Marinade Finance is a liquid staking protocol for Solana (SOL), but in order to get why it's so useful we first need to understand the mechanics of traditional staking, their effect on liquidity, and how liquidity affects markets.
How does proof-of-stake affect liquidity?
Solana uses proof-of-stake consensus to validate transactions and add new blocks to its blockchain. The more SOL that's staked, and the more distributed those tokens are across different validators, the harder it is for even a well-funded group to add false blocks to the blockchain.
To incentivize staking, delegated tokens earn yield (like interest in a bank account), but there's wait times of up to 3 days to stake and unstake, and while earning yield, the SOL is locked away from the market, reducing liquidity.
Liquidity refers to an asset’s ability to be exchanged for another asset. When there is low liquidity there are wider swings in asset prices when large orders are placed, meaning significant positions can’t be played quickly without moving the market. This raising of costs on purchases and decreasing of profit on sales can make low liquidity markets less attractive to investors. One way to alleviate that is to create more liquidity with the funds already available… but how?
Enter Marinade Finance
Marinade Finance is the first non-custodial liquid staking option for Solana.
Liquid staking eliminates the problem of locked up funds by making derivative tokens. The staked funds stay where they are and act as collateral, while the derivative token can be stored or used in the markets.
If you use Marinade Finance to stake your SOL, you receive mSOL (marinated SOL) tokens in return, which can be used for DeFi lending, collateral, and more, all while continuing to earn yield on the underlying SOL as it provides security to the Solana blockchain. The price of mSOL tracks SOL, and you can unstake immediately at any time for a small fee, or for free if you’re willing to wait 1 or 2 epochs (instead of the traditional 1-3 days). It’s non-custodial too, which means your tokens always stay under your control. Marinade Finance also takes care of selecting a validator using an algorithm to choose from the top 20% of the most trusted according to their scoring system.
What is the Marinade DAO and MNDE?
The Marinade DAO (decentralized autonomous organization) gives control over the protocol and treasury to its users. Since Q4 2021, owners of the native governance token of Marinade Finance, MNDE, have had the right to vote on where to take the protocol moving forward. To vote, MNDE holders lock their token for a period of 30 days and receive something like an NFT voter registration card. The NFT grants access to the Marinade Discord, DAO, and the ability to allocate governance using guages. When NFT holders approve rules they are built into smart contracts and applied on-chain where they can be easily accessed and audited.
Marinade Finance and their DAO are built around the principles of radical transparency, a no-ego get-stuff-done attitude, working smarter not harder, and collaboration over competition. Their history and roadmap show a solid track record, and strong goals for the near future and beyond.
The MNDE token was introduced to help achieve these goals by capitalizing the treasury and incentivizing liquidity as well as community involvement through the DAO.
The liquid staking landscape
Marinade may have been first to market for liquid staking on Solana, and impressed with its governance structure and sizeable average APYs, but there are a few other projects out there aiming to make up ground:
Lido: With around $6B in its ETH liquid staking protocol (stETH), Lido is well known in the Ethereum community. Their liquid protocol for Solana trades as stSOL and also claims a steady average return.
Parrot: Parrot is best known for their stablecoin service, PAI, but also provides a liquid staking service for Solana that trades under prtSOL.
Socean: Socean has a suite of services native to Solana, and managed to raise around $5.75M in seed funding with some notable VCs taking interest. Their staking solution, Socean Stake, trades under SOCEAN.
JPool: JPool is one of the newest services to come to market, and secured funding from Alemeda Research and Solar Eco Fund.
What does liquid staking mean for the Solana DeFi ecosystem?
Liquid staking protocols like these eliminate the dilemma of protect-or-play for token holders and alleviate the strain that proof-of-stake puts on token supply in the market.
These protocols also help to increase liquidity without the need for additional capital. That is a massive benefit to Solana, since it’s significantly easier psychologically for existing token holders to cross over into purchasing DeFi services than it is to attract new customers for the same services. Data suggests that current customers are many times more likely to try a related product than a new customer is to try it for the first time.
It will take the success of Early Adopters of DeFi to convince the “early majority” that it’s worth the risk to enter into the space.
Marinade Finance MNDE and mSOL tokens (and all other Solana-based tokens) can now be safely stored in the Exodus multi-coin wallet. Start now through our add custom token function.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.
