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shMONAD Overview

shMONAD is an innovative Liquid Staking Token (LST) built on top of MON (Monad). Designed for users who wish to stake their MON while retaining liquidity, shMONAD allows holders to convert MON into shMON, bond their tokens within distinct policies, and later unbond them after an escrow period. Unlike traditional staking systems, shMONAD introduces a modular and policy-driven approach that allows for siloed bonding and enhanced yield management.

Introduction​

Core Value Propositions​

  1. Protocol Security

    • Ensures selection and empowerment of the best validators
    • Promotes honest, performant, and cost-efficient operation
    • Maximizes Monad's security through incentive alignment
    • Creates a positive feedback loop: More work → More rewards → More stake

  2. Productive MEV

    • Integrates with FastLane on Monad node software (MFL)
    • Works in conjunction with Atlas EVM for MEV optimization
    • Internalizes and refines MEV into new yield streams
    • Benefits both Monad applications and validators

  3. UX Acceleration

    • Powers FastLane's infrastructure for onchain automation
    • Enables advanced abstractions like shBundler and Task shManager
    • Delivers seamless usability and optimized user experience
    • Creates unprecedented alignment between protocol security and ecosystem robustness

Key Features​

  • Staking & Conversion: Deposit MON to mint shMON using an ERC4626-compliant interface
  • Policies: Create and manage isolated policies to control bonding and unbonding processes
  • Bonding/Unbonding: Transition tokens between unbonded, bonded, and unbonding states with escrow-controlled unbonding periods
  • Agent Functions: Specialized agent operations to manage transfers and sponsor gas fees
  • Permit Support: Built-in EIP-2612 support for off-chain approvals

Use Cases & Target Audiences​

  • Stakers and Yield Farmers: Users seeking to earn yield on their MON holdings while maintaining flexibility
  • DeFi Integrators: Projects that wish to incorporate staking, bonding, and liquid staking mechanics
  • Enterprise and Institutional Users: Organizations that require flexible, policy-driven bonding for risk management
  • Validators: Network operators looking to maximize rewards through efficient operation and MEV capture
  • dApp Developers: Teams building on Monad who want to leverage enhanced UX capabilities

System Components​

shMONAD is built using several interrelated smart contracts:

The system consists of:

  • ShMonad: The main contract that governs staking, bonding, unbonding, and policy management
  • PolicyERC20Wrapper: A specialized ERC20 wrapper to expose an account's bonded and unbonding balances per policy
  • Bonds & Holds: Modules that implement bonding logic, unbonding escrow, and transient holds to prevent malicious actions during state transitions
  • FLERC20 & FLERC4626: Modified ERC20 and ERC4626 implementations tailored to integrate with shMONAD's storage and yield-boosting mechanics

Data Flow & Interactions​

Staking Flow​

Users deposit MON (native token) via the ERC4626 interface. The deposit() function mints shMON and triggers yield-related logic through boostYield().

Bonding Flow​

Users can bond their shMON into a specific policy using functions such as bond() or depositAndBond(). This moves tokens from an unbonded to a bonded state.

Unbonding & Claiming​

When a user wishes to exit a policy, the unbond() function initiates an unbonding period defined by the policy's escrow duration. Once the period is complete, the user can call claim() to retrieve their tokens.

Policy Management​

Administrators or policy agents can create new policies, add or remove agents, and disable policies using functions like createPolicy(), addPolicyAgent(), and disablePolicy().

Security Model​

  • Holds Mechanism: Prevents malicious unbonding during transactions by temporarily locking funds
  • Escrow Duration: A policy-defined delay ensures that unbonded tokens remain locked for a fixed period before they can be claimed

For more detailed information about specific features and operations, please refer to the following sections: