JIP 17 - Improving the Strength, Stability and Sustainability of JTO and the Jito Network

JIP - Drafts
1

  1. Title and Category
    Improving the Strength, Stability and Sustainability of JTO and the Jito Network
    Category: Protocol Development

  2. Abstract
    This proposal would cause half of the TipRouter Fees to be used to programmatically buy and burn JTO. Currently, the JTO and JitoSOL Vaults collectively receive 0.3% of the total 3% in TipRouter Fees, with the remaining 2.7% transferred to the DAO Treasury. This proposal would direct 1.5% of the total 3% in TipRouter Fees be used to programmatically buy and burn JTO in an onchain and verifiable manner. This proposal would support the long-term strength, stability, and sustainability of JTO and the Jito Network.

  3. Motivation
    This proposal seeks to increase the strength, stability and sustainability of JTO. This would also benefit the Jito Network, as JTO plays a key role in overseeing crucial aspects of the Jito Network.

  4. 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 fees collected by the Tip Distribution Protocol.
    TipRouter Fees: Fees collected by TipRouter from the allocation of Jito Tips and, if separately proposed JIP-16 is passed, priority fees.
    JitoSOL Vault: The JitoSOL stake delegated to the TipRouter NCN from various vaults.
    JTO Vault: The JTO stake delegated to the TipRouter NCN from various vaults.
    DAO Treasury: assets controlled by the Jito DAO.
    Burn Wallet: segregated wallet dedicated to receiving and using fees for the DCA Program.
    DCA Program: the programmatic buying and burning of JTO, as outlined in this proposal.

  5. Specification
    JIP-8 introduced a mechanism to create decentralized consensus over the allocation and distribution of Jito Tips.
    JIP-10 established the allocation of the TipRouter Fees to the JTO and JitoSOL Vaults.
    This proposal would update the TipRouter code to send 1.5% of the total 3% in TipRouter Fees to the Burn Wallet. All fees sent to the Burn Wallet would be used to fund the DCA Program.
    Currently, the TipRouter Fees are paid in SOL, and those tips are directed to wallets controlled by the DAO Treasury (which are then converted into JitoSOL) and to the JTO and JitoSOL Vaults (which are then converted into JTO and JitoSOL, respectively).
    Under this proposal, the Burn Wallet would also receive a share (1.5%) of the TipRouter Fees. Once a week, the SOL accumulated in the Burn Wallet would be used to fund the programmatic purchase of JTO (the “DCA Program”).
    The DCA Program will involve the purchase of JTO at regular intervals - initially every 30 minutes - via a DEX aggregator. Purchasing smaller amounts at more frequent, regular intervals would (i) mitigate the potential for “front running,” and (ii) mitigate the potential for “slippage,” both of which would be exacerbated if larger purchases were made at less frequent intervals. This approach would also mitigate the risk of buying JTO at temporarily elevated prices, since the program would go on at regular intervals in perpetuity - hence the use of the acronym “DCA” or “Dollar Cost Average” in the name of the program.
    The low-cost of transacting on Solana makes it possible to effectively execute the DCA Program without paying a significant amount in transaction fees. While the DCA Program would involve nearly 50 separate purchases of JTO each day, median fees for such transactions are generally around $0.01, making the transaction fees for the DCA Program negligible.
    Moreover, DeFi protocols on Solana have pioneered the most effective, efficient trade execution mechanisms via DEX aggregators like Jupiter. Again, because of the low cost of transacting on Solana, as well as the unified liquidity available for atomic, synchronous trade execution, each purchase transaction can be routed in whole or in part through numerous different liquidity sources in order to achieve the best execution price.
    Taking advantage of these aspects of Solana and its DeFi ecosystem, this proposal directs that Jupiter be used initially to execute the programmatic purchase of JTO under the DCA Program. At the time this proposal was drafted, Jupiter charged 0.1% for use of its “recurring purchase” product, which is highly customizable and could automate the purchase of JTO every 30 minutes over the course of a week. The “recurring purchase” product also has implemented an element of “jitter,” whereby trades are executed at regular intervals plus or minus a handful of seconds, to further mitigate the potential for “front running.”

  6. Benefits/Risks
    Benefits
    This proposal would support the strength, stability and sustainability of JTO. A common criticism of many tokens is that they essentially amount to “useless governance tokens.” This proposal would firmly place JTO in the category of assets that are not “useless governance tokens.”
    While JIP-10 provides benefits specific to JTO and JitoSOL holders that use the JTO and JitoSOL Vaults, this proposal benefits the entire community by increasing the strength, stability and sustainability of JTO itself, which plays a key role in overseeing crucial aspects of the Jito Network.
    By using onchain tools to implement the programmatic buying and burning of JTO, this proposal also counteracts any potential perception that the JTO being purchased is from a privileged group or on special, non-market terms.
    Moreover, by using existing infrastructure in the Solana ecosystem, this proposal avoids the complexities and potential pitfalls of designing bespoke processes (like an auction) that would present execution risk and be a distraction for the Jito team.
    Risks
    Allocating fees to the Burn Wallet necessarily involves decreasing the allocation of fees to the DAO Treasury. However, the Treasury is already very large at approximately $550 million (and growing), and there’s no clear identifiable benefit for the Treasury to grow at as rapid a pace as possible, versus the clear benefits to the current proposal outlined herein.
    Implementing this proposal also presents an “opportunity cost” in not pursuing other alternatives, at least with respect to the 1.5% of fees used for the DCA Program. In particular, one alternative that was considered was using a portion of the TipRouter Fees to add liquidity to DeFi protocols. This would involve contributing the TipRouter Fees to liquidity pools, with JTO as part of the trading pair (either against SOL, JitoSOL or USDC). The resulting LP positions (rather than JTO itself) could then be burned, or the fees generated by the LP positions could be used to add further liquidity to DeFi protocols in the future.
    This alternative was not adopted in this proposal because adding liquidity to a trading pair involving JTO, instead of simply buying and burning JTO, would (i) involve the purchase of less JTO, and (ii) put any purchased JTO immediately “up for sale” as opposed to taking the JTO out of circulation permanently.
    To the first point, in order for assets in a liquidity pool to be balanced, only some of the fees being directed to this purpose would be used to purchase JTO, with the remainder being needed to fund the other asset in the trading pair (either SOL, JitoSOL or USDC). Thus, this alternative necessarily decreases the impact that could otherwise be achieved via the proposed DCA Program, which would involve using all of the fees being directed to the DCA Program to buy (and burn) JTO.
    To the second point, under the alternative described above, any JTO that is purchased will effectively be immediately “available for sale” in the liquidity pool, at prices determined by the bonding curve. By contrast, the DCA Program would permanently remove any purchased JTO from circulation, so it could no longer be offered for sale to any future buyers of JTO. Putting purchased JTO “up for sale” immediately after purchase mutes the impact of purchasing the JTO in the first place, at least in terms of supporting the strength of JTO going forward.
    On balance, this proposal would provide greater impact and strength for JTO than the alternatives. Nonetheless, if the community felt it was worthwhile to experiment with allocating fees to the above described alternative or any other alternative, it could still do so with the other half of fees that are not being allocated to the DCA Program under this proposal, and/or it could vote to reallocate fees from the DCA Program to some other alternative in the future.

  7. Outcomes
    Update TipRouter code to reflect the allocation of fees outlined in this proposal.

  8. Cost Summary
    This proposal will reduce the allocation of fees to the DAO Treasury by 1.5% (from 2.7% to 1.2%). The purchase and burning of JTO will also incur small transactions fees, the most significant being the 0.1% fee charged by Jupiter for recurring purchases.

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