Are there still opportunities for LSD on the Solana chain? These industry dynamics may hide opportunities for 2024

Author: 0xmonomi

In the world of digital currencies, the role of liquid staking derivatives (LSD) is becoming increasingly prominent, especially for those LSD projects that incorporate maximum extractable value (MEV) rewards. These projects have garnered special attention from the market due to their ability to fairly distribute MEV rewards to token holders.

The Solana ecosystem was severely impacted by the collapse of FTX last year, and this blow was not limited to the plummeting value of the $SOL token. Key infrastructure supported by FTX, such as soBTC and soETH cross-chain tokens and the underlying DEX protocol Serum, suffered significant damage due to the collapse, threatening the liquidity and security of the entire ecosystem. This crisis caused Solana's total value locked (TVL) to plummet from a peak of one billion dollars to a low of two hundred million dollars.

Recent price trend of SOL

However, thanks to the tireless efforts of community members and the continued support of the foundation, Solana has begun to gradually recover from its low point. Now, nearly a year after the FTX collapse, Solana has not only witnessed a significant rebound in the price of its token $SOL, but its on-chain TVL has also seen substantial growth, increasing nearly 90% from its low at the beginning of the year to three hundred eighty million dollars.

Data performance of SOL

Amidst this series of challenges, the Jito protocol has undoubtedly emerged as a star within the Solana ecosystem. Especially after Lido announced its withdrawal from supporting SOL staking in October 2023, Jito quickly seized this opportunity. In just over a month, Jito's TVL surged from 57 million dollars to 360 million dollars, an increase of 5.4 times, while the price of SOL rose by 1.5 times during the same period.

Jito has rapidly grown from a TVL of less than 5 million dollars at the beginning of the year to become the second-ranked protocol in the Solana ecosystem by TVL, second only to Marinade Finance, thus writing a new chapter in the digital currency field.

Next, let's take a closer look at the Jito project.

Jito: $10 million Series A funding, introducing a unique MEV reward mechanism

Jito, a leading liquid staking protocol launched by Jito Lab, has established a significant position within the Solana ecosystem. Jito Lab has gained industry recognition for its innovation and successfully attracted investment from Multicoin Capital and Framework Ventures in August 2022, with support from Solana Ventures and Solana Labs co-founder Anatoly Yakovenko, raising a total of 10 million dollars in Series A funding. This achievement marks Jito's strength and potential in the cryptocurrency space.

Jito has introduced a unique MEV reward mechanism on the Solana platform, allowing it to stand out among numerous liquid staking protocols. Unlike other protocols, Jito offers stakers additional MEV rewards beyond regular staking returns, making it particularly popular among users. Jito Lab is not limited to focusing on traditional liquid staking models; it has also made breakthroughs in the MEV space, becoming the first team on Solana to launch a dedicated third-party validator client, Jito-Solana. The unique architecture of Jito-Solana not only effectively captures MEV profits within the Solana network but also significantly reduces the risk of invalid transactions and network attacks, enhancing the overall stability of the Solana network.

The Jito-Solana client adopts a Flashbot auction mechanism similar to that on the Ethereum mainnet, changing the way traders submit and bid for profitable transaction sequences. Through complex simulations by a third-party block engine, this mechanism can accurately select the most valuable transaction combinations and fairly distribute the profits to validators and token holders (JitoSOL), effectively reducing the occurrence of transaction dust attacks while providing additional rewards to token holders.

The launch of Jito not only provides a solution to the MEV issues on the Solana chain but also greatly alleviates network congestion and related failure issues. In the context of Lido exiting the Solana staking market, Jito is expected to attract more liquidity, further solidifying its leading position within the Solana ecosystem.

How users can profit from Jito, be sure to read the following guide carefully

To deeply understand the technical features of the Jito protocol, one must first grasp the source of maximum extractable value (MEV) rewards. MEV is a unique phenomenon that exists within blockchain networks, where validators and network participants can extract additional value on the blockchain by rearranging or reviewing transactions. This concept is crucial for the operation of the Jito protocol.

