Marinade will redirect the protocol fees it would normally get directly into the SOL staked pool, for a duration of 3 months OR until 2646 SOL have been sent back to the pool (which could be faster if the TVL grows in those months).
The start time depends on the community approving the proposal, but we expect it to be on the next epoch after the proposal is executed.
As you may know, a cascade of events during epoch 284 led to the unstaking of approximately 6.33M SOL delegated to Marinade which resulted in mSOL price not going up as it should have. A full post-mortem is available in the Changelog.
As communicated right after this incident, Marinade wants to bear the responsibility of this incident and help mSOL holders. Nonetheless, as the missed mSOL appreciation would have compounded and as APY and TVL are changing over time, it is impossible to sort out a change in Marinade settings that would make sure that the compensation is perfectly accurate and precisely reaches everyone concerned. We have settled on what we consider a fair middle ground that should help balance out mSOL’s missed appreciation.
First of all, it’s important to state that mSOL price cannot be manipulated and Chefs had to look for a way to compensate that would actually be possible to implement with how Marinade smart contracts work.
As it’s not possible to directly send SOL to the Marinade smart contract without minting mSOL, so we can only envision a progressive approach directed at the fees.
Therefore, the option that Marinade contributors agreed upon would be to lower the management fees taken each epoch by Marinade (currently at 2% on rewards) to 0%, effectively reducing Marinade’s revenues and redirecting them to mSOL holders. Using this system would allow the mSOL price to grow at a faster rate than what it would if it was only getting fees, slowly catching up on the missed epoch, only by changing this parameter.
If we consider the amount of SOL that mSOL did not appreciate on that epoch, we can consider the TVL at time, multiply it by its yearly APY and then estimate the APY for one epoch. This yields:
6339496 * 0.061 / (365.25 * 24 / 60) = 2646.88060233 SOL
In order to compensate for this event, Marinade Chefs suggest that the fees of the Marinade protocol are redirected to the SOL staked pool for a duration of 3 months OR until 2646 SOL have been sent back to the pool (which could take less than 3 months if the TVL was to grow during that time).
mSOL will have extra appreciation during the time specified by the amount that would otherwise go into the project’s fees, up until 2646 SOL. This will financially benefit current and future mSOL holders.
Main considerations for this decision:
- This will benefit mSOL holders but negatively impact Marinade’s treasury, which is something MNDE holders need to vote on.
- Chefs cannot directly manipulate the price of mSOL (which would be a systemic security risk to the project), so we are left with an approximation to help mSOL appreciate using Marinade’s operating capital.
- Marinade’s treasury lost out on fees during this period along with the mSOL appreciation. Liquid staking provides more flexibility and direct access to our stake, as well as extra APY from use on DeFi, but one of the trade-offs is that we may need to weather unstaking events such as this one. While we can’t guarantee that Marinade will do a similar cash outlay in the future, the team is willing to take a hit and help mSOL get closer to where it should be.
This incident did have some positive side effects, given it also:
- Allowed a full rebalance of the stake, meaning the system re-distributed the stake in a more optimal manner.
- Led to the team implementing more checks during this process, making it better. Specifically, we added a sanity check on the total score returned by the processing, removed the dependency to StakeView, and corrected the Emergency brake that had malfunctioned.