← CRYPTO 101
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- [00:00]
Podcast Host
Welcome to the Crypto 101 podcast presented by Gemini, your bridge to the future of money.
- [00:15]
Bryce
All right, welcome back. We are joined by another great guest. This is the Chief commercial officer of Marinade Finance, Hadley Stern. Sir, thank you for joining us. And how are you doing today?
- [00:25]
Hadley Stern
I'm doing great. Thank you very much. Great to be with you here today.
- [00:29]
Bryce
Yeah, I'm very, very pleased. And full disclosure, you know, we run a hedge fund, Tower 18. We are invested in Marinade Tokens on the secondary. We're really excited about what you guys are building, and I'm not going to be the one to tell all about what you guys are up to, but that's why I've got you there. So, Hadley, tell us, high level, what is Marinade Finance working on?
- [00:53]
Hadley Stern
Great question and thanks for being an investor and thanks for having us us on today. So Marinade Finance, I like to say, is relatively interesting on podcasts and kind of very boring at cocktail parties because Archon is Solana staking. So let's unpack that a little. We're crypto, we're on one blockchain, and within that blockchain, we are experts on everything to do with Solana staking. And so what does that mean? That means that we've been in existence for four plus years. I joined over a year ago and the company came out. If you know Solana history, Solana is not that old of a chain. So four plus years is very early in the evolution of Solana. Marinade started out of a Solana hackathon. And the problem the company solved is how to keep the Solana network decentralized by offering people who want to stake Solana the highest yield. What that means in normal speak is we don't run any validators ourselves. Instead, we're kind of a validator marketplace. So we have about 2 billion of total value locked up on our platform. And people stake with us either through msol, our liquid staking token, or through Marinate Native, which is native staking, which we've really dived a lot into in the past 18 months. And I can talk a little bit more about why.
- [02:13]
Bryce
Yeah, no, we definitely want to dive into that. But if we keep things 101 level first and then kind of go into the 201 level, so staking, staking, super important. It's part of Ethereum. You could stake your Ethereum, you could earn yield. It's part of Solana where you guys are focused. You could stake your salon, earn a yield. Where does Marinade come in? Right because am I able just to go and stake myself or do I need a provider like Marinade?
- [02:38]
Hadley Stern
Great question. And yes, you know, staking is. It's great because you earn a reward, but it's actually existential to proof of stake networks running. So we have proof of stake work. So the S word and you have proof of work, which is, you know, invented by Bitcoin and typified by Bitcoin and some other chains also are proof of work. But after Bitcoin came out, there was this notion of a different way for validation and decentralized blockchains to work, and that is through proof of stake. So using the underlying asset as kind of a lubricant, if you will, for the network to run. So it's actually very important to the network that, that people can stake and unstake. From a technical standpoint, you can absolutely stake through a command line interface. You can find a validator address and do it through a command line interface and do it yourself. But it requires some technical acuity. So staking providers like Marinade make it very easy. Meaning you can come to our website, we have a decentralized application or a dapp. You can, can connect your wallet and stake through there. You can also, if you're an institution, stake through Zodia Copper or Bitgo. And we're expanding those, those ways to stake as well. So you can either do it through our site or through a custodian. So that enables staking to be done more easily for people.
- [04:05]
Bryce
That sounds awesome. I'm curious. I mean, I guess this is maybe a naive question. Proof of stake is Solana, but you can't stake any other tokens that are Solana, like the SPL20 tokens, or can you?
- [04:17]
Hadley Stern
That's not a naive question. Not to the Solana Network. There are some SBL tokens that may have their own staking process. I can think of one as Kamino, for example. So Kamino, which is a leading defi place in the Solana ecosystem, you can buy the Kamino Token and also stake it to the Kamino Network. But no, you cannot stake anything but Solana to Solana Networks. But one of the things that we're going to be releasing is something called Marinade recipes, taking a little play on our word, where you can take Sol and receive, say, Bitcoin as the reward or USDC as the reward. Wow. Tokenized stock as the reward. Wow. So one of the things that we have in development right now to allow people to have more flexibility, but the underlying token that you need to stake to Marinade or to the Solana Network is the Solana Token.
