Surfing the Tide of Decentralized Growth: Unveiling the Power of Marinade

Exploring the Potential of Staking on Solana

In the rapidly evolving landscape of blockchain technology, Solana has ascended to prominence, offering unparalleled transaction speeds and a distinctive consensus mechanism that sets it apart from its peers. At the heart of Solana's ecosystem lies a process that has captured the attention of both cryptocurrency enthusiasts and investors: staking.

Staking is the lifeblood of Proof-of-Stake blockchains like Solana. Democratizing access to staking is vital to ensuring Solana's proper security, consensus, and decentralization.
-Dylan Macalinao of Saber Labs

1. Background and Emergence

Emerging in March 2020, Solana rapidly garnered recognition for its groundbreaking approach to scalability and performance. Driven by its exceptional consensus algorithm known as "Proof of History" and complemented by the "Proof of Stake" mechanism, Solana's network achieves an impressive transaction throughput while maintaining robust security measures. This fusion of technological innovation has ignited enthusiasm within the Solana ecosystem and sparked interest in its burgeoning staking opportunities.

Central to Solana's operational prowess is the concept of staking. In this process, participants—often called "stakers"—pledge a portion of their SOL tokens to validators, individuals, or entities responsible for supporting network operations and ensuring secure transactions. In return for their invaluable contributions, these stakers receive additional tokens, aligning their interests with the network's welfare. This dynamic fosters both security and decentralization, reinforcing Solana's stature within the blockchain landscape.

1.1 Liquid Staking: Bridging the Gap

While traditional staking bolsters network functionality, it encounters a challenge—staked assets tend to lack liquidity. This limitation prevents these assets from being readily used for trading or participation in diverse DeFi protocols, primarily due to mandatory cooldown unstaking periods, also known as "epochs."

Enter liquid staking, an innovative solution that addresses this liquidity hurdle. Liquid staking enables participants to obtain a representation of their staked assets through derivative instruments like liquid stake tokens (LSTs). These tokens are freely tradable and can be utilized within various DeFi applications, enriching the flexibility of staked assets.

2. Introducing Marinade

A pivotal player harnessing the potential of Solana's staking landscape is Marinade Finance, an innovative protocol at the forefront of liquid non-custodial, permissionless staking on the Solana network. Marinade Finance was conceived during the spring of 2021 within the context of the Solana x Serum Hackathon, born as the result of a merger between two participating teams. This collaboration laid the groundwork for a remarkable journey of innovation.

On August 2nd, 2021, Marinade Finance debuted on the mainnet, marking a significant milestone in addressing capital efficiency within Solana staking. Its open-sourced smart contract underwent rigorous auditing—ensuring security and reliability—and has since evolved into a public good, funded primarily by $80k from the Project Serum Ecoserum and the Solana Foundation Ecosystem grants.

Marinade Finance's unique trajectory sets it apart—it eschewed conventional funding avenues such as VC funding, seed rounds, or private sales, embodying the decentralized ethos inherent in the blockchain domain.

2.1 Staking with Marinade

Preceding the advent of Marinade, stakers had to individually research and delegate their stake to specific validator accounts. The introduction of the Marinade liquid staking pool streamlined this process. SOL holders could now stake to the Marinade stake pool, which automatically delegates their positions across a broad network of validators.

Upon staking SOL with Marinade, stakers receive marinated SOL (mSOL)—reward-bearing token representations of their staked tokens within the Marinade stake pool. The value of mSOL versus SOL tokens increases with each completed epoch, reflecting the rewards accrued from the staked tokens. It's akin to having your cake and eating it too

Figure 1: Comparison between traditional staking and Marinade

2.1.1 mSOL's Appreciation in Value

After each epoch, Marinade adds staking rewards to the pool, resulting in more SOL for the same quantity of mSOL. Consequently, the mSOL/SOL price experiences consistent appreciation.

2.2 Ways to Stake

Marinade Finance offers multiple pathways for staking, each tailored to meet varying preferences and needs. By understanding these options, participants can make informed decisions that align with their objectives. This section explores the different approaches available:

Automated Delegation: Simplifying Staking

Staking is one of the easiest and most effective ways to participate in proof-of-stake blockchains like Solana. Marinade's automated delegation strategy is designed to make staking straightforward and secure. It offers institutional-grade risk management in a user-friendly manner.

