Participation in the Marinade Token Exchange Program

Hello Mango DAO,

Marinade has recently announced a Token Exchange program in order to decentralize Marinade and share the ownership of the protocol with other ecosystem actors.

It will provide a way for protocols, validators, market makers, DAOs, and individuals to acquire a large amount of MNDE without having to deal with the slippage caused by the low liquidity available on the market for MNDE. Details about this Token Exchange program as well as some data are available in the announcement article released on Medium (https://medium.com/marinade-finance/marinade-announces-ecosystem-token-exchange-program-205a726575aa)

This Token Exchange is also an opportunity to raise the TVL of Marinade by allowing potential participants to stake SOL to mSOL for an additional MNDE allocation.

Through this forum post, Marinade team is inviting the Mango DAO to participate in this Token Exchange program.

Terms of the Token Exchange

Terms can be found on the following Notion page.

Why should Mango DAO be interested in the Token Exchange

First of all, Mango DAO and Marinade share the same passion and dedication to decentralized governance. Both our protocols have shown a commitment to creating functional decentralized organizations built on Solana-native products, and share a common goal of empowering users to take control of the protocols they’re using.

This alignment of values and end goals leads us to think that both Mango DAO and Marinade would hugely benefit from working together, and that having Mango DAO sitting at the table of Marinade governance would be a net positive for its growth and future.

In addition of this, we believe that participating in this Token Exchange Program has a number of benefits for Mango DAO:

  1. Mango DAO could acquire a large part of Marinade ownership, as well as make a bet on Marinade and MNDE growth over the next years. Owning a share of Marinade would give Mango DAO control over the development of current and future Marinade products, its governance, and over its treasury (data related to the treasury can be found in this Medium article, as well as the on-chain data for the treasury, soon to be diversified through the TEP).

  2. Mango DAO would also own a part of Marinade’s revenues streams. You can refer to the Medium article to evaluate the potential growth of Marinade’s revenues and the goals set for the future.

  3. Mango DAO would have the ability to use the soon-to-be-introduced gauges, with their first iteration (Validators gauges, allowing to direct 10% of Marinade stake to specific validators) being planned to be released this week, and linked to the delegation strategy on May 23rd.
    Having a considerable influence in the validator gauges can enable Mango DAO an additional stake towards their validator, should the DAO run one.
    Even without a Mango DAO validator in place, this MNDE influence on validator gouges and general Marinade governance could be interesting, if and when vote-bribing protocols make their way to Solana. Marinade believes that actively controlling part of the stake will have value beyond validators. Owning influence over validator stake could also prove useful in a number of scenario as the Solana blockchain evolves.

  4. Another set of gauges is currently being discussed on Marinade forum and will soon end up on-chain to allow MNDE holders to direct Liquidity Mining rewards to the protocols of their choice. This is also something in which Mango DAO may be interested to optimize their earnings by directing MNDE to the pools where their treasury is providing liquidities.

  5. Finally, owning MNDE will allow Mango DAO to participate in choosing the executive team that should lead Marinade, giving it power to direct the protocol in the direction they believe is the right one.

It is good to keep in mind that Marinade TVL currently only represents 1.84% of the total SOL staked, leaving a lot of room for growth as mSOL becomes more widely adopted as the best staking option on Solana. We believe that this Token Exchange Program represents a good opportunity to join Marinade DAO as an active actor and help it grow and thrive on Solana, while contributing to making the whole blockchain more decentralized and censorship resistant through its delegation strategy.

Current MNDE distribution overview

Here are some data (as of May 17) that may be relevant for this discussion:

  • A TVL of 6.68M SOL, or $362M at current prices
  • MNDE Marketcap: $14.4M
  • MNDE Fully diluted valuation: $148M
  • Monthly revenues of the protocol (for April 2022): 852 mSOL
  • Monthly expenses of the protocol (for April 2022): 106k in USDC, 44k in MNDE
  • Non-MNDE treasury: $380k

MNDE is currently distributed as such:

  • Circulating supply: 97,500,000 (9.75%) / 1,000,000,000
    • 1.9% team - 19.4% of the circulating supply
    • 7.85% community/liquidity mining - 80.6% of the circulating supply

Planned MNDE emissions and distribution

Finally, in order to give Mango DAO a better overview of what to expect in the future for MNDE, here are the planned emissions for MNDE in the next years. It is important to remind that those emissions are merely a plan as of May 2022, as the DAO holds full ownership of 70% of the MNDE treasury and will be deciding and voting on any changes that might be deemed necessary or beneficial for Marinade and MNDE holders. By participating in the Token Exchange Program, Mango DAO would also secure a seat at this table and help shaping the future of Marinade and its governance token.