- [05:12]
Podcast Host
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- [08:02]
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- [08:32]
Bryce
Okay, that makes sense. And then so there's the Solana Token, but there's also the Marinade token. M N D E Can you speak to where this system or where this coin comes into the system?
- [08:44]
Hadley Stern
Sure. So Marinade I mentioned launched about four years ago and it actually launched as a dao decentralized autonomous organization. And one of the unique things about Marinade is actually we've never done a token raise or an equity raise. So even though we had a token generation event when Marinade originally launched, there was never any sale. So it truly is a decentralized token. And the Marinade token is in terms of the total value of all tokens locked on unlocked is anywhere from 100 to $125 million. And we use that treasury strategically, we put proposals to it, and we use some of that MND for some strategic partnerships. And we're also working this quarter on making sure our revenue gets accrued back to the token because we are positive from an ARR standpoint. So you can think about the Marinade token as the representative of the company itself. It's not really a utility token tied up into the staking or unstaking process.
- [09:48]
Bryce
Awesome. That sounds super interesting. And as chief Commercial officer, are you focused on like new partnerships, getting other blockchains to be connected to Marinade, or are you looking for partnerships in, you know, the Fortune 500 world or the wealth advisory world, giving them understanding, staking or what is the CCO focused on right now?
- [10:08]
Hadley Stern
So my, my primary focus is bringing this incredible retail defi product. Again, what's very unique about Marinade and our core product is we don't run any validators. We have hundreds of validators connect to us through a command like command line interface. And we run something called the Stake Auction Marketplace every Solana epoch or every 48 hours. And in that process, validators bid for the right to receive the Solana from our stakers. And, and they bit with various economic elements. We've built that product. It's working fantastically in retail. We are now bringing that to institutions. So my chief Commercial officer role is putting in the legal compliance framework, the operations framework, and doing the business deals and integration deals with Zodiac, who we're integrated with and also Bitgo bringing the product to the Bitwise ETP in Europe. And we're also launching and we were the first ETF application in the US for the Canary Marinade Salana etf, which was filed with the sec. So the chief commercial role is very much focused on institutional bringing Solana staking to the institutional market.
- [11:17]
Bryce
It's very apropos that you brought up Canary Capital because we just spoke with Stephen McClurg here at the Crypt, here at the Crypto Hedge Fund Summit as well. So we're very excited about what he's doing and what you guys are doing, particularly in that etf. Tell us a little bit more about how you guys are, you know, playing the ETF world. I know the SEC just kind of rescinded some really, really strict guidance on staking, saying that that sort of transaction is not as we've all known for years, as SEC finally woke up to this is not a securities transaction. Okay, so. So tell us what they're waking up to and how this kind of comes to bear on something like Marinade.
- [11:57]
Hadley Stern
Sure. And great to hear you had Stephen on that. His team has been fantastic to work with and he's really an innovator in this space. And yes, the large. And I'm down in D.C. quite a bit where members of the Proof of Stake alliance and a lot of conversation we have with regulators, we explain that staking is a protocol level activity. So, you know, as soon as someone who doesn't know about this space hears about an APY or Reward or return, they assume it's a financial product, there's some kind of lending going on or something like that. And so we go at pains to explain that staking is not a financial product, it's an outcome or an output of a delegation that happens on a proof of stake network. And so this is a lot of the focus that we have. And then this plays into the ETF market as well. When, if you look at the Canary Marinade etf, when people buy that etf, those funds will go into something called Marinade select, which is 30 KYC validators who again are just doing protocol level activity. So a lot of our interaction with the ETF market is explaining that. And then also we're very concerned and focused on continuing support of decentralization for the ETF market. If you look at what has happened in Bitcoin, 6% of Bitcoin is now custody by ETFs. Five plus percent of that is with one custodian. So it's kind of amazing, like 5% just of ETFs. Five percent of Bitcoin is all with Coinbase and that has an inherent security risk. Even though the Coinbase team is fantastic, we are wanting to avoid the same thing on the ETF front, where all of our competition are institutional validators that will run one validator for an etf. Our product takes that Solana and decentralizes it automatically amongst 30 validators and is much more beneficial to the Solana network is the yield.
