Options for what to do with Jito revenues fall into four broad categories:
- Buyback.
- Subsidize jitoSOL yield.
- Incentivize hodling JTO.
- Reinvestment.
Options 3 & 4 are the most appealing for Jito today. However, Jito should not adopt a prescriptive policy on what to do with its revenues. Rather, Jito should adopt a dynamic policy to alternate between options based on which generates the highest return.
1. Buyback. The only benefit of a buyback today is the signal it sends to the market that Jito is returning capital to token holders. Although that is a valuable immediate signal, I think disciplined capital allocation is better in the long run. A buyback today has limited value beyond the signal. A buyback, in of itself, won’t impact JTO price. Jito is currently generating ~$80k/day in revenues. JTO token trades ~$5m/day of “real” volumes on legitimate exchanges. An $80k JTO buy order on $5m of volume, which is 1.5% of “real volume,” won’t impact JTO price.
2.Subsidizing jitoSOL to grow jitoSOL adoption, which is of strategic importance to Jito, is valuable. However, the subsidy is unlikely to yield material benefits. There is 16.7m jitoSOL worth $2.3b. Jito’s ~$80k/day and ~$29m annualized of revenue implies an incremental 1.2% yield on the $2.3b worth of jitoSOL. An incremental ~1% yield is probably not enough for other LSTs holders to rotate into jitoSOL or for native SOL stakers to move into jitoSOL.
3.Incentivizing JTO hodling is a worthwhile endeavor because there is no direct cost to doing so. @David_Grid outlined a clever mechanism to incentivize JTO buying by validators. Implementing something like what he outlined above should be strongly considered.
4.Reinvestment. Jito Labs and Foundation have built a phenomenal business routed in ingenious tech. Allowing Jito revenues to accrue to the treasury is fine, as long as Labs and/or Foundation are directly involved in determining how the accumulated capital is to be reinvested. Labs and Foundation are best placed to make this assessment and so far, they’ve exhibited good judgment. Reinvesting the accrued revenue sitting in treasury should be weighed against a token buyback. If a buyback is a higher return option, then a one-time larger buyback should occur.
If it was deemed that the signal of a constant buyback was valuable enough, then a buyback should be done based on specific valuation parameters like the ones @David_Grid laid out above.
However, the biggest signal that could be sent is if Labs and token holders became fully aligned. Currently Labs and the DAO each get 3% of fees. Proper alignment means 6% of fees accrue to the DAO, and ultimately token holders, and zero to Labs. The cost of running Labs should be absorbed by the protocol. Thereafter everyone would be aligned that the JTO token is the only medium of monetization. There would be no value leak to Labs. Misaligned incentives is the biggest issue plaguing Jito.