Lido on Solana Funding Proposal

[mediakov]

Greetings Lido DAO community,

We, the P2P team, have been diligently working on the Lido on Solana project since March 2022 after acquiring ownership from Chorus One.

We have made significant strides in both product and business development. However, to continue our efforts and take Lido on Solana to the next level, we seek financial support from the Lido DAO. This proposal outlines our achievements, financial standing, and the resources required to sustain and grow the project, as well as an alternative way that can be chosen.

2022-2023 Lido on Solana team achievements

Lido on Solana team was responsible for project development, including on-chain program and frontend, bugfixes, analytical dashboards, bugs-bounty program support, new wallets and DeFi protocols integrations, multisig and validator management, and other operational tasks.

Product development

• Successfully acquired ownership of the project’s codebase from Chorus One
• Formed a strategy for the further development and validator set vision
• Successfully released the second version of the smart contract
• Reworked frontend part of the product: staking widget, DeFi page
• Reworked wallet connection UI to improve user experience
• Released frontend SDK and React Native SDK

Business development

• Grew protocol TVL from 954k SOL (Dec, 21) to 4.1M SOL (Oct, 22) (330%).
• Achieved market share growth from 0,53% to 1% within Q2 and kept in until Nov 22 (FTX)
• The number of DeFi protocol integrations has increased from 4 to 22 and stSOL has been listed in 12 major wallets.
• The referral program launched with 21 trusted partners, attracting 192k SOL over 5 months.
• Partnership: Hubble, Kamino, Francium, Solend, and Aldrin

Analytics and operations

• Conducted two waves of onboarding, adding seven new operators to the pool to twenty-one.
• Provided analytical support for the LDO Incentivization Program for protocols. 4,405,908 LDO was distributed to Solana Defi protocols as user rewards (Q1 - Q3) to incentivize adoption.

2022-2023 Lido on Solana team profit and losses

In 2022-2023, P2P invested in Lido on Solana project approximately $700,000, mostly in development and support. Revenue so far was around $220,000 (developer fee + milestone reward), resulting in a loss of $484,000.

Suggested scenarios

The Lido on Solana team cannot perceive any of the objectives outlined in the initial proposal as feasible within 2023-2024.

Achieving even 2% of the market share in 2023-2024 seems improbable, particularly in the current Solana market, without any marketing assistance and given Lido DAO’s committee resolution to discontinue all incentives in Solana.

Considering the aforementioned information, we seek financial support from Lido DAO to sustain our efforts and elevate Lido on Solana to the next level. We have identified two fundamental scenarios:

Lido DAO financial support scenario

We can continue developing Lido on Solana with support from the Lido DAO. We aim to offer exceptional product development, analytics, and kickstarting marketing activities.

To sustain and grow Lido on Solana, we propose the following:

• Development Retainer: $200,000 per quarter to cover development expenses
• Adoption Incentive Program: $600,000 annually granted for establishing new partnerships and supporting adoption initiatives.
• Customer Support: $100,000 annually to set up a customer support service that meets industry standards.

In a total of 1,5M USD in the next 12 months.

In this scenario, we expect during this period:

• to grow and get more than 1% of Solana staking market share;
• to develop and implement new features, making the product more competitive;
• to create consistent and rational marketing initiatives and dependable customer support service.

Regarding treasury income, a 1% share of the staking market in Solana will bring an income of 10,191 SOL for 12 months. At current prices, this amount is approximately 200,000 USD, but remaining on the Solana blockchain can offer a noteworthy benefit to Lido. We believe in the future success of the Solana DeFi market and anticipate that LS protocols will play a significant role in driving this growth.

Lido on Solana sunset
We propose starting a sunset process if financial support from Lido DAO is unavailable, similar to Lido on Polkadot and Kusama.

Below is a rough timeline outlining the major steps of the process. We will provide more details and instructions for stSOL holders along the way.

2023-09-10 — New staking deposits are no longer accepted by Lido on Solana
2023-10-10 — Voluntary node operator off-boarding from the pool
2024-02-10 — Frontend support is halted, unstaking is available only through CLI

In this scenario, we seek 20K USD per month from Lido DAO to support our technical maintenance efforts for five months, starting from the 4th of September.

