Solayer Core
May 31, 2024
Key takeaways
Locking up ETH or SOL for staking makes it illiquid and inaccessible for DeFi, and requires a high entry barrier of (e.g. 32 ETH) to become a validator.
Solutions like Lido and Marinade offer daily staking rewards, eliminate the barriers of such infrastructure, and issue liquid staked tokens (LST) usable in other on-chain activities.
Marinade employs a stake pool delegation strategy that automatically distributes stakes across more than 100 validators, ensuring stakers don't need to worry about their validator going offline or changing commission rates.
Learning from the challenges of ETH 2.0
The launch of ETH 2.0 signified a long awaited transition from an energy-intensive mining consensus process to proof-of-stake (PoS). It presented an opportunity for ETH holders to lock their stake in a smart contract with the goal to get additional rewards in ETH by securing the network as validators.
These are then responsible for monitoring the validity of newly propagated blocks, as well as producing and propagating new blocks. In the case of malicious behaviour, the staked tokens (collateral) shall be slashed and further participation in the validation process forbidden.
The transition to a PoS consensus mechanism led to two major implications.
Becoming a validator meant locking up your ETH holdings, preventing you from utilizing them in DeFi protocols.
There were barriers to entry with the 32 ETH prerequisite for node operators to become validators.
Value proposition of liquid staking
These issues gave rise to liquid staking solutions such as Lido and Renzo on Ethereum, which motivated the development of Jito, Marinade and Blaze on Solana. The main value propositions being:
Daily rewards from staking.
No need to maintain infrastructure on your own.
Liquid staked tokens (LST) that can be utilised in on-chain activities.
Liquid staking ecosystems comparison
Staking has been integral to Solana since its mainnet beta launch over three years ago, and liquid staking has been fully functional since Marinade introduced its liquid staking pool in August 2021. The Solana liquid staking ecosystem includes a variety of platforms, each offering unique features. There are over 20 well-established liquid staking tokens on Solana, with new ones being created each week. Notable examples include $INF, $mSOL, $LST, $bonkSOL, $vSOL, $jucySOL, $compassSOL, $edgeSOL, $iceSOL, $jitoSOL and many others.
Blaze offers an extensive validator network, allowing users to stake SOL and receive bSOL tokens, which can be used across DeFi protocols like Solend, Orca, and Raydium.
Marinade provides mSOL tokens for staked SOL, leveraging a smart delegation strategy to optimize validator performance and ensure decentralization.
Sanctum introduces the Infinity Pool solution, which enables seamless liquidity and cross-swapping between different liquid staking tokens (LSTs), represented by INF tokens.
Jito offers Solana's first liquid staking service with MEV rewards, allowing users to earn yield through JitoSOL tokens while enhancing network performance and efficiency.
Additionally, Ethereum's established liquid staking platforms like Rocket Pool and Lido are relevant, offering rETH and stETH/wstETH tokens, respectively, and integrating deeply into DeFi.
Liquid staking protocols on Solana and Ethereum offer distinct features tailored to their respective ecosystems.
On Solana, gas fees are negligible, allowing SOL holders of any size to participate easily.
Running a validator requires higher hardware specifications, often managed by server farms or hired companies.
Native staking involves selecting a validator through compatible wallets, with staking becoming active after 2-3 days.
Liquid staking pools like Marinade provide mSOL tokens, automatically distributing stakes across multiple validators, ensuring stability and decentralization.
Centralized staking is also available through exchanges like Coinbase and Kraken, offering convenience but potentially lower APY.
On Ethereum, following the Shanghai upgrade, ETH can be unstaked with a 2-3 day waiting period, and transactions require gas fees, which can vary significantly.
Solo staking requires a minimum of 32 ETH, with risks of downtime and slashing for poor performance.
Staking as a service allows delegation to validators while retaining control over keys.
Centralized staking is provided by exchanges, avoiding on-chain fees but introducing custodial risk.
Liquid staking pools like Lido offer stETH, usable across various DeFi platforms, and Lido captures a significant market share.
Rocket Pool, with its decentralized node operator network, allows users to stake with as little as 0.01 ETH, providing rETH tokens for use in DeFi.
Focus on Marinade
Marinade is a DeFi protocol on Solana designed to simplify and enhance staking. Users can stake SOL to earn rewards without managing complex infrastructure or meeting high entry barriers.
Marinade issues liquid staking tokens called mSOL, representing staked SOL, which can be used in various DeFi activities. It allows users to maintain liquidity while earning rewards.
This approach democratizes access to staking and enhances the security and decentralization of the Solana network by distributing staked SOL across multiple validators.
What is mSOL?
mSOL is a liquid staking token that represents your staked SOL in Marinade. When you stake SOL on Marinade, you receive mSOL tokens as a receipt, which can be exchanged back for your original SOL and the accrued rewards.
For example, staking 100 SOL gives you an equivalent amount of mSOL, which increases in value as staking rewards are distributed.
Holding mSOL for a year typically increases its value against SOL by about 7-8%, reflecting Marinade's APY. This allows you to participate in DeFi while earning staking rewards, keeping your assets liquid and versatile.
Marinade Native
Marinade Native allows institutional investors to stake SOL directly with over 130 validators without smart contract risk. Targeting an $8.1 billion market, it ensures users retain SOL custody while optimizing staking with high-performing validators.
This service combines native SOL staking security with liquid staking efficiency. Users can manage and unstake via the Marinade DApp, using a new liquidity router for instant unstaking, making staking accessible, secure, and profitable.
Previously, staking SOL with multiple validators required multiple transactions and constant monitoring. Marinade Native now combines liquid staking delegation strategy with native staking's non-custodial benefits, ensuring SOL is staked with trusted validators without losing custody.
How can you use LST on Solayer?
As of June 25th, 2024, about 23.95m of SOL ($3.25b worth of SOL having been liquid staked). Liquid Staking Tokens (LSTs) included in Solayer's restaking infrastructure will be released in phases. The initial LSTs available for use on Solayer include SOL, Marinade-SOL (mSOL), JITO-SOL (JITO-SOL), Blaze-SOL (bSOL), and Infinity-SOL (INF).
Solayer will continually monitor for other potential LSTs to be added to the restaking bucket. Users and collaborators are encouraged to reach out to team@solayer.org for collaboration opportunities. Solayer will implement a Solayer Improvement Proposal (SIP) mechanism for adding new LSTs, ensuring a structured and transparent process for expanding the restaking options available on the platform.
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