JIP-39: Maximising JitoSOL Performance - The next phase of JitoSOL economics

[drnick]

To answer Michaels important points above:

@laine

1. The proposal suggests that the Jito Reference Validator is necessary to achieve the improved yield, ostensibly through the distribution of block rewards to stakers. It doesn’t discuss whether the alternative - a system for third party validators who receive stake to share block rewards to the jitoSOL pool - was considered, such a system has been implemented by other pools, e.g. Marinade.

An alternative system was discussed, and even built for use in an earlier JIP, which would have facilitated validators to share a percentage of block rewards, which would be algorithmically governed with StakeNet. The proposal then was 50/50 (enforced on all validators for inclusion to the stake pool), it is now 25/75 and without the coordination issues of asking validators to pay for it via a new mechanism.

@laine

2. It is not described how block rewards will be distributed to the pool. Has the status of SIMD-123 been evaluated and whether implementation is in the near future? If it is, evaluation of utilising the native mechanism for other validators to share block rewards to the pool?

The mechanism uses the directed staking function so operates similar to the coinbase validator, but with economics directed 100% at the stake pool. As much as we would like to utilise SIMD-123 it has not been implemented. I would expect if it landed in the future, we would integrate it. The Dev Council would be able to do this due to the new pragmatic decentralisation framework that was recently implemented. I will be more than happy to facilitate any community JIP’s necessary to make the technical shift, if this wasn’t in our immediate upgrade path.

@laine

3. It is not clearly defined who operates the reference validator (Labs or Foundation, the definition of Reference Validator only says Jito)

It is a collaborative endeavour across the entities, including the DAO via its Dev Council function. Foundation is participating at the governance and coordination level with technical oversight from the Labs side.

@laine

4. The yield gain maths assumes that block rewards measure 60bps of total stake, while this is true for the past 30 days as of writing this comment, for the past 90 days it is 50 bps, and at times has been substanially less. An explanation how this number was chosen and over what time period it is expected to be a sustainable approximation of future block rewards would be welcome.

Important points around the sensitivity analysis. The market is highly variable of course and when this analysis was done market conditions have already shifted. These fees are highly dependent on chain activity and a big part of our goal with JTX is to increase fees at that level. Slot time compression is also having a number of effects we have yet to see. We have laid out a considerable programme of gradual economic changes in JIP-39, which includes the extension of the BAM subsidy programme which is now calibrated to meaningfully support long tail validators through the transition. Much of this is a bet that by being more competitive we can maximise JitoSOL TVL to such a degree that small bps differences will be economically inconsequential. However, I think it’s perfectly reasonable to deepen this analysis and I will endeavour to update this thread with a more sophisticated analysis.

@laine

5. The proposal does not discuss the benefit that Jito (whichever entity runs the validator) may receive from the additional stake weight it controls in the network, including possible benefits from order flow & arbitrage opportunities, whether benefits economically, influentially or in product distribution and adoption.

There are certainly supplemental benefits to the increased stake, we consider more leader slots for BAM as good for the network. The additional stake will also generate us more data and active blocks for testing. Being a BAM validator it’s operation will be transparent and auditable. Our goal is to set a BAM benchmark with it, so the wider delegate set (and Jito) can learn from it. Any advantage from order flow, or arbitrage would be captured by our fee structure and directed to the stake pool, our goal is to utilise this validator to it’s maximum potential to increase JitoSOL yield and be a leader of the BAM validator fleet. So I would expect it to operate on its best behaviour. I would certainly invite any DAO members, or wider community to use this thread to share analysis to help us optimise the economics for JitoSOL and the wider network of they see where it can be improved.