Summary

We will start voting in 4 weeks, providing Lido DAO a way to choose between these 2 options, but if we find better options in this discussion, changes can be made.

We firmly believe in the potential of the Solana ecosystem and are confident that Lido on Solana can play a pivotal role in its growth. The Solana network has shown remarkable promise in scalability, speed, and innovation, making it a fertile ground for DeFi projects and beyond. We are committed to leveraging these advantages to make Lido on Solana a cornerstone in the ecosystem.

However, to realize this vision, we need the collective support of the Lido DAO. With the proposed financial backing, we can not only sustain our operations but also innovate, grow, and contribute more value to the Lido DAO and the broader Solana ecosystem.

We are at a critical juncture where the decisions we make today will shape the future of Lido on Solana. We are optimistic about what we can achieve together and look forward to your constructive feedback. We aim to bring this proposal to a Snapshot vote as soon as possible, solidifying our shared commitment to the success and longevity of Lido on Solana.

[satBalwyn]

Regarding to ‘Lido DAO financial support scenario’, would like to know more details of the plan.

@mediakov

Marketing Budget: $600,000 annually for establishing steady and reasonable marketing channels

How the fund will be used for marketing here? Liquidity incentive or smth else

@mediakov

to develop and implement new features

what kind of new features are supposed to be developed?

@mediakov

Regarding treasury income, a 1% share of the staking market in Solana will bring an income of 10,191 SOL for 12 months. At current prices, this amount is approximately 200,000 USD,

In this case, Dao treasury could break even (i.e. cover the LoS fund) if SOL price increases by 7.5x.

[mediakov]

Our answer to both questions is based on an observation: the Solana liquid staking market’s growth is determined by the expansion of the DeFi market and Solana’s overall growth. Therefore, to achieve growth, Lido on Solana needs to work closely with the Solana DeFi projects and the wider Solana community. This can be achieved by launching initiatives together and addressing community concerns. One of the major concerns that we have been hearing lately is the small size of the validator pool.

So, for product development, we would like to focus on two primary goals:

• We want to enhance the automated self-protection measures for our validator pool. We aim to improve our contract’s ability to respond to unfavorable actions from validators, such as node shutdowns or a significant decrease in the vote-success metric. The Lido DAO will discuss and determine the thresholds and actions for these situations. Once we implement these measures we will protect our stakers from a decrease in APY while expanding the number of validators in the pool.
• Our next goal is to move towards further decentralization. To accomplish this, we plan to launch a new feature called “stake ponds”. These ponds are separate stake “containers” with different validators lists, ways of stake distribution, and sources of stake. The main purpose of these ponds is to keep them separate from the main pool while providing the same liquidity to stakers. The DAO will be responsible for choosing the rules for each pond. We intend to use these ponds to attract new validators to our pool and limit the risks of APY drops while launching green-light initiatives.
• We also would like to improve our SDKs and APIs, working closely with our partnership projects to conduct their needs and requests. By doing that we aim to simplify further integrations with custody, wallets, and DeFi projects in order to attract stake in the future.

These features can be leveraged to conduct effective marketing and co-marketing campaigns. We will share more details about these features and hold further discussions and votes to finalize their implementation if we receive funding from Lido DAO.

As for marketing, we want to follow the same principle here: only together with Solana DeFi we can grow and prosper. But plain and simple incentives are not the way of doing it, as we see them being not too effective in 2022.

So, we want to focus on

• co-marketing campaigns with Solana DeFi projects;
• educational content marketing;
• marketing support for the abovementioned green-light validator projects;
• participating in offline events and conferences.

We don’t expect these marketing efforts to show immediate results and consider them as a more long-term investment, but staying in the current informational vacuum is not a way to success either.

We don’t believe that any specific feature or marketing campaign can bring about a substantial and immediate change in Lido’s market share on Solana. However, we can strive to become a reliable partner for Solana market and grow alongside when the time is right. We strongly believe that the development of the Solana ecosystem depends on the expansion of liquid staking.

