Delegation Strategy
DAO Governance: Marinade
Conclusion

Introduction

Marinade is a Solana-based staking protocol that allows you to stake your SOL tokens and earn rewards while still having full control over your tokens and the ability to use them in DeFi. When you stake your SOL with Marinade, you are helping to secure the Solana network and earn rewards in return.

Marinade offers two different ways to stake your SOL, native staking and liquid staking. With native staking, you do not interact with a smart contract. Your SOL is staked directly to the Marinade protocol but with liquid staking, you receive mSOL tokens in return for your staked SOL which can be used in DeFi applications.

Features of Marinade:

• Liquid staking: When you stake your SOL with Marinade, you receive mSOL tokens in return. mSOL is a liquid staking token that represents your staked SOL. You can use mSOL in DeFi or swap it back to SOL at any time.
• Automated delegation: Marinade uses an automated delegation strategy to distribute your staked SOL across a pool of 100+ high-performing validators. This helps to maximize your staking rewards and minimize your risk.
• No lock-up period: You can unstake your SOL from Marinade at any time. There is no lock-up period.
• Low fees: Marinade charges a small fee of 6% on your staking rewards. This fee helps to cover the costs of running the protocol and providing liquidity to the mSOL/SOL pool.

Liquid Staking

In traditional staking, users lock up their tokens for a set period to participate in the consensus mechanism of a Proof-of-Stake (PoS) blockchain. This means that they cannot use their tokens for other purposes, such as trading or lending.

Liquid staking solves this problem by allowing users to stake their tokens without having to lock them up. Instead, users deposit their tokens into a liquid staking pool, and in return, they receive liquid staking tokens (LSTs). LSTs are a representation of the user’s staked tokens, and they can be used in DeFi or swapped back to the underlying tokens at any time.

PS: The infographic above is gotten from Marinade official Docs

Liquid staking on Marinade works by allowing you to stake your SOL tokens and receive mSOL tokens in return. mSOL tokens are a representation of your staked SOL, and they can be used in DeFi applications. When you liquid stake your SOL, your SOL is deposited into the Marinade protocol and is delegated to a pool of validators.

Here are the steps on how liquid staking works on Marinade:

Go to the Marinade website and connect your wallet.

Connect Wallet

Choose “mSOL” and click stake.

Choose Marinade Liquid Staking

Enter the amount of SOL that you want to liquid stake and click on the “Stake” button.

Enter the amount to stake and click the stake button

Your SOL will be staked and you will receive mSOL tokens in return that you can then use your mSOL tokens in DeFi applications.

Here are some of the benefits of liquid staking on Marinade:

• Liquidity: You can use your mSOL tokens in DeFi applications, such as lending, yield farming, and other DeFi protocols.
• Flexibility: You can unstake your SOL at any time, either by waiting for the unlock period or by paying a small fee.
• Security: Your SOL is staked to a pool of validators, which helps to secure the Solana network.

Marinade Native

Marinade Native is a feature that allows you to stake your SOL tokens directly to the Marinade protocol without interacting with a smart contract. This means that you retain full control over your SOL tokens and can unstake them at any time without any fees. When you stake your SOL tokens with Marinade Native, your tokens are delegated to a pool of validators that are selected by the Marinade protocol.

Here are how you can stake on Marinade Native:

Go to the Marinade website and connect your wallet.

Choose “Marinade Native” and click stake.

Enter the amount of SOL that you want to liquid stake and click on the “Stake” button.

Here are some of the benefits of Marinade Native:

• Full control: You retain full control over your SOL tokens and can unstake them at any time without any fees.
• No smart contract interaction: There is no smart contract interaction, which means that your SOL tokens are not subject to smart contract risks.
• Automated delegation: Your SOL tokens are delegated to a pool of validators that are selected by the Marinade protocol, which helps to maximize your rewards.
• Liquidity: You can still use your SOL tokens while they are staked, such as by using them in DeFi applications.

If you are looking for a way to stake your SOL tokens without interacting with a smart contract and with full control over your tokens, then Marinade Native is a good option.

Given the two options provided by Marinade, it is left to you to choose between liquid staking and the native staking whichever is best for you.

Directed Stake

Directed stake is a Marinade product that allows mSOL holders to choose a validator they want to support while benefitting from mSOL’s liquidity. Whenever you stake to Marinade, you will be able to choose between the Algorithmic delegation strategy which is a way to delegate your staked tokens to a pool of validators in a way that maximises your rewards and minimizes your risk or you choose Directed stake. If you choose Directed stake you will need to select a validator and complete the staking operation. Your wallet will be directing the stake to the validator you choose. Your wallet address will then be monitored by Marinade snapshot system and the mSOL holdings in your wallet and in DeFi will be accounted to direct stake to the validator of your choice.

