LP Finance has not launched yet. We are raising funds from IDO this month, which would cover the audit. And yes, contracts should be open source.
For risks excluding LP Finance’s smart contract risks are as follows
Inherits mSOL and stSOL smart contract risk
When using too high leverage (mSOL-zSOL) loop, price impact might cause users’ loss. This would be solved once zSOL liquidity stabilizes.
PSM attack. User can mint zSOL without limit, regarding mSOL deposits. If zSOL is sold on market, zSOL price can theoretically fall to 0. This does not impact LP Finance itself as the program assumes zSOL price = SOL price. However, if implemented at lending protocols, there is a risk for liquidators, as zSOL collateral cannot be sold properly.
Your posts are contradictory, please clarify:
“30k MNDE (≈$2,000) would be provided to staked zSOL-mSOL LP on LP Finance for 2 months”
vs
“Initially, incentives would be provided to only zSOL-mSOL pair on Nazare”
So are incentives planned on LP Finance or on Nazare? This is important to determine, as the Marinade community needs to know if it is voting to set up a gauge & donate MNDE to Nazare, or to LP Finance?
Either way I don’t see the point of this grant, especially when 85% of it is just going to LP Finance to use to vote on its own gauges. Why not just buy it like many other individuals and protocols did who wished to add value to Marinade and mSOL?
If you start a gauge and add value, then it will attract votes. If you buy MNDE you can even vote on your own gauge. I think that’s the way to go in this case.
I believe he means 30k MNDE will be provided to users who stake the zSOL-mSOL nLP (Nazare token) on LP Finance, and initially only that token will be eligible for those rewards (as opposed to other pairs and/or other LP tokens).
Not to open this can of worms again, but based on discussions that have been happening the last few weeks, grants are exactly for this purpose, and a committee has specifically been formed to grant rewards under 250k for protocols and use cases like this.
For the usage of MNDE, there might be the following options
Sell MNDE for USDC to cover development expense
Set up liquidity mining to distribute MNDE
Use MNDE for gauge/governance votes for the protocol’s benefit
The third option would be best for both mDAO and grantee as
MNDE would not be dumped instantly
Grantee can utilize MNDE more efficiently (Maximize grant efficiency)
With MNDE gauge votes, it is likely for grantees to attract users continuously rather than instant boost by spending MNDE for LM
And for the part,
Any grant requesters might want to buy more MNDE. Even us.
The simple reason is that the funds should be used in development first. Without a proper program, MNDE is useless for that protocol.
I believe MNDE grant should be given to protocols that have a huge potential to bring more mSOL adoption but needs initial support. That exactly matches the grant details for LP Finance.
To elaborate on @btuck’s question, one of the requirements for grants is that:
The end result must be in the community’s control after it is created, to ensure continuity - that is, it must be open source and cannot rely on a closed server that the grantee runs.
While I expect you will control the contract upgrade authority, so it won’t literally be under the community’s control, you could argue that the contracts being open source provides continuity if you went to go poof.
Are there any parts of this system that will depend on a standalone service and/or will not be open sourced?
I want to know more about what “community’s control” means. Does it mean LP Finance cannot be an independent DAO but should be under mDAO and completely controlled by veMNDE to receive a grant?
The idea is the community should be able to provide continuity if the grantee were to go dark. It’s up to the committee to decide if a project qualifies or not, but something where a key component is closed-source would likely be right out.
To elaborate, if the grantee does not maintain the project and is not reachable, the community should be able to be granted authority to maintain it, right?
For zSOL Program, it would eventually be an immutable program. At the initial stage, the stability fee and deposit fee are customizable and can be decided by the DAO.
However, these would be eventually computed by a formula on-chain, which needs more careful consideration after launch. Of course, this would be reviewed by the DAO and the decision is also upon them.
1. Stability Fee Formula: Based on zSOL/SOL ratio, mSOL APY 2. Deposit Fee Formula: Based on deposit value, mSOL APY
After this is complete, which would be months after launch, LP Finance would not suffer a risk even if our core devs go silent. And I believe that is a key component of DeFi.