[Marin]

Hi @mediakov, thank you for posting the proposal and providing clarity on top of multiple options to choose from.

This does put me in a challenging position as I enjoy collaborating with you and the p2p crew, but in the following lines, I have to provide an unbiased opinion based on my expertise in the business segment.

To discuss holistically we need to have some basic data insight into the ecosystem.

Image 1

Solana DeFi TVL
Source: https://defillama.com/chain/Solana

Image 2

Solana Top 10 protocols by TVL
Source: https://defillama.com/chain/Solana

Image 3

Solana Top (6) Liquid Staking protocols selected by criteria of 1 million USD TVL and more.
Source: https://defillama.com/protocols/liquid%20staking/Solana

Image 4

Top 10 chains selected by criteria of TVL regardless of architecture
Source: https://defillama.com/chains

By observing image 1 we can see the Solana chain having TVL / local supply problems that started in 2022. Arguably, industry had multiple black swan events, including Terra collapse, 3AC, Celsius, and ultimately FTX that left Solana under heavy pressure and without one of its largest supporters.

It is hard to notice any meaningful sign of recovery on-chain while Solana Foundation additionally being conservative with interactions and support to DeFi. The comparison I have luxury making due to multi-chain contributions is with Polygon Foundation, where they actively incentivize projects to bridge the gap to sustainability with large token allocations.

Diving a bit deeper takes us to some numbers in terms of DeFi TVL.
As you can observe in image 1 Solana has 311m USD DeFi TVL on Friday 8th September at 12:50 PM KST.
The amount of TVL alone is not competitive with the majority of L2’s in the Ethereum ecosystem, which is alarming for DeFi projects, observable on image 4. In fact, Solana does have a decent number of deployed DeFi protocols(108), but undisputeably point remains that the majority did not reach the growth phase and have marginal TVL.

Image 2 provides clear insight that the top 5 protocols have 271.79 million USD DeFi TVL, which is 87,4% of total TVL. It gets worse when you observe image 3 and see that the top 3 Liquid staking providers have 188m TVL which is 60.71% of the total DeFi TVL. Just by comparing the high-level numbers, we can observe that DEXs and lending markets deployed do not create the effect of composability and increase the local TVL levels. There is also a lack of blue chip brands that would have the gravitational pull of popular DeFi protocols focused on strategies to build on top of them.

It is not directly protocol fault for not capturing, but due to various events and lack of user interactions, there is no proper flywheel in motion that can push sustainable returns based on actions rather than the only source of rewards being validator rewards. Many native projects are looking at cross-chain deployment compared to previous sentiment of being only Solana native.
My personal opinion is that DeFi protocols have to go conservative on the treasury as it is not good nor easy to raise follow-up rounds at this time and bullish market environment is still not tangible. That also means no incentives for anybody, and users will rather hunt opportunities with newly launched L2s. What horrifies me is that none of these protocols deployed, including Lido on Solana are sustainable and if nothing changes we’re looking at potential serial shutdown when VC money is gone or potential SOS packages (grants) get spent.

Transparently, even with a 311m USD worth of stake in Lido on Solana and being 100% of Solana DeFi TVL it would still not be able to operate on positive 0 and cover base expenses. Protocol fee share would be 1.15M USD a year (gross), equaling monthly fees of 95k. Meanwhile retainer ask is 200k USD a month just for a small team to operate.

Lucas Bruder, CEO of Jito Labs, and Solana co-founder Anatoly Yakovenko both say they believe liquid staking is under-utilised on Solana.
(Credit: Rita Fortunato/DL News)
Source: Liquid staking is a huge opportunity on Solana. Why aren’t more doing it? – DL News

While I can agree with the statement I can aswell counter argue that by having over 70% of SOL staked and Liquid Staking market being under 3% of it clearly means users on Solana do not align with the mission and purpose of Liquid Staking Protocols and are more interested into maximising returns with direct “native” staking. It is not a situation that magically happened now. It is ongoing for an extended period of time
(source: Solana Staking Statistics: Track Rewards, Total Stake, Rankings + Economy)

Incentives itself are not the reason why users are not converting to Liquid Staking solutions as DAO allocated over 10 million USD worth of incentives to generate utilization and attract more stakers on Solana.