Directed stake can be used on top of Marinade’s referral program.

Here’s a video by the Marinade team on how to use the Directed Stake:

Benefits of Directed Stake

Here are some of the benefits of directed staking in Marinade:

• Support validators you believe in: Directed staking allows you to support validators that you believe are important to the Solana ecosystem. This could be validators that are committed to security, decentralization, or innovation.
• Increase your rewards: By directing your stake to high-performing validators, you can increase your rewards. This is because high-performing validators are more likely to be selected for block production, which means that they will earn more rewards.
• Reduce your risk: By directing your stake to validators with a low risk of being slashed, you can reduce your risk. Slashing is a penalty that can be imposed on validators who misbehave, such as by going offline or approving invalid transactions.
• Express your preferences: Directed staking allows you to express your preferences for how your stake is used. For example, you could choose to direct your stake to validators that are committed to sustainability or environmental protection.

While Directed Staking or staking to a validator might have some benefits it also has its issues which will be listed below, but there are some ways to mitigate those issues. Staking to a single validator on Marinade can be risky for a few reasons:

• Slashing: If a validator is slashed, you could lose some of your staked SOL. Slashing is a penalty that can be imposed on validators who misbehave, such as by going offline or approving invalid transactions.
• Unavailability: If a validator goes offline, you will not earn rewards for the time that they are offline. This can be a problem if you are staking a large amount of SOL.
• Concentration risk: Staking to a single validator increases your risk of concentration risk. Concentration risk is the risk that your stake is too concentrated in a single entity, which could make you more vulnerable to losses.

Now that we have gone through some of the issues, let’s look at the way we can mitigate them:

• Look for a pool with a good reputation: There are a number of different validator pools available on Marinade with some research you can find out and choose a pool with a good reputation.
• Consider the pool’s uptime: Look for a pool with high uptime. This means that the validators in the pool are online and participating in block production most of the time.
• Check the pool’s commission rate: Some validator pools charge a commission rate. This is the percentage of your rewards that the pool takes as a fee. Choose a pool with a commission rate that you are comfortable with.

Unstake Liquidity Pool

Okay we’ve talked about different ways you can stake on Marinade which are liquid staking and Marinade native, we also looked at the feature Marinade offers to its users which is the Directed stake where users choose a validator to stake to. But that’s not all, Marinade also has an unstake Liquidity pool.

The Marinade mSOL/SOL unstake pool is an internal mSOL-SOL pool which is intentionally unbalanced and operating at its best if 100% of its liquidity is filled with SOL from liquidity providers. — Marinade Docs

The Marinade unstake liquidity pool is a pool of SOL that is used to facilitate the unstaking of mSOL tokens. When you unstake your mSOL tokens, they are converted back to SOL and deposited into the unstake liquidity pool. The pool is then used to provide liquidity for the mSOL/SOL trading pair on the decentralized exchange.

The unstake liquidity pool is important because it helps to ensure that there is always enough liquidity available for users to unstake their mSOL tokens without having to pay a high price. The pool is also used to generate fees, which are used to support the Marinade protocol.

Fee structure of the mSOL/SOL pool. As long as the liquidity target is maintained after your unstake, the fees will be 0.3%. — Marinade Docs

Anyone can become a liquidity provider. Liquidity providers can add or remove liquidity at any time, and they will receive a LP token that represents their share of the pool. As other users unstake their mSOL tokens using the liquid-unstake option, fees are added to the pool and then distributed to the LPs proportionally to their share of the pool.

Here’s an infographic by the Marinade team to give you a better understanding of the flow of adding and removing liquidity.

Composition and flow of the mSOL/SOL liquidity pool — Marinade Docs

Staking to a liquidity pool is subject to impermanent loss, which is a loss that can occur when you provide liquidity to a liquidity pool, but the Marinade unstake liquidity pool promises to be “free from divergent/impermanent losses”.

Because liquidity providers only deposit SOL, the Marinade Unstake Liquidity pool is free from divergent/impermanent loss. You are guaranteed by code that you will remove the same or more SOL value than the amount you deposited (minus the 0.00001 transaction fees from Solana).

Marinade’s Delegation Strategy

Marinade’s target is to provide the best staking yield for its users while making Solana more decentralized and censorship-resistant. When users stake their SOL on Marinade, it is delegated to a number of high-performing validators using their delegation strategy.

Marinade delegates SOL to a pool of validators using a three-part strategy:

• 60% of the TVL is delegated to validators based on their performance score.
• 20% of the TVL is delegated to validators that have received votes from MNDE holders.
• 20% of the TVL is delegated to validators that are chosen through Directed Stake and are not blacklisted and have a good track record.