The Jito protocol optimizes the extraction and distribution of MEV rewards through its Jito-Solana validator client, a tool developed by the Jito Foundation with publicly available source code. The core component of this client is Jito Labs' block engine, which is responsible for processing transaction data received from relayers and forwarding it to searchers. Searchers receive and process this data to form bundles, which are sequences of transactions executed in order. The Jito Labs block engine then simulates these bundles to select the most profitable transaction combinations, sending these transactions to validators for execution. During this process, the Jito Labs block engine charges a 5% fee on all MEV rewards.

Users in the Jito protocol earn JitoSOL by depositing SOL. The Jito Stake Pool then delegates these SOL to validators that support MEV. These validators auction block space to earn MEV rewards, which are then distributed as additional annual percentage yield (APY) to the Stake Pool, allowing users to gain dual returns from staking and MEV rewards.

As for the profit model of JitoSOL, it charges a 4% management fee from the total rewards (including staking and MEV rewards, after deducting validator commissions). Jito points out that this amounts to 0.3% of the SOL value deposited annually. This fee is deducted from the MEV income after staking rewards and validator commissions. If users withdraw through the Jito website, an additional 0.1% fee applies. This arrangement allows JitoSOL to provide users with staking returns while also generating additional income from MEV rewards, creating more profit opportunities for users.

34% of the total JTO tokens allocated for community development, 10% to be airdropped on January 1

Jito recently made a significant announcement regarding the launch of its governance token JTO, aimed at enhancing community participation in the management of the Jito network. This initiative reflects Jito's emphasis on a community-driven governance model, intending to empower community members to directly influence the decision-making and development direction of the Jito network through the introduction of the governance token. The Jito Foundation emphasized the importance of this governance token in its statement, demonstrating their commitment to empowering community members to participate in network governance.

Jito tokenomics

This decision by Jito is backed by its growing influence within the Solana ecosystem. According to a report from the Solana Foundation, a significant amount of staking activity is conducted through Jito Labs' client. Recently, the Jito Foundation further announced that the Jito MEV validator network currently supports over 40% of the staking weight on the Solana network, showcasing Jito's importance and influence within the Solana ecosystem.

Regarding the economic model of the JTO token, Jito has set a total supply of 1 billion tokens. These tokens will be involved in various aspects of the Jito network, including setting fees for the JitoSOL staking pool, updating StakeNet parameters, formulating proxy strategies, overseeing revenue, and managing the DAO treasury. The initial circulation will consist of 115 million JTO tokens. The token distribution plan reflects Jito's consideration for different stakeholders: approximately 34% of the tokens are reserved for community growth, 25% for ecosystem development, 24.5% allocated to core contributors, and 16% for early investors.

Jito will airdrop 10% of the total supply of JTO tokens on January 1 next year, aiming to reward users who have made significant contributions to the network's ongoing growth. This includes long-term holders of JitoSOL, users who utilize JitoSOL across various DeFi protocols, Solana validators operating the Jito-Solana MEV client, and searchers actively using Jito network MEV products. Through this approach, Jito hopes to incentivize community participation and contributions while enhancing the decentralization and transparency of its governance structure.

Can a decentralized on-chain financial network be realized? The future potential of Jito is worth关注

As a key player in the Solana ecosystem, Jito's pursuit of decentralization has always been a consistent theme throughout its development. Currently, although Jito's stake pool management relies on a certain degree of centralized mechanisms, its recently proposed Jito StakeNet plan indicates that Jito is moving towards true decentralization and technological innovation.

The design concept of Jito StakeNet aims to create a self-developing, transparent, and fully decentralized network. The core of this network consists of keepers and on-chain programs dedicated to building and maintaining smart staking pools. This initiative signifies Jito's firm steps towards decentralization, bringing new vitality and development direction to the entire Solana ecosystem.

Types of tokens in the Jito staking pool

Jito's development trajectory, from its initial protocol launch to the maturity of JitoSOL and the introduction of the governance token JTO, showcases its role as an innovator and market leader. The concept of Jito StakeNet further deepens this image, highlighting Jito's pioneering position in promoting blockchain technology innovation and decentralized applications.

Looking ahead, Jito has immense potential in achieving and promoting true decentralization. With continuous technological innovations and the ongoing growth of its community, Jito could become a model for blockchain technology and decentralized practices. The future of Jito is not only significant for the Solana ecosystem but may also have a profound impact on the broader blockchain space. With Jito's efforts, we can anticipate the arrival of a more efficient, transparent, and decentralized digital currency world.