@mediakov

• Provided analytical support for the LDO Incentivization Program for protocols. 4,405,908 LDO was distributed to Solana Defi protocols as user rewards (Q1 - Q3) to incentivize adoption.

I strongly oppose giving out funding to additional incentivization as the Lido DAO treasury should not be a lifeline to smaller protocols nor the ecosystem itself. That weight should fall on higher instances and not on protocol level, no matter the size of it.

@mediakov

To sustain and grow Lido on Solana, we propose the following:

• Development Retainer: $200,000 per quarter to cover development expenses
• Marketing Budget: $600,000 annually for establishing steady and reasonable marketing channels.
• Customer Support: $100,000 annually to set up a customer support service that meets industry standards.

In a total of 1,5M USD in the next 12 months.

In this scenario, we expect during this period:

• to grow and get more than 1% of Solana staking market share;
• to develop and implement new features, making the product more competitive;
• to create consistent and rational marketing initiatives and dependable customer support service.

Regarding treasury income, a 1% share of the staking market in Solana will bring an income of 10,191 SOL for 12 months. At current prices, this amount is approximately 200,000 USD, but remaining on the Solana blockchain can offer a noteworthy benefit to Lido. We believe in the future success of the Solana DeFi market and anticipate that LS protocols will play a significant role in driving this growth.

In response to the actual 1.5m ask I really have to surface the business nature of the proposals. LoX launched with the bull mentality and actual proposals do not have business sense. This is where everybody is always aligned. Where we’re misaligning is the size of the asks to actually extend survavilability rate of the protocol itself. This venture is not profitable for both parties involved.

One can’t help not to argue why would DAO treasury have exposure to 1.5m USD invest for potential return of 10k SOL (1 SOL trading at 19.68 USD at the time of writing) translating to 196.800 USD with a high likelihood of having repeated scenario in a year.
Voters need to be aware that it would require 7.6x increase in SOL price for treasury to be at 0. Meanwhile if DAO diversifies treasury with SOL (just as an example) with a 1.5m USD purchase today would have 76k SOL on balance sheet!

Additionally what is causing a lot of friction with this proposal is an actual precedent that would be set with the funding. The realistic expectation is for Lido on Polygon development team (Shard Labs) to follow up on it and seek extra funding, so price tag for the DAO treasury is at 3 million to begin with. In case other LoX protocols launch in the future they would have the same expectation in case sustainability is not there after a while.

To wrap up the thoughts it’s not that I’m bearish on Solana and it’s future. Not trying to diminish the potential of asset or ecosystem in future growth, what I’m reflecting here is pure business logic that needs to be applied and considered before voting.

I am eager to read if somebody has an alternative point of view to change my mind, but with the current state of matters, I cannot vote YES to funding 1.5m with a clear consciousness.

[b_tuck]

btuck from Marinade DAO here. This is a very thorough post explaining the struggles with LST adoption on Solana. Marinade was also featured in that DL news article and shared some reasons why liquid staking hasn’t grown as much as on ETH. You’re very right that Solana Foundation isn’t supporting liquid staking with their own SOL yet, and there is also a significant amount of locked SOL (~60M) that is not eligible either. And Solana DeFi needs to be tested further for big accounts to really trust them with size.

Speaking as a content guy I’m not sure “content marketing” and “partnerships” will get us very far with more LST (retail adoption has been pretty good) compared to whales and VCs getting more comfort with Solana smart contracts and DeFi protocols, plus just the general unlocks of SOL from early holders over the next few years. Marinade and Lido also came to similar conclusions in 2022 regarding liquidity mining’s ineffectiveness at a certain point.

Applying the 80/20 rule of business it’s not surprising that Lido has spent the bulk of its resources on ETH as that has been where the adoption has been strongest by a wide margin.

Lido DAO could consider taking advantage of Marinade’s incentives programs currently happening this year and get a significant ownership position via MNDE by moving its stSOL to mSOL or Marinade Native. Rather than try to build themselves up in an ecosystem they aren’t committed to, they could utilize Marinade’s incentives like Open Doors, mSOL and MNDE directed stake to acquire millions of MNDE for both the DAO and users, and be able to direct stake to their partner validators and have control over the treasury.