Through automated delegation, Marinade handles staking operations on behalf of the staker. This includes tasks like splitting, merging, and restaking—Marinade covers the associated transaction costs. This automated approach maximizes returns and constitutes 60% of the Marinade permissionless stake pool delegation to the top 100 validators based on Marinade's scoring system.

Directed Stake: Empowering Choice

Marinade introduces Directed Stake, a feature allowing stakers to support their preferred validators while remaining liquid with mSOL. This constitutes 20% of Marinade's total stake delegation. Stakers can back validators outside the super minority or those not receiving stakes from Marinade's automatic delegation.

Validators utilizing Marinade's liquid staking product through Directed Stake receive MNDE rewards through the Open Doors program. This participation not only aligns with Marinade's ethos but also grants validators a seat at the governance table, contributing to the protocol's decentralized decision-making.

Marinade Native: Enhancing Staking Flexibility

Marinade's commitment to providing options led to the introduction of Marinade Native—a novel product shipped alongside the V2 platform, announced in May 2023. This innovation addresses the preferences of Solana users who opt not to engage in liquid staking.

The ratio of users participating in liquid staking versus native staking is approximately 3%, persisting for over a year. Among these users are institutional stakers facing obstacles such as legal, tax, and safety concerns. Marinade Native caters to this audience by offering a risk-averse native staking solution. It allows users to stake their SOL directly without exposure to smart contract risks.

Marinade Native grants users custody of their staked SOL and stake account within their wallet. Marinade manages stake authority and positions automatically, eliminating the need for deposit, entry, exit, or management fees. Users can seamlessly switch to mSOL and access optimal routes for instant unstaking. Regardless of staker type, Marinade accommodates all preferences.

If you are staking on @solana, why aren’t you liquid staking?
-Anatoly Yakovenko

2.3 Advantages of Liquid Staking with Marinade

Decentralization: Liquid staking with Marinade supports network decentralization. Marinade algorithmically manages and delegates staked SOL across over 100 top-performing validators in the network.

Optimized Yields: Staking with Marinade leads to direct staking rewards and DeFi yields when utilizing liquid mSOL in supported DeFi protocols. This enables exploring additional earning opportunities using mSOL beyond staking yields.

Risk Mitigation: Staking with a single validator poses risks, including shutdown and commission changes. Marinade addresses this by removing stakes from underperforming validators and delegating to reliable ones.

Instant Liquidity: mSOL offers instant liquidity without the need to wait for cooldowns or epochs to accrue rewards, providing flexibility when unstaking.

3. DAO Governance

By January 2022, Marinade had become the leading protocol on Solana by Total Value Locked (TVL). The objective was always to enhance Solana's liquidity while bolstering decentralization and increasing Solana's Nakamoto Coefficient—a metric quantifying blockchain decentralization, which has more than doubled since the launch of Marinade.

Aligned with this objective, Marinade decentralized its operations and control through the establishment of a Decentralized Autonomous Organization (DAO). The DAO is empowered by the Marinade governance token MNDE, introduced on October 7, 2021.

Holders of MNDE possess ownership and voting rights over the protocol and its treasury. The Marinade Council, comprising seven elected contributors, drives protocol decisions, control, and execution through a multi-signatory wallet. This is subject to change once the MNDE token is widely distributed.

The spirit of community governance lies at the heart of Marinade's evolution. In a landscape where too many chefs can spoil the broth, Marinade has embraced a different philosophy—one that encourages active participation and collaboration. This ethos has been cultivated through a rich narrative, with Marinade, marinators, and the kitchen forming the backdrop of this decentralized journey. Contributors have transitioned from mere participants to esteemed chefs, and the result is a flourishing ecosystem where everybody has the opportunity to contribute.

Discussions take place within the vibrant Marinade forum, serving as the arena for shaping the Marinade vision and direction. This inclusive approach extends beyond passive involvement; it empowers anyone who holds a stake in the Marinade vision to play a role in the protocol's success. This is achieved not only through staking SOL tokens but also by acquiring the governance token, $MNDE. By locking up MNDE and participating in the voting process on Realms, the robust SPL governance DAO tooling on Solana, participants exercise their influence.