Additionally, the part where you mentioned
I do not find any problem. zSOL program would be open-source, and the community can fork the project to continue and attract liquidity from the existing program. If forking is not exactly what you mean by “provide continuity”, I’d like to get a more detailed explanation on this.
We meant that, whatever the Marinade DAO funded, should continue to exist independent of the grantee, and that the community should able to use it regardless of the grantee being around or their decisions around it.
Some examples I can think of:
An open-source command-line application that anyone can build and run;
Something that builds on Marinade’s SDK;
An application that depends on a centralized server for offchain calculation, which the grantee pays for, but where the calculation service itself is open source and could be run by someone else;
A fully open-source onchain product that the community can fork and support if it decides it has value, in case the were to not support it anymore or decide to rip out whatever Marinade integration there was;
The short version is that whatever the Grant Committee funds should be able to continue existing and operating independent of the grantee, their decision to continue supporting it (or paying a service) or, in this case, decisions that another DAO might make.
If it helps as a razor: if there’s a switch anywhere the grantee could flick off, and the mDAO community couldn’t flick back on again if they wanted, then mDAO can’t provide continuity.
While Marinade could fund closed-source projects, or those where continuity isn’t ensured, those are beyond the purview of the Grant Committee and need to go through the governance process.
Thanks for the clarification. As explained in the previous reply, LP Finance meets all the requirements, therefore there are no issues being unsuitable for the grant. Are there specific concerns that you have about LP Finance, which might violate the requirements?
I haven’t dug into the specifics and this is fully on the committee’s hands - if they deem it qualifies, great!
I did want to clarify what we meant by the criteria, to be sure you were aware of it, and given this is one of the first grant requests that we have gotten. It’ll likely be useful for future grant applicants to have a description they can fall back on.
Can you elaborate a bit on this part please? What makes you so sure that increased leverage staking yields will lead to more mSOL adoption? How many wallets are currently looping mSOL?
It is a no brainer strategy to leverage liquid staking yield with no liquidation risk except smart contract/oracle risk, if you are ok with being exposed to SOL price.
Data from Solend also shows that most mSOL deposits are borrowing SOL against their mSOL. LP Finance will be able to offer much better rates as long as there is liquidity for zSOL
To look at leveraged staking usage, I will use Solend as an example.
Current collateral compositions on Main Pool are as follows - USDC: $93.0M - USDT: $23.4M - mSOL: $64.1M - stSOL: $72.9M
Total borrowed SOL is $61.6M.
Here, we can assume SOL borrowers are either taking short positions or leveraging staking yields.
If all USD deposits are shorting SOL at 20% LTV, the total SOL borrowed for short-selling would be $23.28M.
Therefore, the remaining $38.32M (62.2%) is borrowed for leveraged liquid staking.
Assuming users used max leverage, total mSOL + stSOL required for collateral would be $51.09M.
This means 13% of total supply of stSOL and mSOL circulating are used for leveraging staking yields. This is only on Solend.
Additionally, the demand would rise as staking yield and loan interest delta increase.
At current rates, - mSOL Yield: 5.7% APY (6.87% if LM accounted) - SOL Loan Interest: 4.42% APY (2.58% if LM accounted)
the delta is not huge.
However, with LP Finance, the yields would be higher and stable, bringing more leveraged liquid staking adoption. As explained above, this strategy is already widely used, and LP Finance is at a competitive position to take big shares off it.
Mango hack is a good point. In fact, LP Finance has always been conservative on collateral onboarding. The collateral requirements are as follows
Non-bridged assets
Not backed by centralized assets
Sufficient liquidity (If deposit cap sold instantly, price impact should be smaller than 10%)
The third criteria allows LP Finance to stay safe, as, in the most dramatic situation, the protocol does not have to carry on bad debt. If commenting on systemic risks, it would be better if a detailed scenario is given so that we can explain better.
Also for what @dobby has asked, I provided a clear explanation on the comment above.