Original author: Karen, Foresight News
Liquidity Staken Derivatives (LSD) play an important role in the decentralization process of the network. LSD with embedded MEV (Maximum Extractable Value) rewards has also attracted attention because it can fairly distribute MEV rewards to token holders.
Today Foresight News is going to introduce Jito, a liquidity staking product that can capture MEV earnings in the Solana network. Jito also announced today that it will soon launch a governance token and will use 10% of the token supply for airdrops.
It is worth mentioning that in mid-October 2023, Lido announced that it would no longer support SOL staking. In fact, the Lido team P2P on Solana began seeking US$1.5 million in funding from Lido DAO in September, but contrary to expectations, the relevant proposal was not voted on. Therefore, Lido will no longer support SOL staking.
In more than a month after this, Jito reaped the benefits. The locked position surged from US$57 million in mid-October to the current US$360 million, an increase of 5.4 times. During the same period, the price of SOL increased by 1.5 times. At the beginning of this year, Jitos locked-up amount was less than US$5 million, and it has now become the second-largest protocol in the Solana ecosystem by locked-up amount, second only to the liquidity staking protocol Marinade Finance.
What is Jito?
In August 2022, Jito Labs announced the completion of a US$10 million Series A financing, co-led by Multicoin Capital and Framework Ventures. Together with the previous US$2.1 million in seed round financing, Jito Labs’ total financing was US$12.1 million.
Investors in the Series A financing also include Solana Ventures, Delphi Digital, MGNR, Robot Ventures, and 18 decimal. In addition, Solana Labs co-founder Anatoly Yakovenko, Coral founder and former Alameda Research engineer Armani Ferrante, and Solana Foundation Communications Director Austin Federa Investments were also made.
At that time, the Solana ecosystem and FTX were still prosperous. Just one day before CoinDesk disclosed the financial report of Alameda Research, which opened the Pandoras box of FTX and Solana ecology, that is, on November 1, Jito launched the MEV-driven pledge derivative JitoSOL, aiming to supplement the Jito-Solana validator client. and help improve Solana’s performance, allowing staking and MEV rewards to be earned while maintaining SOL’s liquidity and DeFi opportunities.
After that, Jito was tepid and experienced a relatively stable period. It was not until the second half of this year that it ushered in a turning point, that is, Lido no longer supports SOL staking and the Solana ecosystem bloomed again. Judging from the number of locked positions, there are currently about 6.8 million SOL locked on JitoSOL, and the Jito MEV validator network running the Jito-Solana client operates 41% of the network pledge weight.
How does the Jito-Solana validator client work? Where do MEV rewards come from?
Simply put, the Jito-Solana validator client will implement an auction mechanism where traders can bid for the opportunities brought by these MEVs. Winning bidders will be assigned to validators and then to stakers.
Maximum Extractable Value (MEV) is the value that validators and network participants can extract on the blockchain by reordering, inserting, or reviewing transactions.
The Jito-Solana validator client has been open sourced by the Jito Foundation and is designed to earn MEV revenue and optimize its distribution to network validators and stakers. From an architectural point of view, the Jito Labs block engine is responsible for obtaining transactions from the relayer and forwarding these data to the searcher, then obtaining the bundle (list of transactions executed in order) from the searcher, and performing bundle simulation, as well as selecting the best solution for the network. Profitable transactions, and finally the best transactions and bundles are forwarded to validators for processing. The Jito Labs block engine charges a 5% fee on all MEV rewards.
That is to say, users deposit SOL and receive JitoSOL. Jito Stake Pool entrusts the SOL deposited by users to validators that support MEV. These validators then auction block space and obtain MEV rewards. The MEV rewards will be redistributed as additional APY. In the Stake Pool, that is to say, users can obtain dual rewards of staking and MEV at the same time.
So how does JitoSOL make money? JitoSOL charges 4% of the total rewards (staking and MEV rewards, after deducting validator commissions) as an annual management fee. Jito said the fee is equivalent to 0.3% of the value of SOL deposited annually. This fee is the MEV revenue after deducting validator commissions and is applied to staking rewards and validator commissions. If users withdraw money directly through its website, they will also need to pay an additional 0.1% fee.
What is the utility of the governance token JTO? How are tokens distributed?
In terms of token economics, the total supply of JTO is 1 billion, of which 10% will be used for airdrops, 24.3% will be directly controlled by token holders through DAO governance on Realms, 25% will be used for ecosystem development, and 16.2% Allocated to investors (1 year fully locked, fully unlocked within three years), 24.5% allocated to core contributors, i.e., Jito’s founders and employees who are early contributors to the ecosystem (1 year fully locked, all unlocked within three years).
In terms of airdrops, the eligibility and quantity of JTO token airdrops depend on users’ contributions to the development and growth of the Jito network over time, including long-term JitoSOL holders, users using JitoSOL on various DeFi protocols, and users running Jito-Solana MEV A Solana validator on the client side and a searcher actively using Jito Networks MEV product.
The chart below shows the changes in the circulating supply of JTO tokens:
According to this circulating supply curve, Jito will launch tokens and issue airdrops on January 1, 2024, and the snapshot was completed three days ago. In addition, Jito said that JTO token holders can be used to make decisions, such as the fee setting of the JitoSOL pledge pool, update the delegation strategy by controlling the parameters of the StakeNet program, manage the JTO token library held by the DAO and the generation of JitoSOL fees, etc.
JitoSOL Future: Transition to Self-Developing Protocol StakeNet
In view of the fact that the stake pool relies on centralized key pairs and servers for management operations and fails to achieve true decentralization, a month ago, Jito outlined Jito StakeNet, a self-developed protocol for smart Solana LST,
Jito StakeNet will be designed as a self-developing, transparent and decentralized protocol for operating smart staking pools. At its core is a network composed of keepers and on-chain programs.
Among them, the validator history program stores three years of historical records for each validator on the network, and both users and on-chain programs can make informed decisions about the behavior of validators;
The Steward Program operates as an intelligent state machine designed to reward validators that perform well and punish those that perform poorly. Using on-chain validator history, the steward calculates each validator’s score and staked delegation amount. A group of guardians coordinate to run the state machine to ensure that stakes are delegated to the best-performing validators.
Jito said that with StakeNet, protocols can use on-chain governance to transparently modify parameters and state machine behavior instead of relying on centralized operators for management, thereby driving a more transparent, secure and decentralized network.