- [13:56]
Bryce
I mean this is kind of like a little bit of a pivot, but also, you know, secondary to this is the yield that's being generated by the validators by the network. Is this something that's like sustainable over the long term? Does it go down, down as TVL rises? Like what, what are kind of the dynamics there about the yield that's being generated by Marinate?
- [14:16]
Hadley Stern
It's, it's less related to the TVL at Marinade or across the whole network. And it very much comes inherently from the blockchain network itself. There's an inflation schedule, as we saw in a couple of SIMDs which are proposals within the Solana ecosystem. One that passed, one that didn't. There have been attempts and continued attempts and thoughts around should inflation be reduced and therefore the amount of rewards be reduced. This is not a bond or a CD. You're not buying into a 10 year locked reward here. This is a very dynamic space. The blockchain itself is very dynamic. The way the block space works, the way that proposals and technology changes so you know, I think the APY right now is around, is settled around 8%. I would, if I was an investor, I would say, you know, you can view that as like a six months to a year kind of out. Anything else is, is really up for grabs as Solana evolves and network changes.
- [15:21]
Bryce
Interesting. And then when, if we kind of go back to that question about native yield or, sorry, native staking versus the liquid staking that y' all are working on, tell us a little bit about how we should pair the two in our mind and what might be right for somebody who's watching this, maybe more on the institutional side and somebody who's maybe more on the retail side.
- [15:39]
Hadley Stern
Sure. So we started with a liquid staking token with msol, which was basically the first LST staking. And a lot of that at the time was inspired by what Lido had built very successfully on Ethereum. But one of the realizations the team came to two plus years ago is if you look at the need for LSTs on Solana, it's a very different decision framework than on Ethereum. So on Solana, the unlock time for native staking is 48 hours. On Ethereum, it can be a week to a month. On Solana, you can stake natively with as little as 1 sol. Actually even less on Ethereum 32 ETH. The sort of need for an LST is much less. The real utility of an LST is that you can do other things with it in defi. So I mentioned Kamino. You know, you can hop on Kamino and you can loop your MSOL and it's called multiply, where you. It automatically lends it out, buys more msol and suddenly your, your reward can be increased depending on the market. You can't do that natively. So when you get down to it, if you're an institution or an etf, there's an ETF is never going to do anything in defi like that. Then what are the disadvantages of LST for an etf? Well, the disadvantages are more smart contract risk, because you are just by the very fact, even though our MSOL has been rock solid for years, you're still taking on a greater risk by involving yourself in an lst. And one of the benefits of native staking on Solana, that's very unique and very preferential for ETFs is when you natively stake in Solana, you retain custody of the Solana in your wallet. And this is a bit of a hard one for people to wrap their heads around. But basically what that means is if Bryce comes to Marinade and stakes $1,000 US of Solana to us, if you look up your wallet in Solscan, you still have custody control, you still have deposit and withdrawal control of that thousand Solana. You've just given Marinade delegation authority to move to point that thousand dollars worth of Sol to a variety of validators. So this is very beneficial also to institutions because from a fiduciary standpoint, you maintain control, you don't have to worry about Marinade. No smart contract risk. In fact, if we go away, you can still unstake your native stake without us being involved.
- [18:09]
Bryce
Wow, that's fascinating and on the loop, and there's a million things I have questions of, but I know here we have set time, so I want to get to a coup, but we're going to. We're going to have you back, I promise.
- [18:19]
Hadley Stern
We're happy to come back and take as much time as you want.
- [18:22]
Bryce
Awesome. So I want to, you know, people on the summit have talked about looping, and my eyes always, like, go wide. I'm like, oh, my gosh, this is rehypothecation. This is leverage. This is what, you know, could potentially lead to that death spiral unwind. What is like the sophisticated take on. On looping and why? How do you do it safely?
