Abstract
Marinade has successfully built and deployed a stake auction marketplace (SAM) system, which allows validators to bid/tip for stake, guarantee APY, and enables the yield of Marinade to beat any other stake pool.
With the SAM system now in broad use by validators on Solana, there is an opportunity to create additional utility for MNDE by awarding a portion of the SAM bid set by validators to MNDE used in MNDE-Enhanced Stake directed towards validators with a winning bid.
This proposal would delegate the decision of “whether to adopt directing of a portion of the SAM bid to MNDE-Enhanced Stakers actively staking to a validator with a winning bid” to a decision market created by MetaDAO. The market will determine whether this change should be expected to positively impact the marinade ecosystem.
If adopted, this proposal would authorize Marinade DAO to take the following actions, conditional on the decision market accepting the proposal:
- Extend the bid system to direct funds to MNDE used in MNDE-Enhanced Staking
- Construct an automated system to award the resources to MNDE-Enhanced Stake
- Grant authority of the system and its parameters to Marinade DAO
Motivation
This proposal will seek to achieve the following key effects:
- Constructing incentive for MNDE-Enhanced Staking beyond validator stake allocation, encouraging participation
- Aligning incentives for MNDE holders not only validators with more stake
- Adding another layer of utility for the MNDE token as a key component of the Marinade protocol
Decision markets enable us to measure whether a proposal passing would truly affect the value of the Marinade protocol.
Key Terms
APY: Annual percentage yield (APY) is a figure that represents the actual amount of interest earned on investments and savings.
Auction Winning Set Of Validators: Validators which have the highest bids and meet all additional requirements for the delegation strategy.
Decision Market: Conditional markets, stipulating if and only if this was to happen, your trade would be realized. The counterfactual is valid as well.
Delegation Strategy: The strategy Marinade uses to direct SOL towards validators. This includes the SAM as well as MNDE-Enhanced Staking.
Eligible Vote: This is MNDE staked and voted towards validators in the winning set of validators in SAM.
Futarchy: A market driven decision making governance system. Fut - future, archy - governance. MetaDAO has created a platform for trading these markets.
Liquid Staking: Enable people to stake without losing access to the liquidity of their tokens, through tokenization and issuance of on-chain representations of staked assets - liquid staking tokens - that are a claim on the underlying stake. positions.
MNDE-Enhanced Stake: Directed stake is a Marinade product that allows MNDE holders to choose a validator they want to support.
mSOL: mSOL is a liquid staking token that you receive when you stake SOL on the Marinade protocol. These mSOL tokens represent your staked SOL tokens in Marinade’s stake pool.
MNDE: The governance token for Marinade.
Protected staking rewards (PSR): The bond for the validator used to ensure the max yield is delivered.
Stake Auction Marketplace (SAM): The Stake Auction Marketplace allows Marinade stakers to delegate SOL to validators offering the best APY.
Specifications
Seven months ago, a New Delegation Strategy was passed by the DAO to introduce a mechanism by which validators create PSR and a bid for their expected yield. If the yield is below the bid set for an epoch, then the mechanism draws from the PSR to make up this difference. This guarantees a higher yield where any downtime or performance issues are now paid for by the validator. Since the introduction of this new mechanism, SAM has produced significantly higher yields to mSOL and native stakers.
However, this yield has not flowed into the value of MNDE, as the token utility has decreased due to the introduction of this new mechanism. Before, MNDE was used to MNDE-Enhanced Staking exclusively, driving a competitive balance between issuance and buy and sell pressure.
MNDE is currently utilized for:
- Increasing the total amount (cap) of SOL staked to a single validator in the winning set of validators
- Governance voting on Realms
This MIP would introduce new value to MNDE through participation in MNDE-Enhanced Staking, encouraging its use more broadly than validator operators. It’s important to note that MNDE-Enhanced Staking will be compatible with RealmsDAO governance, meaning that MNDE holders can partake in Marinade DAO governance while simultaneously participating in MNDE-Enhanced Staking.
