Title:
Node Consensus Network (NCN) Grants Committee
Category:
Treasury
Abstract:
This proposal requests 10 million JTO funds from the Jito DAO to manage a grants program specifically aimed at incentivizing Node Consensus Networks (NCN’s, roughly analogous to AVS’s) developers to utilize the forthcoming Jito (Re)staking product.
Grants will be divided into three categories: Development Grants, which will be awarded based on estimated economic activity generated by the NCN; Production Grants, which will offer NCN’s tiered liquidity mining/security mining rewards based on economic activity benchmarks once the NCN is live; and Futarchy Grants, which will have similar goals to the Development Grants, but utilize the MetaDAO platform for decision making.
The funds will be managed by a multi-sig committee consisting of Jito Foundation members and Jito DAO delegates with the intention of distributing or earmarking all funds within one year after the passing of the proposal.
Motivation:
The forthcoming Jito (Re)staking product has the potential to become a core part of the Jito Network’s offering, driving the protocol forward in terms of both TVL and fees generated. The codebase for Jito (Re)staking has recently been made public and is currently being prepared for audit. Details regarding Jito (Re)staking’s functionality can be found here.
Once live, there are several constituent communities that will populate the Jito (Re)staking ecosystem, including: node operators, stakers/restakers, Vault Receipt Token issuers (VRTs being roughly analogous to LRTs), vault managers, and NCN developers.
Based on the Jito Network’s position in the liquid staking landscape and the success of initial business development outreach from the Jito Foundation, Jito (Re)staking is in prime position to capture a dominant share of all component ecosystem stakeholders, many of whom already participate in the Jito Network in some form and are eager to utilize the restaking product. This will help establish Jito (Re)staking as not just the leading restaking solution on Solana, but also across the broader crypto ecosystem.
However, NCN developers arguably serve as the engine for any staking or restaking system, and at the moment appear to be the scarcest type of participant. While other restaking projects have proven to be extremely successful in attracting gaudy total value locked (TVL) sums, perhaps a stronger measure of success for a staking/restaking system should be the amount of economic value it generates – specifically, the amount of value it manages to distribute to node operators, VRT issuers, and restakers for their services. NCN’s are the participants that ultimately drive this value.
The Jito Foundation has held conversations with a number of current and potential NCN developers, including existing Solana protocols as well as forthcoming projects. Many have expressed interest in Jito (Re)staking, but may have other development priorities or competing offers from other solutions. This grants program will be essential in incentivizing developers to focus on building out their NCN systems and rewarding NCN’s that drive economic value.
This grants program is largely inspired by the Arbitrum STIP and LTIPP programs. In these programs, the Arbitrum Foundation provided ARB to third-party projects for the sole purpose of liquidity mining. Multiple analyses from research firms indicate that the programs were successful at driving key ecosystem metrics and economic value, including volumes, users, and TVL. However, multiple analysts, including Jito DAO delegate Blockworks Research, found that the incentives had mixed efficacy in terms of retention.
The Arbitrum programs entailed significant governance, recordkeeping, and administrative loads, and as such this Grants program is significantly trimmed down – both in the dollar amount of incentives on offer, as well as the administrative overhead.
It is difficult to model an economic system that does not yet exist, and indeed has never existed. There is as yet no fully live restaking platform that features a fully-functional AVS/NCN with staking, slashing, and rewards being paid out.
As such, this grants program proposal makes significant assumptions as to what shape the Jito (Re)staking NCN ecosystem might take, as well as assumptions regarding the efficacy of liquidity mining (or, in this case, economic security mining) relative to economic value generated by a hypothetical NCN.
There may have to be significant alterations made to the program in future governance proposals in order to ensure that incentives are being paid to the right parties and at the appropriate scale to achieve the goal of encouraging economic value flow.
Ultimately, the Foundation views this grants program as the first push that sets the Jito (Re)staking flywheel in motion, ensuring that it becomes a hub of economic activity rather than a dead weight of unproductive TVL.
Key Terms:
- Jito (Re)staking:
Jito (Re)staking is a multi-asset staking protocol for Node Consensus Networks.