For those not familiar, Marinade Native was introduced this summer to create a stake pool delegation strategy but without smart contract risk and DeFi liquidity. Given the low gas on Solana required to create 100+ stake accounts, this would be difficult to do on Ethereum and presents a great alternative for the whales in Lido’s orbit who are hesitating on Solana DeFi. The Native stake is at nearly 2M SOL already and adds more stake to MNDE and mSOL holder control.

Tremendous respect for the Lido team and it’d be great to get their participation and POV while letting Marinade, exclusively building on Solana, handle the heavy lifting and evangelization in the ecosystem.

[Andrew_KukisGlobal]

We (Kukis Global) are one of the node operators validating on Lido on Solana.

First, I would like to say I have a lot of respect and praise for the P2P team and their work on the protocol, and this is in no way saying they are not doing a great job.

Closing Lido on Solana would mean we would probably stop our validation services on Solana, as it will no longer be viable for us.

I agree with @Marin’s post, unfortunately I don’t think the proposal makes economic sense with the current market conditions.

I am not sure if that’s feasible, but it would be great if we could somehow find a way forward on a lower budget to get us across the bear market.

[sacha]

I’ve voiced this already on twitter, but copying here for visibility.

My personal perspective, is that the Foundation made the right call and that Lido DAO is better off focusing on Ethereum, regardless of the incentives at play (we need to be disciplined in sticking to our Mission).

While I have no doubt that Solana will be successful over the long term, the winning LST on any given chain needs to be immersed in that chain’s culture.

Lido is not culturally close enough to Solana to have any chance of winning, even if/when LSTs do take off. so it doesn’t make sense to continue.

[governance-data-bot]

Snapshot vote started

Please get your wallets ready to cast a vote , the Lido on Solana: next steps Snapshot has started! The Snapshots ends on Thu, 05 Oct 2023 18:00:00 GMT.

[irina_everstake]

Everstake team is really grateful for to P2P team for raising this subject to the public, as economical effectiveness of Lido on Solana protocol is the issue that is bothering us too.

Following several 2022 events, including Terra collapse, Celsius, and last but not least FTX crush, rewards that Everstake withdrawn*, as a validator was:

Period	Rewards withdrawn	Rewards at SOL price on the date of withdrawal
December-February	83 SOL	$1883.27
March	43 SOL	$883.65
April	38 SOL	$880.84
May	36 SOL	$762.12
June	39 SOL	$738.66
July	39 SOL	$894.27
August	42 SOL	$830.76
September	35 SOL	$705.60

*Our DevOps team usually leave 50 SOL for validator operations, so net rewards is higher.

Due to the small amount of the protocol stake, which is distributed equally between validators, combined with low SOL price since November, Everstake withdrawn rewards do not cover even our infrastructural costs. That made us to shift from a usual set-up to the new cheaper one, but, unfortunately, to this moment have not met the break even point yet.

We would like to echo @Marin’s note. Based on what we have seen during this past year, we can conclude that liquid solutions are not a core focus for Solana and we should not expect a support from the Foundation in the nearest time, thus we can rely solely on ourselves.

@Marin

It is hard to notice any meaningful sign of recovery on-chain while Solana Foundation additionally being conservative with interactions and support to DeFi.

From all those that is written above both in the proposal and comments, we see that at this current market Lido on Solana is not profitable neither to the development team, nor to the validators. Therefore I would also suggest to consider a compensation / support of the Lido on Solana operators services, in case we reach a consensus regarding fulfilling P2P Lido on Solana funding proposal.

[monet-supply]

Disappointed to see the likely sunset of lido on solana, but can’t say I’m surprised. Lido has consistently underwritten contracts with service providers that provide for participation in upside (token grants based on market share growth etc) without any downside (responsibility to continue providing services in times when it is not immediately favorable). This is a bit frustrating, but I understand the service providers’ perspective (they are just looking out for their own best interests within the extremely weak constraints of the engagement with lido).

