It is your third day into the crypto world. You have just come across this snappy Blockchain called Solana. All of a sudden, you hear these terms called ‘Staking’ and ‘Liquid Staking’. You feel like throwing up and never coming back to this dark side of finance. You gather some courage, do a quick google search but nothing helps.
Well, you have finally arrived my friend. The stars have aligned and I have decided to shower my wisdom to break down this jargon for you. Today, we are going to talk about Marinade finance. While you might have come across this name already, we will dig deeper into the following.
- What is Marinade Finance?
- How does liquid staking work?
- What is Marinade Native?
- What are the benefits of “Directed Stake”?
- Explanation of DAO governance on Realms
- What are some ways that staking to a single validator may be risky?
Oh. Also. I need you to bring your A-game when it comes to memes. Cuz you are going to encounter a whole lotta em’.
Since you are new here, let me pick this up from a banking example. Imagine you open a bank account and deposit some money into it (cuz you’re stupid?). You are likely to receive some interest on top of this amount. Bank goes degen with your money and gives you peanuts for helping them out.
Extrapolate this idea to a Blockchain and you are almost there. Instead of a bank, you deposit money on a network. Your money helps in supporting the operations of the Blockchain. Typically, making it more secure. As a result, for locking your money, you get an interest (rewards).
Now our protagonist of the day, Marinade Finance, is a staking protocol on Solana. You can lock up your SOL tokens on this protocol through automated staking strategy expertly designed by the Marinade core team with influence from the DAO. (More on this in a while. For now, think of this is a community with a skin in the game, that governs these strategies).
How it Started?
Can you sense the humble brag in the first ever blogpost on Marinade’s website?
Marinade was born out of a Solana x Serum DeFi Hackathon. After securing third place in the competition, the team knew they had something substantial at hand. After all, they secured a whopping $80,000 grant money to blow this up. They soon started to gather a team, and quickly built their goal statement that looks something like this 👇
Decentralization: The Real MVP
Blockchain’s all about giving the middle finger to censorship. No big corporation, nosy government, or any other party should be able to dictate who’s in and who’s out. But here’s the twist: on Solana, the top 32 big-shot validators have enough muscle to potentially halt the network.
Back when Marinade was just a twinkle in its creators’ eyes, this power was in the hands of just 11 validators. Talk about a power trip! Marinade’s stepping up and handing over the power to the smaller, yet rock-solid validators. The goal? Make it way harder for a handful of validators to throw a wrench in the works.
Making Crypto Cool (and Easy)
If we’re gonna get the next billion peeps into crypto, we gotta make it as easy as ordering a pizza. OGs were fine by signing multiple transactions that looked like crap. However, ‘ain’t nobody got time for that’ meme is even more relevant and real in 2023. Marinade’s all about that smooth experience. Think of it as the Apple of staking. One friend tells another, and boom, staking’s as easy as smashing that like button.
Staking and Beyond
With Marinade, staking’s not just about locking up your SOL and waiting. Nah, it’s a full-blown party. Stake with a click, get your mSOL, and dive headfirst into the DeFi pool. Add liquidity, lend it, borrow against it, all while your staking rewards keep rolling in.
How it’s going?
As of July 2023, Marinade is already responsible for $167 million in crypto assets – just a touch over half of the total value locked (TVL) on Solana.
Marinade allows you to stake natively or liquid stake. Native staking means simply depositing your tokens with one of the 100+ validators to earn rewards (as discussed above). You can also reap the benefits of automatic delegation strategy that choses the best validator for you to stake your SOL.
Yes, I would cover Marinade native in a short while. For now, I cannot wait to onboard you to the marvel called liquid staking. Read on!
Now this is where it gets really exciting. Once you deposit your SOL for staking, all degenery comes to an end. In other words, you cannot play around in the DeFi realm because your SOL is locked away.
Liquid staking issues you an equivalent token for your staked amount. This token can be used to do whatever. Think of this like your bank issuing a free pass against your deposited amount. Let the games begin.
When liquid staking you receive an equivalent value of “marinated SOL” tokens (mSOL) that you can be used in decentralized finance (DeFi).
A famous DeFi saying goes, “if you are not sure what is the source of revenue, you are the source my friend”. Let us explore how Marinade is making money in this equation.
This is by charging you a small fee in case you want to withdraw your staked SOL immediately. If you do not want to pay the fee, you need to wait for an unlocking period.
Yeah. And before you go all guns blazing into a liquid staking protocol, let us talk about a few pros and cons of the same:
Pros of Liquid Staking:
Let us start with the positives. Here are a few reasons why liquid staking is a finance marvel:
1. Unlocked Liquidity:
Duh! You saw this coming from miles away. Liquid staking allows you to use your funds even after staking. Yay!
2. Yield Farming:
You can use your marinated tokens to earn an interest on top of them on certain protocols. This is over and above your staking rewards.
mSOL can also be used as collateral to take loans. Staking crypto –> Getting Liquidity –> Collateralizing –> getting more liquidity. Yeah. Life is fun when you do not involve any centralized government bodies stopping you in tracks at each step.
Cons of Liquid Staking:
The other side of the coin?
1. Smart Contract Risks:
Since we have no intermediary in this entire game, the show is run using smart contracts. The problem with these smart contracts is that they are prone to attacks and bugs.
2. Price Depegging:
Unexpected volatility can lead to depegging between the price of mSOL and underlying SOL.
All said and done, liquid staking is a game changer when it comes to decentralized finance. Here’s an inforgraphic by Marinade that talks about the your available options when it comes to crypto.
Remember how we talked about Smart Contract Risks involved in Liquid Staking? Chickening out? Well, Marinade has got you covered.
