Incentives drive behavior by providing motivation or rewards for specific actions. Incentive alignment then ensures that the interests and goals of different parties are aligned.

At Marinade, we’ve grown from 0 to 7 million SOL total value locked in a couple of months back in 2021. Then we watched it flat line during a much different market in 2022. While it could be tempting to blame the overall market sentiment or find comfort that mSOL has 50%+ share over Solana’s DeFi TVL, Marinade isn’t satisfied.

Looking at what has been entirely in our control, Marinade hasn’t capitalized well enough on this environment. And in retrospect the answer to the dilemma is clear:

Marinade’s incentive design system needs to be fixed.

Fortunately, there is still a lot of room to change course. Until now, less than two years after Marinade was born at the 2021 Solana Hackathon, Marinade has distributed ~20% of the MNDE token that represents ownership of the Marinade DAO. During that time, there has been plenty of analysis and reflection of what has gone right and wrong.

So what exact incentive design issues have been dragging us down? It boils down to three areas:

Updates to MNDE multisig

The story of how the initial Marinade contributors team got together very much reflects the web3 ethos. The Dutch, the Argentine, the Singaporean, the Slovak, the Czech, the Russian, the Belge, the American, and the Israeli all met each other on Discord and embarked on advancing Solana’s censorship resistance by building liquid staking infrastructure together.

First, they participated in the Solana x Serum hackathon as two separate teams and decided to join forces as Marinade shortly after. Within a few months, most initial contributors had moved on to other projects. Back in the summer of 2021, at the time of the mainnet launch, the rest of the team formed a multisig to govern the Marinade contracts and MNDE treasury to prevent any single point of failure.

While the Marinade team is step-by-step transferring the ultimate control to the MNDE token-holders, some system parts, such as the MNDE treasury, are still governed by the team multisig.

Fast-forward to 2022, most of the multisig signers had moved on from Marinade or shifted commitment. At the same time, the DAO welcomed more than 20 new contributors. The team’s multisig, which had ultimate decision control over the incentive system, grew disconnected, and agreements became outdated.

The 4/7 team multisig desperately needed an update.

And so in December 2022, the 21 Marinade contributors, including the original multisig members, conducted elections through quadratic voting to form a new set of 7 multisig signers. The original multisig passed on three votes to the new signers of the 7-member control body of Marinade — the Marinade Board.

With the appropriate Marinade Board in place, among its first items is reviewing the current MNDE unlock system to become more accountable to the Marinade DAO and MNDE holders.

The first assessment is the existing external incentives — the liquidity mining program.

Externals — The liquidity mining program

Within two months of being live on mainnet, Marinade hit 2.5M SOL deposits without additional in-protocol incentives. mSOL was integrated across the growing Solana ecosystem.

By October 2021, Marinade formed a foundation for the DAO and launched its governance token, MNDE, to operate it.

As a bootstrapped and public goods infrastructure project, without private or public token sales, the only way to earn MNDE was through contribution: either working on the team or providing DeFi liquidity.

The DAO launched a liquidity mining program with two main objectives in mind:

TVL (Staked SOL) growth

At first, liquidity mining benefitted TVL. Marinade’s TVL grew +288% in October 2021, surpassing 7M in SOL deposits.

In the 15 months since then, TVL has not been able to grow beyond the 8M SOL mark. While original Liquidity Mining gauges installed in July distributed 1M MNDE per week, the DAO voted to create a “treasury gauge” that began sending over 75% of emissions back to the treasury. Then another vote was passed reducing weekly liquidity mining to 250k MNDE.

Starting the emissions at ~1M MNDE/week, eventually, the DAO voted to reduce to ~250K MNDE/week, and considering 77% of this is being directed back to the treasury, it is currently at ~60K MNDE/week. The MNDE market value has fluctuated, while mSOL TVL stayed in the 6–8M SOL TVL corridor for this time.

So, for now, the MNDE distributed through liquidity mining is among the lowest it’s been.

Decentralize the Marinade DAO

While the initial plan was to spread 30% of MNDE into the ecosystem in 2 years via liquidity mining, the DAO learned on the way and adjusted. Today, ~9% MNDE was being distributed via liquidity mining until now, which is ~50% of the current circulating supply.

The Marinade DAO is committed to progress on decentralizing Marinade and moving additional system parts from the team multisig to MNDE token holders.

With the new initiative starting this February, the Open Doors program, Marinade aims to fix the external incentives from two main perspectives:

The current liquidity mining system continues and is under the control of MNDE holders that decide effectively on the emission rate and the exact emissions split into multiple mSOL DeFi use cases.

Marinade’s grant committee will award MNDE to builders who present and complete a project to help Marinade achieve growth. At the same time, Open Doors and referral program participants will receive MNDE for their direct contributions to mSOL TVL.

The Contributors’ MNDE unlock and attribution system

Finally, and likely the most significant and unexpected change in the incentives system is how and when internal contributors receive MNDE.

Initially, the Marinade team allocated up to 30% MNDE tokens for contributors with a 2-year vesting starting on April 2022, updated to 4-year vesting in August 2022. Until now, the team has unlocked 6.3% MNDE (18.2% total in circulation) with an additional 1.2% MNDE to be vested in 2023, adding to a sum of 7.5% MNDE for contributors.

The team has decided to give up on the 22.5% MNDE previously allocated for the team to unlock in time, and move it to the DAO treasury, for the following reasons:

Unlocking team MNDE based on performance

As such, the team is moving to a performance-based distribution system where additional team tokens would unlock based on achieving performance milestones.

The Marinade team has set three initial TVL milestones, each supported by a 46M MNDE budget granted by the DAO.

Here are the mechanics in more detail, step by step:

DAO grants the team MNDE budget to reach the TVL milestone

Through the DAO vote, the executive team will ask for the 46M MNDE (4.6%) budget from the DAO treasury to support its operations and initiatives to hit the TVL milestones — the first milestone is set for 8M SOL TVL (achieved by growing ~2M SOL stake).

Marinade funds itself with protocol fees and the MNDE budget

The MNDE budget serves as a reserve to fund monthly operations if the protocol fees don’t cover the operational costs. The executive team can use the 46M MNDE budget to partially cover monthly operational costs of up to 2M MNDE per month, resulting in a budget to cover at least 21 months of operations.

Unlocking the MNDE budget upon the milestone completion

If the team delivers and grows the TVL to reach the milestone, it will unlock all that’s left of the budget. If it took six months to reach the milestone and there is 40M MNDE left in the budget, that amount will be distributed to the team based on pre-assigned shares. The distribution is vested over 12 months with no clawback. The milestone is completed when the 30-day average TVL is higher than the set TVL milestone.

Once the milestone is reached, the executive team proposes to the DAO another budget grant approval to work on the next TVL milestone.

Conclusion

The Marinade team identified and tackled the three main incentive design problems in the past two months:

Building community tools that benefit many participants throughout the Solana ecosystem is what Marinade does best. The team is nearing the completion of enhanced governance tooling designed to make the Marinade DAO more attractive to participate in, and these tools will be open source and available to all. We’re super excited to present what’s planned for the menu in Q1 2023. More on that in the following roadmap article.