Abstract
JIP-8 authorized the creation of TipRouter NCN to facilitate the transfer of tips to validators. Since then, the amount of SOL tips has grown substantially. This motivates an increase in the economic security of the NCN.
One approach to this problem is to allow JTO holders to stake their JTO in the NCN.
This JIP will delegate the decision of whether to adopt JTO in the TipRouter NCN to a decision market created by MetaDAO. The market will determine whether this change should be expected to positively impact the Jito Network.
If adopted, this JIP would authorize Jito DAO to take the following actions, conditional on the decision market accepting the proposal:
- Adding JTO staking to the TipRouter NCN.
- Authorizing an RFP for vault manager(s) for a JTO vault receipt token.
- Granting the DAO authority over the JTO vaults supported by the DAO in a separate RFP.
Motivation
This proposal will seek to achieve two key effects:
- Decentralize and secure the process of distributing Jito Tips by adding a second source of economic security. This reinforces the trust guarantees of the tip distributions across the network by making inaccurate value distributions more expensive.
- Adds another layer of utility for the JTO token as a pillar of the operations for the Jito Network.
These two effects represent a major step in the broader decentralization and sustainability of the Jito Network.
Decision markets enable us to measure whether a proposal passing would truly affect the value of the Jito Network.
Key Terms
- Jito Tips: Tips paid by users participating in a blockspace auction powered by Jito-Solana.
- TipRouter NCN (Node Consensus Network): A decentralized network that takes responsibility for programmatically handling the distribution of tips collected by the Tip Distribution Protocol.
- JitoSOL Vault: The JitoSOL and other Solana LST stake delegated to the TipRouter NCN from various vaults.
- JTO Vault: The JTO stake delegated to the TipRouter NCN from one or more vaults.
- Jito DAO: A decentralized autonomous organization responsible for overseeing the governance and operations of the Jito Network.
- Tip Distribution Protocol: A mechanism that aggregates SOL (the native cryptocurrency of Solana), generates a merkle tree and merkle root for distribution, and transfers SOL to the appropriate users/accounts.
- NCN: A Node Consensus Network. A network that uses Jito (Re)staking to come to consensus regarding an on or offchain process.
- Vault Restaking Tokens (VRTs): Tokens representing staked assets in the NCN vaults, which provide economic rewards to participants.
- DAO Treasury: The accumulated rewards from various fee streams generated from the Jito Network and directed to the DAO.
- Node Operator: An entity tasked with managing hardware or software infrastructure requirements for NCNs.
- Vault manager: An entity tasked with managing the delegations to NCNs, distributing NCN rewards, and creating VRTs.
Specifications
JIP-8 introduced a mechanism to create decentralized consensus over the allocation and distribution of Jito Tips each epoch using Jito (Re)Staking.
The JIP-8 implementation would utilize Solana LSTs, primarily JitoSOL. This JIP would create a complementary vault denominated in JTO to increase the economic security in response to elevated value flowing through Jito Tips.
JTO Vault boosts the security of this design in response to observed elevated number of Jito Tips. At the time JIP-8 was posted, monthly tips were 391k SOL ($93mm monthly at today’s prices) whereas today monthly tips are 817k SOL ($194mm at today’s prices).
With the increased value at risk in the last month and potential further growth, additional layers of security are justified. The JTO TipRouter increases security across multiple dimensions:
- Increased TVL: Malicious actors will have higher capital requirements to control a supermajority of stake in the NCN.
- Dual-staking diversification: The economic security in JitoSOL Vault will be denominated in LSTs and be a small share of total Solana tokens. Acquiring a sufficient amount of JitoSOL to manipulate the delegation is possible. Dual-security would require any attacker to also acquire a substantial amount of JTO tokens, which would be more challenging. This also diversifies the TVL base in case of volatility in the price of a single token.
The implementation of JTO Vault would be paired with the JitoSOL Vault in the TipRouter NCN. JTO value in the TipRouter would be normalized vs. the JitoSOL TipRouter value and consensus would require over 2/3s of the aggregated value.
The JTO Vault will earn a 15bps fee from the total 3% in TipRouter fees on Jito Tips. Assuming both proposals are approved by the DAO, the JitoSOL Vault and JTO Vault would each earn 15bps of fees with the remaining 2.7% transferred to the DAO Treasury. This has no impact on tip value for Solana validators or stakers. The diagram below represents the fund flows of the aggregated system using current metrics as assumptions:
The JTO TipRouter should create a minimum economic security on a standalone basis using current metrics as assumptions:
Below shows the yield profile for JTO staked to the TipRouter (again using current metrics):
The full data for the combined TipRouter is demonstrated here. Jito Network governance will control any changes to the fee parameters for the JTO and JitoSOL TipRouter NCNs if proposals are approved.
Vault Selection:
A separate RFP will be issued for vault manager selection to keep the scope of this proposal smaller. Considerations include the diversification benefit of multiple managers. Trade-offs will be more fully discussed in the RFP.
Governance:
Staked JTO should be integrated in governance to maintain governance participation from the community. This can be implemented via a Realms VSR update but the exact parameters are dependent on the JTO VRT design. The parameters shall be included in an update on this proposal or in a separate JIP depending on the timing of the JTO Vault governance process.
Futarchy parameters:
The decision market will be initialized with a description containing a link to this proposal and the text “If approved, this proposal would sanction the addition of a JTO Vault to the TipRouter NCN according to the specifications laid out in JIP-10.”
The pairing of the decision market will be JTO/USDC.
MetaDAO will initialize the market with $100,000 in USDC and an equivalent value of JTO.
The pass threshold will be set to 1%, meaning that the proposal will pass if, and only if, the time-weighted average price in the pass market is 1% or more greater than the time-weighted average price in the fail market.
The market will run for 5 days in slot time, which means that if Solana experiences downtime during the proposal, that downtime will not affect the amount of time traders have to participate in the decision market.
For the TWAP parameters, the first observation will be set to the spot price of JTO tokens on the date of market creation, as determined by CoinGecko, and the max observation change per minute will be set to $0.02. In practice, this means that if someone is able to manipulate the price for an hour without being detected, they would move the observation by approximately 40% and the total TWAP by approximately 0.33%.
Benefits/Risks
Benefits
- Better economic security for Tip Distribution
- JTO integrated in core utility of the Jito Network
Risks
- Additional complexity in the protocol and for the DAO to manage
Outcomes
- Update TipRouter code to include the JTO Vault security
- Realms updates for staked JTO inclusion (if included in this proposal)
The governance process is unique here with the role of MetaDAO’s market in the decision.
Step 1: 30-day discussion period of this proposal on the forum.
Step 2: 5-day voting period including 2-day cool down period.
Step 3 (if JIP-10 passes): MetaDAO market to determine whether the proposal meets the established criteria.
Step 4: Implementation. This could require an additional governance vote if programmatic changes are required. That only applies to the Realms parameter changes, which may be separated depending on the timing.
The decision posed to the Jito DAO in JIP-10 is not whether to support the implementation of the JTO Vault. The vote is to authorize a MetaDAO market on this proposal and honor the outcome if the MetaDAO market exceeds the passing threshold. This means passing required proposals, to the extent required for implementation. If the MetaDAO market fails, any further action would be subject to full DAO approval.
Cost Summary
This proposal will reduce Jito Treasury fees on Jito Tips by 15bps (to 2.7% from 2.85%). Those fees will be redirected to JTO stakers through the JTO TipRouter.