The protocol tokenizes staked assets as Vault Receipt Tokens for enhanced liquidity and composability.
Node consensus networks can use Jito (Re)staking to easily customize staking parameters, slashing conditions, and economic incentives to tailor their security and tokenomics.
- (Re)staking:
The Jito Foundation’s lightly branded term for what is frequently referred to as “restaking” without the parentheticals. Because Jito (Re)staking can support both staked assets, such as JitoSOL, or any non-staked SPL token, Jito (Re)staking’s name emphasizes that the product can function either as a staking platform or a restaking platform.
- NCN:
An acronym for Node Consensus Network, a term for a discrete economy of restakers, node operators, and delegation/vault managers that require economic security, incentives, or node operator infrastructure to reach consensus regarding the performance of a blockchain-based service.
- VRT:
Deposits into Jito (Re)staking vaults are tracked with vault receipt tokens. Not all VRTs will be liquid, but many will function as either liquid staked tokens or liquid restaked tokens.
- Economic activity:
The measure of yield that a NCN provides to node operators, stakers/restakers, and VRT issuers/managers.
- (Re)stakers:
Users willing to stake or restake their assets in a NCN system.
- Node operators:
Entities that accept delegated stake from users and perform operations within a NCN in exchange for economic value.
- Delegation/vault managers:
Providers of Vault Receipt Tokens (VRTs) that analyze NCN’s, node operators, and attempt to manage risk for stakers and/or restakers.
Specification:
This proposal will send 10 million JTO to a 4-of-6 multisig controlled by three Jito Foundation members and three Jito DAO delegates to manage the potential payouts related to the NCN grants program.
The grants will be divided into three categories:
- Development Grants
- Production Grants
- Futarchy Grants
Development Grants: These grants, for up to 75,000 JTO, are designed to cover the initial costs of NCN development and/or to incentivize existing protocols to prioritize NCN deployment.
These grants will be distributed to projects based on a Grants Committee review of proposals. Proposals will be evaluated primarily on the basis of estimated potential future economic value driven to the Jito (Re)staking ecosystem, as subjectively determined by the Grants Committee. A unanimous vote will be required for grant approvals. Grant applicants will undergo a KYC and vetting process, and a full application, modeled after STIP application, can be viewed here.
Half of each Development Grant will be awarded immediately upon successfully passing evaluation from the Committee, while the remaining half will be awarded subject to a vesting period once the relevant NCN launches on Solana mainnet with an arbitrary amount of participating node operators and an arbitrary amount of value initially staked.
The second half of each grant will be vested at the end of a twelve month period from the date of the grant award and can be rescinded in the event of an NCN developer abandoning their project or maliciously attacking the network.
Production Grants: Production grants will be awarded to NCN projects on the basis of economic value generated by a network once the network has gone live. These funds will be specifically earmarked for liquidity or economic security mining.
Economic value will be measured by the amount of fees awarded to node operators, LRT issuers, and restakers by an NCN system in dollar terms, measured at the time of transaction. Production grants will:
- Reward NCN developers with LM funds at a $10-to-$1 basis ($1 in grant funds per $10 in value generated), up to a maximum of $1,000,000 in grant funds.
- Be available for up to one calendar year after the NCN’s deployment to mainnet.
- Become eligible at the milestones of $100,000, $1 million, and $10 million in value generated.
- Become eligible for award immediately upon reaching the relevant milestone.
The 10-to-1 ratio is based on a key set of assumptions:
- On a medium-to-long term time horizon, restakers will be motivated to participate in NCN’s (and in the process take on additional smart contract and slashing risk) by yields in the 0.5%-5% range, depending on the risks associated with the particular NCN.
- Using this assumption as a benchmark, an NCN that has issued $1 million in value over a one-year period likely has attracted a sum of economic security somewhere between $20 million (for 5% yield) and $200 million (for 0.5% yield).
- At a 10-to-1 ratio of incentives granted to economic activity generated, the impact of incentives will rely heavily on how much economic security a particular project has already attracted, but regardless still make a material impact on returns – therefore helping an NCN attract additional economic security, which will ideally attract more users for the NCN and in the end generate more economic activity.
While the north star goal of the Production Grants program is to generate additional economic activity, a 10-to-1 ratio likely also correlates with economic security deposit gains for the NCN that will benefit Jito’s TVL at a favorable rate compared with direct liquidity mining schemes.
An example project progressing through Development Grants and Production Grants:
SuperSolana is a hypothetical SVM L2 that intends to use an NCN of multiple provers to ensure the correctness of its blocks. SuperSolana utilizes both JitoSOL and its native token, SUPER for economic security, and pays rewards to in SUPER.
After receiving a 25,000 JTO Development Grant, SuperSolana is immediately awarded 12,500 JTO and utilizes the funds for development costs. Two months later, after deploying its NCN to mainnet with four node operators and attaining $10m in TVL/economic security, SuperSolana has fulfilled the conditions to begin a one-year vest for the second half of its Development Grant, totalling another 12,500 JTO.
Growing quickly on the back of both SUPER incentive emissions as well as SUPER NCN network fees, three months later SuperSolana exceeds $1,000,000 in SUPER rewards distributed to NCN participants, becoming eligible for a $100,000 JTO liquidity mining grant. A year later, as SuperSolana becomes a highly successful chain, SuperSolana exceeds $10 million in rewards paid, and becomes eligible for a $1,000,000 JTO liquidity mining grant.
Both projects that did and did not receive Development Grants will be eligible for Production Grants. Projects which wish to receive Production Grants will be responsible for tracking their value generated and subsidies paid via native token incentives, and will submit their accounting to the Grants Committee for verification prior to receiving their award distribution. Additionally, recipients will be responsible for disclosing to the DAO their awards.
The Grants Committee will have arbitrary and subjective discretion to decline granting LM budgets to projects it deems either predatory or unsustainable – for instance, an NCN that provides no service and merely inflates the circulating supply of a memecoin to stakers.
For NCN’s to receive production grants, they should not be using NCN token rewards that enable wash/spoofed metrics. The committee will take into consideration each NCN’s own security mining program, and ideally this security mining program should incentivize demand side and not supply side metrics.
Additionally, the Jito Foundation has a number of NCN’s in development internally. None of these funds will be directed to NCN’s developed by any Jito entity, including the Foundation or Jito Labs.
Unspent funds are to be returned to the Grants Committee at the end of a 12-month period from the date of the grant award.
Futarchy Grants: 100,000 JTO will be allocated to Futarchy Grants to be administered by MetaDAO’s decision markets platform. Jito would create a DAO with a base token of JTO, its initial parameters would be 3% for pass threshold and $10,000 in liquidity to generate a proposal. These proposals accept basic instructions: transfer, burn, memo. Of which can affect the DAO, configuration parameters and the Futarchic DAO treasury.
To begin, Jito will elect to place no funds in its treasury until at least four proposals have been produced. The instructions from the proposals are to be adhered to accordingly, but while under experimentation, non-binding.
The goals of these grants will be similar to Development Grants, but leveraging a measured approach to decision markets, a novel approach to governance. A proposal which exists or has existed under Development Grants cannot apply for the same grant under Futarchy Grants. This expresses a commitment from Jito to take innovative approaches to decentralization and support for communities building on Solana.
Benefits/Risks:
Benefits:
- Incentives and grants will help establish Jito (Re)staking at a crucial time in the development of the restaking space. There is a possibility that Jito’s product will be the first to market with full functionality, providing an avenue for Jito to become the leading staking and restaking provider not just on Solana, but across the crypto ecosystem.
Risks:
- It is not a certainty that incentivizing NCN’s will help grow economic activity
- The Grants Committee will have significant, centralized discretion
- Malicious actors may evade the Committee’s oversight and develop schemes to obtain grants with no intention of creating economic value
Outcomes:
The passing of this proposal will result in 10 million JTO being sent to a multisig with the purpose of being issued as grants over a period of one year. If there are unspent funds at the end of one year they will be returned to the DAO.