The principal change here is that there will be a 9.5% performance fee which would flow to the treasury. Of this performance fee 95 basis points (0.95%) is going to be used as rewards to MNDE-Enhanced stakers. This creates incentive for non-validator MNDE holders to participate in MNDE-Enhanced Staking.
This change would only affect MNDE-Enhanced Staking if the MNDE is used towards an eligible validator in the winning set of validators in SAM. The rewards are aggregated from every validator participating and receiving Marinade stake. This reward will only be credited to the MNDE-Enhanced Staking if and only if the validator is in the winning set and that validator has enough bond to fully cover the additional bid required to receive the additional stake. If you are directing stake to a validator which is not eligible then you will not receive the rewards.
For example:
MNDE holder stakes their MNDE in governance and directs stake to Super High APY Validator. Super High APY Validator has set a max bid which is within the top 15 validators in the SAM and therefore has earned Marinade stake. Rewards begin flowing back to the MNDE holder. Eventually the max bid is below the minimum to be in the winning set and Super High APY Validator is no longer eligible for Marinade stake. At this time the MNDE holder (directing stake to Super High APY Validator) would no longer be eligible to receive rewards.
This should decentralize holding of MNDE further establishing the Marinade protocol in its mission. With additional stakeholders and incentives this proposal and changes should drive value to MNDE.
Projected Performance
| mSOL TVL | ~$1.6B | Est. Return |
|---|---|---|
| Aggregate Projected Yield | 9.5% | $152M / yr |
| DAO Performance Fee | 9.5% | $14.4M / yr |
| MNDE-Enhanced Staking Reward | 10% (95bps) | $1.4M / yr |
| MNDE Staked | 100M ($14M) | |
| Est. Participation Rate | 10 - 20% | |
| Est. Return to MNDE-Staked | $1.4M - $2.8M | $1 - $2 / per dollar MNDE |
Futarchy parameters
The decision market will be initialized with a description containing a link to this proposal and the memo text “If approved, this proposal would sanction the development and implementation of performance fee routing to MNDE-Enhanced Stakers according to the specifications laid out in MIP.5.”
- The pairing of the decision market will be MNDE/USDC.
- MetaDAO will initialize the market with $10,000 in USDC and an equivalent value of MNDE. It will be left to the discretion during proposal creation to increase the liquidity as required.
- The pass threshold will be set to 3%, meaning that the proposal will pass if, and only if, the time-weighted average price in the pass market is 3% or more greater than the time-weighted average price in the fail market.
- The market will run for 3 days in slot time, which means that if Solana experiences downtime during the proposal, that downtime will not affect the amount of time traders have to participate in the decision market.
- For the TWAP parameters, the first observation will be set to the spot price of MNDE tokens on the date of market creation, as determined by CoinGecko, and the max observation change per minute will be set to $0.001. In practice, this means that if someone is able to manipulate the price for an hour without being detected, they would move the observation by approximately 40% and the total TWAP by approximately 0.33%.
Benefits / Risks
Benefits
- Better utility for MNDE
- Increased stakeholder diversity and decentralization
Risks
- Additional complexity in the protocol and for the DAO to manage
Outcomes
- Update the bid system to direct a portion to MNDE-Enhanced Staking participants
- Realms update and management of these parameters
The governance process is unique here with the role of MetaDAO’s market in the decision.
Step 1: 5 day discussion period of this proposal on the forum
Step 2: 5 day voting period on realms including the 2-day cool down period
Step 3: (if MIP.5 passes) MetaDAO market to determine whether the proposal meets the established criteria
Step 4: implementation. This could require additional Realms configuration and votes if programmatic changes are required.
The decision posed to the Marinade DAO in MIP.5 is not whether to support this implementation. The vote is to authorize a MetaDAO market on this proposal and honor the outcome if the MetaDAO market exceeds the passing threshold. If the MetaDAO market fails, any further action would be subject to full DAO approval.
Cost Summary
This proposal will set a global performance fee of 9.5% across inflation, MEV / Jito tips and bids. It will allocate 10% (95 bps) of this performance fee to the DAO treasury which will be passed to eligible MNDE-Enhanced Staking participants.