The graph above is a visual representation of what can be expected. Let’s develop on the numbers behind this:

Liquidity Mining

Since its inception, Marinade has distributed an average of 1.25M/MNDE per week through the liquidity mining plan (excluding milestone bonuses). A recent proposal on our forum by Gekonn suggest liquidity mining decisions to be handed over to the MNDE holders, managed via gauges. This rate could become a 1M/week basis with a 250k optional addition (which is currently debated on the forum). The proposal has not been voted in yet.

At this rate, it is expected that between 52M and 65M MNDE would be distributed as liquidity mining incentives per year. This number could always be tweaked by the DAO to adapt to any variable change (market situation, MNDE price, etc.)

Team Allocations

In Marinade, full time contributors with more than 6 months of active contribution become eligible to a team allocation. This allocation is distributed as NFTs (locked MNDE with an unlocking period of 30-day) and vested over 24 months.

As of April 2022, the total allocations for contributors is 9 312 492 MNDE/month distributed among more than 15 contributors, adding to 220M allocated and emitted over the next 22 months. We can also mention that the team is exploring how to decrease its influence on the governance.

Token Exchange Program

The Token Exchange Program serves the purpose of immediately distributing governance power over Marinade and ownership to ecosystem actors and individuals that would bring their skills, brains and ideas to the DAO and align themselves with Marinade in order to participate to its growth while having direct incentives to do so.

Thanks to this, Marinade can fasten its decentralization process and become community-owned at a faster pace. It also makes sure that interested ecosystem actors get a chance to accumulate MNDE without having to deal with the slippage they could expect using the market. The closed round of the Token Exchange Program will distribute a maximum of 80M MNDE to a number of ecosystem partners that will be publicly displayed.

If you have any follow up questions regarding this proposal, Marinade Chefs will be closely following this thread and you can expect a quick answer here.

In the meantime, we invite you to come take a look at Marinade, the content that we have produced (especially in relation with governance, decentralization and the Token Exchange Program) in our Medium, and join our Discord to engage and discuss with us. The proximity and likeness of our communities will probably make you want us to cook together pretty soon!

Thank you for your time and attention

7 Likes

I totally support MangoDAO participate in the Marinade Token Exchange program.

Leading DeFi protocol with revenue sharing token and liquidity gauge control are good enough. The more important utility for Mango DAO is ‘influence over staked SOL delegation through the governance token MNDE’. Mango needs to reserve enough Solana tx bandwidth in the future upgrade.

However, the quote token can only be SOL or USDC is not perfect. MangoDAO should negotiate to pay 50% in MNGO and 50% in USDC for 1M USD treasury swap(about 8M MNDE, 10% of the total exchange program). I believe this deal can create mutual trust and collaboration for both DAOs.

3 Likes

Included below is a spreadsheet I’ve prepared and discussed with @mschneider that analyzes this investment. A couple high level takeaways from my perspective:

  • This is a modest investment from Mango’s treasury (<$1mm USDC) that provides control over substantial staked SOL. Staked SOL quantity will be important for execution reliability going forward and this helps Mango secure that at a reasonable price.
  • For example, 5mm MNDE purchase costs $600k but should allow Mango to control ~30k-70k staked SOL. Acquiring this SOL on open market to stake would cost $3.5mm (3-6x cost vs. MNDE purchase).
  • MNDE supply is increasing rapidly from liquidity mining and team vesting. Our controlled share will decline as supply inflates. This may be offset by higher mSOL outstanding or a higher share of voting stake (10% initially) but those are TBD.
  • There are merits to this investment even if we believe MNDE is likely to go down. However, that is big assumption and strong arguments MNDE is an attractive investment at current levels. MNDE appreciation & stake control would make this very compelling.

Here is spreadsheet with MNDE tokenomics and details on staked SOL quantities. Read only but download a copy and people can play with various assumptions: MNGO-MNDE Purchase Analysis.xlsx

6 Likes

Would absolutely love to see Mango DAO participate in this token exchange program. Having influence over staked SOL will be quite important, and as @brian_smith_0 pointed out, this is a considerably cheaper alternative to acquiring SOL on the open market and staking it.

Although voting on the validator gauges may add some operational complexity for Mango, this seems like a win-win scenario for both DAOs.

5 Likes

In the last dev call, the question how valuable the utility of the additional stake is to Mango was raised.

There are two ways in which Mango benefits from large SOL delegations:

  1. reduced read latency on the mango community rpc (around 100ms in recent measurements, median latency via rpc is 1600ms )
  2. potentially higher transaction priority for mango community rpc, which depends on future solana changes. Currently we cause 2% of the total TPS or 10% of the non-voting transactions, while around 16% of all Mango transactions submitted to our RPC get dropped

The amount of SOL we could need to guarantee more than 10% of the non-voting transactions, could be very substantial and far surpass mSOL’s total stake.

