DeFi protocol Marinade looks to reclaim share of $51bn Solana staking market as competition heats up

DeFi protocol Marinade looks to reclaim share of $51bn Solana staking market as competition heats up
DeFi
Marinade is fighting back against rival Solana staking protocol Jito with a new stake auction market. Credit: Shutterstock/Dennis Diatel
  • Competition in Solana's staking market is heating up.
  • Marinade plans to launch a new stake auction market for validators and stakers.
  • The market could help it compete with rival staking protocol Jito.

There’s a war going on in Solana staking.

Marinade, the first Solana staking protocol to launch in 2021, once dominated the market with over $2 billion of deposits.

But in recent months, rival staking protocol Jito has eaten Marinade’s lunch. Marinade’s deposits have dropped almost 50%, while Jito’s high staking rewards have helped it soar to over $1.5 billion, per DefiLlama data.

Now Marinade is fighting back.

It’s creating a stake auction marketplace, or SAM. It will give those running validators the ability to share extra revenue with stakers, and bid against each other to offer stakers better returns.

Solana’s staking software doesn’t let providers use other sources of revenue to juice the returns they offer to stakers. Many are stuck offering stakers 0% commission with no other way to compete.

“More than 400 validators charge 0% commission on inflation rewards,” Michael Repetny, a core contributor at Marinade, told DL News. “We expect there will be a demand for 8 million plus stake for the Marinade auction system.”

The new stake market could increase staking rewards to 9% — in line with what Jito offers — and create more competition between those running validators.

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The hope is that Marinade’s stake auction market will attract independent validators from elsewhere in the Solana ecosystem, giving them a platform to compete against each other, as well as established providers like Jito.

Solana’s staking market

Solana staking is big business.

Over 81% of all SOL on the network — some $51 billion — is staked, compared to just 27% of ETH at rival Ethereum.

While there are more than 50 different Solana staking providers and hundreds of independent validators, the market is dominated by two players: Marinade and Jito.

Staking providers run validators, software instances that process transactions on blockchains, let Solana users stake their SOL to help secure the network and earn rewards.

The Solana network currently rewards stakers with a 7.5% annual return on their staked tokens paid in SOL — called inflation rewards.

While validators can take a commission on these inflation rewards, many don’t to stay competitive.

Sharing MEV rewards

Validators also make money in other ways, like by running MEV strategies.

MEV, or maximal extractable value, refers to reordering blocks of transactions for profit. While some forms of MEV, such as Sandwich attacks, hurt users, other kinds help keep markets efficient.

Marinade’s Repetny said that validators earn an additional 1.5% annually from other revenue streams like MEV, but that they are not shared by default with stakers.

The new stake auction market will let validators share MEV rewards with stakers.

“Validators can’t go negative with commission on inflation rewards,” Repetny said. “SAM is the only way for them to stay competitive beyond setting 0% commission.”

But Marinade will not be the first staking provider to share MEV profits with stakers.

Jito already lets its validators share such rewards with stakers, which is why it has been able to offer higher rewards than Marinade.

Ranking validators

Marinade’s stake market will work similarly to the so-called cost-per-mile model used in advertising.

The model works by charging advertisers a certain amount for the number of times an ad appears.

Repetny said validators can set their bid and the maximum amount of SOL wanted.

“Based on that bid and inflation commission charged, validators will be ranked with the expected yield for stakers and the best ones allocated stake delegation,” he said.

The system will run through permissionless smart contracts controlled by the Marinade DAO council and community voting.

Revenue shakeup

Currently, one of the ways Marinade makes revenue is through its liquid staking token, mSOL, which charges users a 6% commission on inflation rewards. Marinade’s native staking currently doesn’t have a fee in place.

After the launch of Marinade’s stake market, this commission will disappear, Repetny said. Instead, Marinade will make money through small fees charged on the stake market.

“The Stake Auction Marketplace will take a DAO cut on the bid’s flow value,” he said.

Repetny did not reveal how big the cut would be, and said it will be decided by a Marinade token holder vote.

Switching to this new fee model could be risky.

Currently, mSOL is the second-biggest Solana liquid staking token with $734 million staked, and brings in around $200,000 in fees daily.

Marinade will give up these fees, and there’s no guarantee its new staking market will be successful.

With rival Jito ahead of Marinade by some $800 million in deposits, such a risk may be necessary if Marinade wants to reclaim its lost market share.

Repetny said the market will be released in phases, and that he expects the first parts, the delegation strategy and bids distribution, to go live later this year.

Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.

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