Lido stSOL is still the 2nd largest LST on Solana, why we are moving towards a full shutdown rather than considering strategic alternatives (eg sale of the product and userbase to a competing protocol like Marinade or Jito)?

Overall I feel this whole episode is a huge L for Lido DAO.

• DAO underwrites free call options on adoption for service providers
• DAO provides significant liquidity mining for a long period to try to push those free calls into the money for service providers
• As soon as conditions turn unfavorable, service providers exit
• DAO is unwilling to put up low 7 figures for continued upside exposure to potentially the 3rd largest crypto eco

(edit: sorry to come in on the last day of voting to post this, should have been active earlier)

[Izzy]

@monet-supply

Lido stSOL is still the 2nd largest LST on Solana, why we are moving towards a full shutdown rather than considering strategic alternatives (eg sale of the product and userbase to a competing protocol like Marinade or Jito)?

What’s the risk / reward in your estimation around this?

I feel like the possible financial gain to the DAO is miniscule, and dwarfed by the risk around things like brand / reputation damage, which makes this an interesting thing to think about but ultimately definitely not worth seriously considering.

The rest re: fundamentally flawed expansion model (in terms of unclear responsibilities, onus on execution, liquidity incentives, etc) I generally agree on.

[governance-data-bot]

Snapshot vote ended

The Lido on Solana: next steps Snapshot has reached a quorum and completed!
The results are:
Provide funding: 5.1M LDO
Sunset: 65.0M LDO

[SolBlaze]

As the vote to sunset Lido on Solana has now passed, I would suggest that perhaps the off-boarding UI on Lido could either include a migration tool to convert to another Solana-native liquid staking token (such as Marinade’s mSOL, BlazeStake’s bSOL, Jito’s JitoSOL, etc.) or maybe even just a list of those staking providers so that people who used Lido on Solana can be pointed in the right direction for a similar service.

I don’t think that Lido should simply hand off control of the staked SOL to any liquid staking provider on Solana, but rather that users should be given the choice to move their SOL on an individual basis to a new provider of their choice (like Marinade, BlazeStake, Jito, etc.), I think this is best when considering the ideals of decentralization.

Although it is sad to see someone exit the Solana ecosystem, I hope we can find the best path forward to ensure a smooth transition for Lido on Solana users to other Solana liquid staking providers.

[Alex_L]

A guide on how to claim all rewards and unstake your assets is coming shortly, please confirm @mediakov

Providing a list of staking providers (and omitting some accidentally, for example) on the other hand could be interpreted as a recommendation or positioning some of them higher than others and probably is not the best thing to do, imo.

[Alex_L]

@mediakov could you please provide the address to receive a reimbursement of sunset costs?

[mediakov]

Unstaking guides already exist, and we are going to provide the links a little bit later together with the public announcement blog post.

But anyway, the links are here:

Phantom | Lido on Solana

Solflare | Lido on Solana

Ledger | Lido on Solana

Solong | Lido on Solana

They could be a little bit outdated in terms of UI, but still pretty valid.

I do agree with the reasons above concerning list of staking providers. I strongly believe that users can decide themself who to trust and why.

[mediakov]

Sure, here is the public proof of the address:

P2P.org

It can be used for the sunset costs reimbursements as well.

[Marin]

Hi @SolBlaze,

Thanks for the insight on this topic. My answer would be related to @b_tuck and @monet-supply as well, just to provide some clarity.

This kind of ask(s) would actually require a proper proposal written out and a vote.
Given the type of ask, it would be really hard for me to give a positive recommendation (and I believe it would be the same for other contributors) if the proposal would contain stake migration, protocol sale, staker referral, etc…

If anything happens to any of the protocols while the Lido DAO referred Lido on Solana protocol stakers it would create a delicate and unpleasant situation. Also, the Lido DAO should not have any monetary benefits from such actions as it is opposing its core values and purpose.

I think we all agree that users should have the right to choose where to deposit their tokens, and I firmly believe they will do so without guidance or promotion of other decentralized protocols on Solana because other solutions are already well established and are highly visible on data aggregation platforms.