In order to validate our thesis that high stakes validators can be leveraged to provide an improved experience when using Mango’s RPC pool nodes, the experiments were conducted using RPC servers and high stake validators provided by Triton and Multi-Coin. Kyle from Multi-Coin was so kind to provide over 2M $SOL to the Mango validator setup for this purpose, which controls around 1.2% of the total network stake.

6 Likes

If Mango can spare/hire someone to think quite a bit about Marinade, put me in the 10MM MNDE commitment camp. This quantity gives a relatively high governance weight to influence management early, even if it gets cut to <5% by YE 2024. As an operating business, even if we do the silicon valley thing and ignore the MNDE issuance expense (i.e. use adjusted EBITDA) Marinade still has a cash-flow problem that needs some thought and influence. If staking on Marinade doubles, if SOL roughly triples (to $120), or some combination of the two, things look a lot better though.

Great thinking regarding the utility of a high-staked Mango validator and thank you for the numbers. I’m sure this has been discussed, but if not: what is the likelihood that partnering with a reputable validator with >2M stake could jumpstart these efforts? Hobbyist, popular validators are likely passive stakers and might appreciate an additional source of revenue (or buyout even), particularly if they don’t have much self-stake. Applying to the Solana foundation for a grant to supplement a significant SOL purchase could be another approach here, but would then require staffing/hardware etc.

Having a large stake in Marinade might also afford some influence over the direction of future delegated stake (i.e. to validators Mango controls or partners with, under the 33% line) as well, combining the above two points.

2 Likes

I put together a few items to help analyze the proposal ahead of the governance call this week:

  • Financial model that forecasts three cases: Base, Bull, Bear
  • Short presentation analyzing Marinade financials and the potential returns

Both items are available for download on GitHub https://github.com/abacus-x/MNDE-analysis. The numbers are based on public info, and forecasted results will vary. You can tweak model assumptions to see how various inputs will change the output. I spoke with @Cerba and @brian_smith_0 when putting together the materials - both were very helpful.

High level, the proposal looks interesting and it has a positive expected value. In my opinion, it’s essentially a binary bet on the future of Solana. The base and bull cases offer double-digit annualized returns (IRR) for those participating in the token exchange at this price level. The bear case is a doughnut. So it’s effectively a binary bet with a positive probability-weighted value.

Marinade stands to benefit from the secular shift toward liquid staking (low penetration rate currently). Core business drivers include:

  • SOL/USDC exchange rate - Expenses are mostly USDC / USDC equivalents, while revenue is in SOL/MSOL. SOL appreciation flows through to bottom line. Opposite is true too.
  • Liquid staking penetration - Currently very low (~2%) with a lot of room to run
  • Liquid staking market share - Currently two big players in town and Marinade has >70% market share
  • Expenses - Cerba noted that expenses should stay relatively fixed/flattish. That means the business operating leverage is quite strong.

Marinade looks like it should be able to hit a positive cashflow runrate in 2023. The token exchange proposal is probably enough juice to fund the project through the cashflow trough.

I am happy to discuss the nuances during the call if anyone wants to ask questions or poke holes in the thesis.

Full disclosure: I own MNDE, MSOL, MNGO.

3 Likes

Thank you guys for all those answers.
From what I gather from all your messages, there seems to be a general positive outlook on this suggestion.

Maybe we could move this discussion towards determining some final number on the allocation that Mango would want in this Token Exchange Program and move it on-chain once a consensus has been reached?

Regarding the suggestion of accepting MNGO in the exchange, the rule that we applied with other governance tokens is to accept an exchange for an equivalent share of the total supply (in addition to a USDC/SOL participation). For example, for 0.1% of the total supply of MNDE in MNGO, Marinade would ask in exchange 0.1% of the total supply of MNGO.

I will leave the rest of the discussion up to you now, don’t hesitate to ask any additional questions if needed.

I’d be down to bring up a vote. Technical considerations here are the lack of a trusted escrow program. The way I could facilitate this, would be to setup a multi-sig controlled through 2/2 votes, I’d propose the following multi-sig holders / keys as a minimum, open to include more:

  • Marinade Operations Wallet (89SrbjbuNyqSqAALKBsKBqMSh463eLvzS4iVWCeArBgB)
  • Myself (3LPh9LN88kxSe3shxLZ2R4jiNmHh2U2F9h9TmVKjc18P)

How do we find the adequate size for an investment?

2 Likes

Hey guys,

Depending on your timeframe for the exchange, Convergence RFQ could be another option to consider.

We’ve been building it out for a while now (even managed to win a hackathon prize along the way) and are heading to mainnet this month. It’s a Request for Quote protocol that facilitates this style of exchange.