MNDE's role in governance is pivotal, accounting for 20% of the stake pool that Marinade delegates SOL to. This grants the DAO the ability to direct 20% of the protocol's stake toward the validator of their preference. This mechanism embodies the transparency and decentralization that Marinade values, setting it apart from its competitors. The transition to on-chain voting to delegate stake ensures a level of clarity that enhances the decision-making process, providing a model for effective governance within the Solana ecosystem.

3.1 Revenue Model

While you might wonder how Marinade sustains its operations, the protocol prioritizes growth and decentralization over immediate revenue extraction. Nevertheless, Marinade generates revenue from two distinct avenues:

Management Fee: A fee is deducted from rewards received from validators. Of the rewards, 94% goes to stakers, while Marinade retains 6%, which is funneled into the DAO treasury.

mSOL-SOL Pool: This pool facilitates the unstaking process, and 50% of generated fees are allocated to LP providers.

4. Final Thoughts

As we delve into the intricacies of Solana's staking landscape and the pioneering role of Marinade Finance, it's essential to consider the broader implications of these developments. The journey hasn't been without its challenges, evident in the FTX-Alameda fallout. However, amidst these dynamics, the ascendancy of mSOL within Solana's lending markets holds strategic significance.

4.1 Fostering Greater Adoption Through Integration

mSOL's position as the leading liquid staking token carries far-reaching consequences. Its prominence translates into comprehensive integrations across a diverse array of DeFi protocols. This interconnectedness acts as a catalyst for wider adoption, empowering users to engage seamlessly with various platforms within the Solana ecosystem.

4.2 Transparent Governance and User Experience

The prevalence of mSOL within Solana's ecosystem is notable, not only in terms of the total number of holders but also in the transparency of its governance mechanisms. By utilizing on-chain voting to delegate stakes, Marinade distinguishes itself from its competitors, fostering a heightened level of transparency. The simplicity of the user experience, allowing for staking at the push of a button, underscores Marinade's commitment to delivering exceptional user experiences.

4.3 Upholding Core Principles

Marinade's ethos revolves around the principles of transparency, security, and decentralization. The commission structure it employs reflects these ideals, ensuring that users engage with the protocol with full visibility into the associated costs. This commitment to principles resonates not only with experienced cryptocurrency enthusiasts but also with those new to the ecosystem.

4.4 Decentralization and Censorship Resistance

By embracing Marinade's platform, Solana undergoes a transformative process. It becomes more decentralized, impervious to censorship, and capable of composability—a hallmark of robust blockchain ecosystems. Marinade's approach breaks down barriers, enabling anyone to participate as a validator without the limitations that often accompany entry. This democratization drives the overarching goal of a more inclusive and accessible blockchain ecosystem.

5. Conclusion: A Future Towards Decentralization

Throughout our journey, we've delved into the remarkable potential and distinct features that Marinade brings to the staking ecosystem. Within the realm of decentralized finance on the Solana network, Marinade wields the power to reshape landscapes. However, Marinade's influence extends beyond its groundbreaking staking solutions—it encompasses a deep commitment to Solana's growth and progression.

In addition to its revolutionary staking approach, Marinade has actively fostered Solana's development by sponsoring three global hackathons—Ignition, Sandstorm, and Riptide. This level of involvement echoes Marinade's dedication to nurturing innovation and collaboration within the expansive blockchain community. The path that unfolds for the DeFi ecosystem on Solana is undoubtedly brighter with Marinade's presence

Beyond its impact on Solana's evolution, Marinade Finance has forged new pathways in staking, governance, and community involvement. Its emphasis on transparency, security, and innovation reaffirms its significance within the Solana ecosystem. With liquid staking as its flagship offering, Marinade Finance extends an invitation to all stakeholders, urging them to actively participate in shaping the future of Solana.

As we journey forward, let Marinade Finance's story inspire us to embrace the unfolding decentralized revolution and its boundless opportunities.

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