The performance score of a validator is calculated based on three factors:

• APY performance: The number of inflation rewards that the validator has earned for its stakers.
• Stake concentration: The percentage of the network’s stake that is delegated to the validator.
• Block production: The number of blocks that the validator has produced.

Validators can be blacklisted for a variety of reasons, such as slow voting, commission rugs, or failing to restart their node after a cluster restart.

Marinade publishes detailed validator reports that can be viewed by anyone. These reports include information on the validator’s performance score, stake concentration, block production, and blacklist status.

Here are some of the key benefits of Marinade’s delegation strategy:

• It aims to provide the best staking yield for its users while making Solana more decentralized and censorship-resistant.
• It is transparent and open to all validators.
• It is constantly being updated and improved.

DAO Governance: Marinade

The Marinade DAO is a decentralized autonomous organization that governs the Marinade protocol on Realms. The DAO is controlled by MNDE token holders, who can vote on proposals that affect the protocol.

Proposals can be submitted by anyone, but they must be approved by the Marinade DAO before they can be voted on. Proposals can be about anything that affects the Marinade protocol, such as the delegation strategy, the fees charged, and the treasury.

To vote on a proposal, you need to lock your MNDE tokens. Locking your tokens means that you cannot use them for other purposes, such as staking or trading. Locked MNDE is subject to a 30-day unlocking period which begins once the unlock is initiated. MNDE holders cannot vote during this period. Anyone with a locked MNDE can send proposals on chain and execute them when passed.

7.5% of MNDE (75M) is allocated to initial contributors. As of August 2023, only 4.8M MNDE remain to be vested, on an average of 807,000 MNDE per month, completed by January 2024 — Marinade Docs

The Marinade DAO is a way to ensure that the Marinade protocol is controlled by the community. This makes Marinade a more democratic and transparent protocol.

Marinade DAO on Realms

Here are some of the benefits of Marinade DAO governance:

• Transparency: All proposals are public and can be voted on by anyone. This makes the decision-making process more transparent and accountable to the community.
• Community control: The community has the power to vote on proposals and decide how the protocol is developed and maintained. This gives the community a greater say in the future of the protocol.
• Efficiency: Proposals can be submitted and voted on quickly and easily. This makes the decision-making process more efficient.

However, DAO governance is not without its challenges. Some of the challenges may include:

• Complexity: DAO governance can be complex and difficult to understand. This can make it difficult for users to participate in the process.
• Voting fatigue: Users may not have the time or energy to vote on every proposal. This can lead to a lack of participation in the decision-making process.
• Manipulation: Proposals can be manipulated by users with a large number of MNDE tokens. This can give them an unfair advantage in the voting process.

Marinade Forum

Apart from the Marinade DAO governance, Marinade also has a forum where users can engage in discussions that will shape the future of the Marinade protocol. Marinade also allows its users to contribute to the discussions anonymously, so whether you are an active user or not you can participate actively in the discussion.

Conclusion

To conclude I’ll like to highlight some key principles that guide Marinade’s ethos, which are:

• Decentralization: Marinade is a decentralized protocol, which means that it is not controlled by any single entity. This makes it more secure and resistant to fraud.
• Transparency: Marinade is a transparent protocol, which means that all of its code is open-source and all of its decisions are made in public. This makes it more accountable to its users.
• Community: Marinade is a community-driven protocol, which means that its users have a say in how it is governed. This makes it more democratic and responsive to the needs of its users.

Marinade is committed to these principles and is working to make staking SOL tokens easy, secure, and accessible to everyone.

Also here are some key things that Marinade is doing to achieve its mission:

• Providing a user-friendly interface for staking SOL tokens.
• Offering liquid staking, which allows users to stake their SOL tokens and still use them in DeFi applications.
• Providing liquidity to the mSOL/SOL pool, which makes it easier for users to swap between the two tokens.
• Working with the Solana community to promote the growth of the Solana DeFi ecosystem.

Marinade is already making a significant impact on the Solana ecosystem with its commitment to decentralization, transparency, and community, Marinade is well-positioned to become a leading player in the Solana DeFi space, although it also comes with its own perks it’s advised you make your personal research as I’ve just given a brief overview so you can choose what works best for you.

Thank You.

References and links

Marinade Validators: https://marinade.finance/app/validators/?sorting=score&direction=descending

Marinade Docs: https://docs.marinade.finance

Marinade Website: https://marinade.finance/

Marinade Forum: https://forum.marinade.finance/

Vote on Marinade DAO: https://app.realms.today/dao/MNDE

Impermanent loss explained: https://academy.binance.com/en/articles/impermanent-loss-explained