It’d be a real honor to help out here given what you guys have brought to the space…and my own emotional attachment to Mango for accepting my contributions :rofl:

If you have any questions, I’d be happy to answer / defer all the hard ones to @ucerron.

Good luck with the token exchange program, I think it’s a great initiative.

This is awesome - thanks for drawing attention to this on the call today.

Curious how you might think about a scenario in which Marinade fails to secure sufficient participation in the token exchange program. Seems like there is a good amount interest out there, and this is a low probability outcome, but things can change quickly in a bear market. I suppose this would just push positive cash flow run rate out a few years?

RE: Sizing - I think sizing is a hard question and no right answer. This investment carries a substantial risk but also attractive upside from a financial and strategic perspective. I’d propose Mango invest $250k but any amount between $150k and $500k seems reasonable.

Less than $150k is too small to be worth the trouble. Over $500k feels too high given the risk and attractiveness of other opportunities currently (MNGO buybacks, BTC treasury diversification and recruiting new devs).

$250k is 35bps of current treasury value (excluding MNGO tokens) and less than 2 months of protocol revenue. It should give us at least 2.75% of voting weight in Marinade post-deal and probably more given the round will not be fully subscribed. The figure is arbitrary but feels directionally right.

RE: Settlement - The second issue I would like to address is settlement calculation. The 30-day TWAP is logical but we should agree when and how the price is actually calculated. I’m open for Cerba to suggest something but an easy answer is using Coingecko price data. We would agree on the TWAP price ending 72 hours after the DAO vote closes successfully. The 3-day waiting period will reduce the impact of MNDE’s price decline on the settled price.

Mango votes go for 72 hours so it would be 6 days total wait from whenever the vote is launched. As an example, assume the vote is launched at 2 PM UTC tomorrow (June 11), the 30-day TWAP is calculated as of June 17. This would be just a simple average of the Coingecko data for May 19 to June 17.

I don’t feel strongly about any of these specific details but a framework should be setup so it is easy for @mschneider to confirm the deal has been fulfilled prior to releasing the funds from the multisig. The multisig setup itself seems fine to me given terms will be clearly defined.

@Cerba please confirm whether this works or you have an alternative arrangement in mind.

2 Likes

Wrt. size: I opened two proposals $250k USDC each, vote on one, two or none:
https://dao.mango.markets/dao/MNGO/proposal/G53Hf9yYQmmB8mNaKx7RZpdZQDEmSHjovRxdXwfBao4t
https://dao.mango.markets/dao/MNGO/proposal/4od5uJVryMh9z45GmDez2nsSpyjRa3yHM4Dkf8dqeQ9v

In terms of settlement, Marinade already proposed to lock the price this Friday to simplify matters, it’s a 21 day TWAP: flat 10cts. The ambiguity should be resolved.

3 Likes

Investing during the bear market is what separates long-term winning protocols/businesses from those that can’t. All for both proposals.

1 Like

There’s all this theoretical “control” over stake and not much thought given to how that control will actually be exercised and who is responsible for that. Plus we need a theory of why we even need that extra control if we’re already in the top 200 by stake weight. And also what happens if MNDE contributors don’t keep up with advances and stake goes to something else like Jito? We’re making a bet on Marinade team being committed over the long haul.

I think it’s easy to just buy a bunch of things with fancy sounding arguments but if there isn’t someone responsible for it who has much to lose if it goes badly, then it’s probably a bad idea.

Now, the price doesn’t look so good. Why not do something reasonable like 50% discount to 30day twap?

1 Like

Hello, I can confirm that 10 cts/MNDE is the final price set for the exchange, as indicated in the formal governance proposal posted on Marinade forum too.
I want to thank @abacus and @brian_smith_0 for their help and work with regard to this proposal.

I’m excited to see the results for those two votes.

3 Likes

What do you think about the long term prospects for Marinade? Why would staked SOL stay in Marinade if say Jito or some closed source MEV project paid higher APR? Does Marinade have plans to match that?

3 Likes

Hello daffy,

Gekonn from Marinade answering:

  1. MEV is already here, just available only to the biggest stakers in the network that prefer their own transactions over public ones
  2. from Marinade’s best understanding, Jito aims to democratize MEV similar to Flashbots. It’s the only way to protect decentralization, as MEV is a centralization force: Why run mev-boost? | Flashbots
  3. Marinade is looking at MEV as a stake provider. Democratizing MEV and distributing the fees to stakers looks like a win-win-win for the searchers, stakers and the network.
  4. Other stake pools are likely to explore MEV as a revenue source, no questions about that. The bet on Marinade is the bet on the values of decentralization and openness, ecosystem reputation & widest integration
5 Likes