- [18:42]
Hadley Stern
It's definitely leverage. It's not rehypothecation. So, you know, the one way that you can think about it is that, you know, you're. Say again, Bryce takes that thousand dollars and doesn't natively state that you buy MSOL from us for $1,000, and then you go to Camino and you click on multiply for msol. And what you're able to do is you're able to take, say, $700 of that MSOL, borrow USD against it, and pay us an interest rate of, say, 3 or 4%, and then use that $700 that you've lent to buy more MSOL. So it's really a financial product. There is leverage involved. There is a liquidation percentage that you have to be aware of and you have to manage, but it's all very transparent. It's certainly not rehypothecation. It's certainly not a conservative thing. I'm not recommending it either way, of course, but that's basically how that particular type of product works. And, you know, has shown some success in the marketplace, but it's obviously not something an ETF has gone to do.
- [19:54]
Bryce
Yeah. Interesting. Very cool. Well, two. Two last questions. One is in regards to the MND token, I think you said there was some, some value accrual that you guys were doing towards us. I think it started in February. Can you talk a little bit about how the MND token is accruing value over time from some of the activities that are being operated?
- [20:15]
Hadley Stern
Yeah. So this is something we're putting in place that's, it's always, you know, it's fun working. I've worked for big tradfi companies, public companies. It's fascinating working for a dao. And the question is, how do you bring back value to that underlying token from your revenue? And there are a few ways to do it. One way is you can do buybacks, so we can use our revenue to buy back, but we're also working on a programmatic way to connect better our TVL revenue to the MND token. You know, our desire, of course, is to have that token reflect as best as possible, you know, the value of the business in an accurate as way as possible.
- [20:54]
Bryce
Awesome. And then the last question was surrounding your background. You know, I noticed when I was doing a little bit of research that you used to work at Fidelity Digital Assets and, and really run a large part of that division. Could you tell us a little bit about some of the biggest learnings that you brought from traditional finance to us? You know, us, you know, kids who have never worked a day at a corporation ever. We've just been doing our own thing here in crypto.
- [21:20]
Hadley Stern
Yeah, I mean, I, I, I was very lucky to have my crypto journey start at Fidelity. So I was part of the very early team there. In 2014, spun up the bitcoin incubator.
- [21:30]
Bryce
Wow.
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Hadley Stern
And that's the founding president, helped launch FDAs, I think. You know, I kind of feel like Defi and Tri Fi is the tale of two cities. Both, both worlds have a lot of expertise, and they don't really know how to talk to each other.
- [21:43]
Bryce
It was the best of times and the worst of times.
- [21:45]
Hadley Stern
Yeah, exactly. And I, I, you know, if I have one super power in life, which is a bit of a weird one, it's connecting those two worlds. And so I'd say on the TRADFI side, it's really about helping Defi understand the way that Tradfi looks at risk and operations, which is a very different way. There's also pieces on the Defi side in terms of key storage, key management that Traffy doesn't know much about. So that's why there's sort of a Venn diagram of security and operations between the two worlds. And then there's also the product development piece and what product looks like between these two worlds. So it's a really fun spot to be in the middle of the and help to try to translate. I also don't know everything, so there's a lot to learn and there's so much innovation in the defi side around products. I mentioned Camino. There's a lot of historical innovation in tradfi around packaging of financial products. So there's a lot to teach, but there's also a lot to learn, which is a lot of fun.
- [22:47]
Bryce
Well, we're glad to have you as kind of the connective tissue between traditional finance and the, you know, traditional world and kind of this cutting edge world of, of crypto and AI and all that good stuff. So until next time. Hadley, thank you so much for joining us. I know you got a jet, so we wish you could have these for longer, but everybody at home watching. Hope you enjoyed. Stick around. We're going to be back with some more great guests.
- [23:10]
Hadley Stern
Awesome. Thank you, Bryce. Take care.