Hello Marinade DAO,
I’d like to suggest an incentive program for mSOL and Marinade Native users.
I would like to suggest an incentive campaign for the use of mSOL and Marinade Native, with a budget of 160M MNDE (16% of the supply) and a duration of a year.
If this proposal passes, both mSOL and Marinade Native would be incentivized with a fixed MNDE ratio per SOL used in either of those products, for 12 months between August 1st, 2023 to July 31st, 2024.
The incentive campaign would be designed as such:
- For every SOL held over the full duration of one year in either mSOL or Marinade Native, a user would receive 4 MNDE.
- Any SOL in Marinade Native would be accounted for.
- For mSOL, only mSOL detected by Marinade’s monitoring snapshot tool (for directed stake) would be accounted for. Marinade would nonetheless expand the list of protocols supported and do its best to allow new protocols hosting a large mSOL TVL to be added.
- The MNDE would be distributed in a locked form (veMNDE), with a 30-day unlock period, and the distribution would happen monthly or bi-monthly depending on technical possibilities.
- The maximum budget for this incentive campaign would be 160M MNDE, similar to the open-door program. This budget would be shared between mSOL and Marinade Native users, without a cap on one of those.
- In the event that Marinade TVL grows so much that 160M MNDE needs to be distributed before the end of the year, the program would end when all MNDE are distributed. The last distribution would be split proportionally among participants if the full amount couldn’t be distributed due to reaching the cap.
Marinade, with mSOL and Marinade Native, offers a service that benefits Solana’s network by spreading the stake to a large group of performing validators and benefits DeFi through mSOL.
Nonetheless, liquid staking adoption has been slow on Solana.
Marinade Native is a first step in the right direction, but the APY offered by Marinade Native, while attractive, might not be enough to justify a move from a single high-performing validator or a large self-staking position.
The goal of this incentive campaign is twofold:
- Make mSOL and Marinade Native the most attractive staking options to capture a larger market
- Distribute MNDE to actual protocol users, without having to rely on liquidity mining
Marinade Native, through its design, does not allow any liquidity mining strategy to be put in place. While possible for mSOL, liquidity mining has shown to be an inefficient way to incentivize the use of mSOL and distribute the MNDE token.
Additionally, while mSOL and Marinade Native offer a competitive APY, moving out of your current staking position to adopt a new one is an effort and a process. Users currently getting a similar yield as Marinade Native will not move to Marinade Native to get the exact same yield, or a 0.05% bonus to it.
For both those reasons, I believe that Marinade Native should, at least for a while, be a lot more attractive than other staking solutions. Solana currently suffers from having a large amount of SOL concentrated to the top validators (130M SOL in the top 30 validators), and having Marinade Native and mSOL become a better option both in terms of yield and in terms of network security and censorship resistance is Marinade’s objective. One of the advantages of Marinade is that it never raised VC money and has an MNDE treasury to use. Using MNDE to incentivize the people that use Marinade’s product for an extended period of time and contribute to its growth is one of the best uses we could do of those MNDE, and completely aligns the users with the protocol.
In order to not cannibalize mSOL or Liquid Staking adoption, and to reward the users actively participating in DeFi, I believe that mSOL users should not be excluded from this incentive program but also benefit from it, at the same rate.
Additionally, by boosting mSOL APY across the board, without having any protocol offering a better incentive for mSOL than the others, we create an incentive for people to use mSOL and put it to use in DeFi, everywhere. Liquidity incentives would not play a role anymore in the choice of protocols where mSOL is deposited, which should incentivize a healthy development of mSOL use-cases.
This proposal would bring up mSOL and Marinade’s APY by quite a lot considering the current prices.
With the ratio of 4 MNDE per SOL, and the current prices of SOL ($25) and MNDE ($0.06), a position of 100 SOL would yield 6.88 SOL and you’d get an additional 1.01 SOL by receiving 400 MNDE, for a total APY of 7.89% instead of 6.88%.
The same would apply to Native. Those incentives would be enough to compete with self-staking, or with the best-performing validators out there.
Regarding the potential dilution of MNDE, the fact that this program is tightly bound to TVL and actual users holding mSOL or using Marinade Native is key here. The Open Door program also had a budget of up to 160M MNDE, but Marinade will probably end up distributing less than 25% of this budget, as the TVL objectives weren’t reached.
- For the 160M MNDE eligible to be distributed, Marinade would need to have an average TVL of 40M SOL (in either mSOL or Marinade Native) over those 12 months.
40M SOL would multiply by 6 Marinade’s TVLs, and subsequently its revenues. Marinade currently earns around $50k per month for around $90k of expenses.
Multiplying those revenues by 6 would mean that Marinade could, in theory, be close to redistributing $200k per month in SOL to MNDE holders.
This should completely outweigh the dilution that current MNDE holders experience, as Marinade would be releasing 16% of the supply in addition to the existing 20%, meaning the dilution would be roughly equivalent to get your MNDE share halved. On the other hand, the amount of SOL you can control with MNDE (through validator gauges/MNDE directed stake) would sextuple, and so would Marinade revenues.
Moreover, most MNDE holders also acquired it through farming with mSOL and could avoid this dilution by just continuing to use Marinade’s product.
- If this incentive campaign has no effect whatsoever, Marinade would distribute 26M MNDE to existing mSOL holders/Marinade Native users.
While this scenario is quite unlikely, if this incentive campaign was to have no effect whatsoever, Marinade would only end up emitting 2.6% of the MNDE circulating supply to current holders. This sounds like a risk a DAO in Marinade’s situation should be able to take in my eyes.
The reality will probably happen to be in between those two drastic scenarios, but it seems clear that the growth in TVL (and thus MNDE utility) required to distribute MNDE would outweigh by far the dilution. Distributing the MNDE in a locked form would also allow an easy entry to Marinade governance, just by merely using Marinade products which makes sense.
- In opposition to liquidity mining, this incentive campaign would not reduce your returns when more people are participating, making it possible for anyone to become a Marinade advocate
In liquidity mining models, being early or being the only one to extract the incentives is the most EV+ move.
Through this campaign, you would actually benefit from exactly the same MNDE rate whether other people participate or not. You would in fact benefit more as more people participate, because as people use mSOL or Marinade Native and grow the TVL, the power of MNDE also grows. Marinade would be able to offer the first incentive program where bringing in your friends and new users doesn’t dilute you, but actually ends up bringing you value.
Happy to discuss over the proposal and hear your thoughts,