Marinade Native is an alternative to liquid staking that allows users to benefit from an automatic delegation strategy without using smart contracts.
How is it different from liquid staking? Checkout the table below:
|What?||Liquid Staking||Marinade Native|
|Smart Contracts||Yes||Nope. Leverages native Solana capabilities|
|Custody||Locked in Smart Contract||You control the ownership|
|Fee||Yes, in case of instant withdrawals||No|
Marinade Finance can be really handy when you do not want to get into the hassle of choosing the right validators. Marinade does it on your behalf for no cost.
Why Marinade Native?
I mean why shouldn’t I just leave my stake with a single validator and chill? Is there even a need for something like Marinade Native?
Alright, buckle up, buttercup. Let’s dive into why putting all your SOL into one validator’s basket might be a dumb move.
1. Centralization? Seriously?:
Yo, ever heard of decentralization? That’s the whole point of blockchain! Staking all your SOL with one validator is like giving your car keys to a toddler. You’re just asking for trouble.
2. Downtime Drama:
Validators are like those flaky friends who promise to show up but bail at the last minute. If your chosen validator decides to take a nap or their tech goes kaput, wave goodbye to those sweet rewards.
3. Slashing? Ouch:
Some blockchains will straight-up penalize you if your validator acts like a jerk. Stake with a bad boy, and you might find some of your SOL missing. It’s like lending your bike to a friend who returns it with a flat tire.
4. Performance Issues:
Not all validators are rockstars. Some are more like that dude who thinks he’s a pro guitarist because he knows three chords. If your validator’s game is weak, your returns will be laughable.
5. Security? More Like Insecurity:
If your validator can’t protect their stuff and gets hacked, guess who’s SOL? (Pun intended.) You. Diversifying is like not putting all your beers in one cooler. Someone steals one, you’ve still got the rest.
6. Greedy Validators:
Some validators are just greedy punks. They might jack up their commission rates, leaving you with the short end of the stick. It’s like tipping a terrible waiter just because they refilled your water once.
7. Stuck in a Bad Relationship:
If you’re locked in with a lame validator and can’t switch, it’s like being stuck in a never-ending bad date. You’re just waiting for it to end.
Marinade Finance tries to save you from these facepalms by spreading risk across multiple validators. So, don’t be that guy. Be smart with your SOL.
Marinade Native, eliminates the smart contract risk of swapping SOL for mSOL while preserving the expected yield of around 7%, developers say. That’s because users retain custody of their SOL as opposed to receiving what amounts to a yield-infused depository receipt.
What even is this strategy that’s everyone taking about? Does it really make a difference?
Turns out that is is not humanly possible to do what Marinade does for its stakers. Every epoch (think a fixed period), Marinade recalculates the performance score of each validator, collects MNDE votes and re-balances stake based on the results.
Every epoch, Marinade also looks at e.g. commission rugs and delinquent validators and moves the stake elsewhere as soon as possible.
Marinade’s got this whole delegation strategy pipeline, which is like a secret recipe to make sure your SOL gets the best treatment. Here’s the lowdown:
They’re pulling data from all over the place: Solana validators app, and even directly from the Solana RPC nodes. It’s like they’ve got spies everywhere, making sure they know what’s up.
They’re not just collecting data for fun. They process it, clean it, and get it ready for some serious analysis. It’s like washing and marinating the steak before grilling it to perfection.
Validators get scores based on performance, stake, commission, and other factors. It’s like a talent show, and Marinade’s the strict judge making sure only the best get through.
They use this fancy algorithm to figure out the best way to delegate the stake. It’s like using GPS instead of an old map. You’re gonna get to the treasure faster and more efficiently.
After all this, if you still think that you are capable of beating an algorithm in finding the next best validator, why don’t you pause here for a moment and try picking a few from the list below?
If this gives you jitters, please note there are 100+ validators on Solana. Aww moment?
Now you can also stake your SOL to individual validators it using Marinade’s Directed stake. Currently 70% of the SOL is staked but only 2.5% is liquid.
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
- Directed stake
If you choose Directed stake, select a validator, and complete the staking operation. Your wallet will be directing stake to this validator.
The GIF above highlights how to use directed stake on Marinade.
Go DAO or Go Home:
Let us go back to where we started. Banks. Do you have any say in how the banks operate? Can you chose who they lend to? Or pick a custodian for them?
Well, we don’t do that shizz here.
Like many other protocols, Marinade is governed by a DAO. DAO stands for decentralized autonomous organization. It is an on-chain mechanism of giving the control back to the users of the protocol. To become a voter on the future of the protocol, all you need to do is own the governance tokens. Generally, these structures are managed through some DAO tooling platforms.
Marinade is using one of the best platforms on Solana called Realms.
Marinade DAO or mDAO is comprised of MNDE holders that lock their MNDE for governance. Some core values of Marinade Finance include adaptability, approachability and honesty and responsibility. Some words that are kind of a rare find in web3.
If you are new here, it is hard to imagine how democratic protocols work. So here’s a screenshot of what different proposals on Realms look like. Any one who holds $MNDE is free to participate in the discussions and vote.
Marinade is a flag bearer of changing DeFi narratives across that world. Strategies enabled by the likes of liquid staking protocols are no where to be found in web2.
After diving deep into the world of liquid staking, comparing the big players, and getting our hands dirty with all the juicy details, here’s the tea: while each platform has its own flavor and swag, Marinade Finance is out here making waves on the Solana beach.
With its sizzling features and that spicy delegation strategy, it’s like the hot sauce you didn’t know your crypto portfolio needed. So, whether you’re a seasoned staker or just dipping your toes in the water, remember: in the world of blockchain, it’s always good to keep things saucy. Until next time, keep your stakes high and your spirits higher!