Scale or Die 2025: Stake auction: the good, the bad, the ugly (Michael Repetny | Marinade)

Marinade, a pioneer in Solana liquid staking, has introduced a game-changing Stake Auction Marketplace that's reshaping the landscape of validator economics and staking yields. In this revealing presentation, Michael Repetny from Marinade breaks down the intricacies of this new system, its potential to boost decentralization, and the challenges it faces.

Summary

The Stake Auction Marketplace, launched by Marinade in 2024, aims to address several key issues in the Solana ecosystem, including validator concentration and lack of transparency in staking rewards. This innovative system allows validators to bid for stake, creating an open market that potentially offers higher yields for stakers and a more level playing field for validators of all sizes.

Repetny explains the mechanics of the auction system, which combines inflation commission, MEV commission, and a validator's bid to create a "max APY" for stakers. This approach has already shown promising results, delivering yields that are 50 basis points higher than traditional zero-fee staking options.

However, the system is not without its challenges. Repetny candidly discusses both the positive and negative aspects of the Stake Auction Marketplace, including potential inefficiencies in pricing and the risk of malicious validators participating in the open market.

Key Points:

The Need for Stake Auctions

Marinade identified several issues within the Solana ecosystem that prompted the development of the Stake Auction Marketplace. One of the primary concerns was the concentration of stake among a small number of validators. Repetny points out that the top 20 validators control one-third of all staked SOL, with the next 60 validators accounting for another third. This concentration poses risks to the network's decentralization and resilience.

Another driving factor was the lack of transparency in validator rewards. Repetny explains that various revenue streams for validators, such as priority fees, MEV, and governance power, are not always clearly visible or shared with delegators. This opacity makes it difficult for stakers to understand the true yield split between themselves and the validators.

How Stake Auctions Work

The Stake Auction Marketplace functions similarly to a Google AdWords system, where validators set bids indicating how much they're willing to pay in SOL for 1,000 staked SOL per epoch. The system then ranks validators based on their inflation commission, MEV commission, and bid, combining these factors into a "max APY" figure.

Validators must first set up a bond that serves as collateral, ensuring they deliver on their promises. If a validator changes their commission or goes offline, Marinade automatically slashes this bond to compensate stakers, guaranteeing 100% uptime. The auction uses a last-price mechanism, where the final validator to be included sets the price for all participants, aiming to encourage honest bidding.

Benefits and Challenges

Repetny highlights several positive outcomes of the Stake Auction Marketplace. Over 300 validators are now participating, and the system consistently delivers the best yield on the market. It's inclusive for both small and large stakers and validators, democratizing access to competitive staking opportunities.

However, there are also challenges. The last-price auction mechanism can lead to some inefficiencies, with high-profit validators potentially paying less than they could afford. Additionally, the constant reallocation of stake based on changing bids can result in lost rewards during transition periods.

Future Improvements and Concerns

Looking ahead, Repetny acknowledges that the open market nature of the system presents some risks, particularly the potential for malicious validators to participate. Marinade is actively working on solutions, including the implementation of a blocklist for censoring validators. However, Repetny emphasizes that a long-term, in-protocol solution is needed to effectively address these concerns.

Facts + Figures

• Marinade launched the Stake Auction Marketplace in 2024
• Over 300 validators are currently participating in the auction system
• The auction system delivers yields 50 basis points higher than zero-fee staking options
• The top 20 Solana validators control one-third of all staked SOL
• The next 60 validators account for another third of staked SOL
• Priority fees alone account for roughly 80 to 100 basis points annualized, currently kept entirely by validators
• Marinade Native, launched in 2023, allows one-click staking to multiple validators with no smart contract risk
• Marinade pioneered liquid staking on Solana in 2021

Top quotes

1. "Marinade launched a program called Stake Auction Marketplace, a somewhat controversial topic."
2. "If you look at Solana today, there might be 1,200 validators on the network. Well, not all are equal."
3. "The biggest Solana whales, the biggest Solana holders have always found a way with the VIP validators on the market, and they would make agreements, they would make off-chain agreements."
4. "Just last epoch, we measured it, and annualized, it brings 50 basis points higher of a staking yield than if you go to zero percent fee, zero percent fee commission validators on Solana."
5. "Since it's an open market, it has challenges. It has challenges of any validator can participate in this, potentially allowing even the malicious validators running some malicious MEV strategies."

Questions Answered

What is the Stake Auction Marketplace?

The Stake Auction Marketplace is a system launched by Marinade in 2024 that allows Solana validators to bid for stake. It combines a validator's inflation commission, MEV commission, and bid to create a "max APY" for stakers. This open market approach aims to increase transparency, improve yields for stakers, and create a more level playing field for validators of all sizes.

How does the Stake Auction Marketplace improve yields for stakers?

The Stake Auction Marketplace improves yields for stakers by creating an open and competitive environment for validators. By allowing validators to bid for stake, the system encourages them to offer more attractive terms to stakers. According to Repetny, this has resulted in yields that are 50 basis points higher than traditional zero-fee staking options on Solana.

What challenges does the Stake Auction Marketplace face?

The Stake Auction Marketplace faces several challenges. The last-price auction mechanism can lead to some pricing inefficiencies. There's also a latency issue with stake reallocation, as moving stake between validators results in lost rewards for one epoch. Additionally, the open market nature of the system potentially allows malicious validators to participate, which Marinade is actively working to address through measures like implementing a blocklist.

How does the Stake Auction Marketplace address the issue of stake concentration on Solana?

The Stake Auction Marketplace addresses stake concentration by creating a more inclusive system for both validators and stakers. It allows smaller validators to compete more effectively for stake by offering competitive bids. Similarly, smaller stakers can benefit from the same advantageous terms that were previously only available to large "whale" stakers through private agreements with validators.

What is Marinade's long-term vision for improving the Stake Auction Marketplace?

Marinade recognizes that while current solutions like blocklists can help mitigate some risks, a more robust, long-term solution is needed. Repetny suggests that an ultimate solution might involve a KYC-compliant list of validators, balancing the benefits of an open auction with the need for security and reliability. Marinade is actively seeking input from the community to develop effective long-term solutions to the challenges faced by the Stake Auction Marketplace.