Solana Validator Business Guide: The highest validator income reached 14 million dollars, but there are also thousands of nodes operating at a loss

Author: Frank, PANews

Recently, Solana has been leading in various dimensions of data. Previously, PANews wrote about the rapid development and landscape of its ecological liquid staking track. Apart from these front-line projects, the validators behind Solana seem relatively mysterious. How much can one earn as a validator on Solana? What level of investment is required? PANews conducted some research on this business.

The consensus mechanism used by Solana combines Proof of History (PoH) and Proof of Stake (PoS). Token holders can stake their tokens with validators of their choice. The more tokens staked with a validator, the higher the proportion of block production led by that validator. At the same time, users participating in staking can also earn block rewards proportionally.

Typically, validators can decide to charge stakers a staking commission of 8% to 10%, while those who choose not to charge a commission and have a stable network are more favored by staking users.

There are two types of validator nodes on Solana: one is the validator node that participates in voting and accounting, and the other is the RPC node. RPC nodes can provide data access interfaces for developers and applications, and the configuration requirements are lower. However, RPC nodes do not directly participate in network validation and thus cannot earn block rewards.

In comparison, validator nodes have higher requirements for hardware bandwidth, memory, storage, etc. Therefore, they are generally deployed in data centers around the world, making it a business that is difficult for ordinary users to access.

Minimum Cost of $60,000 per Year

Specifically, the main costs for validators include the following.

Hardware:

Hardware costs are one of the largest expenses for becoming a Solana validator. According to Solana's official recommended configuration, it requires a 12-core/24-thread CPU, 256GB/512GB of memory, and over 1TB of disk space. This configuration far exceeds that of a typical home computer, especially in terms of memory, where just this item alone costs over ten thousand yuan. Additionally, a stable 1GB transmission bandwidth is required. Therefore, most validators choose to rent servers. According to an article by Helius, the rental cost ranges from $370 to $470. The annual cost is approximately $4,500 to $5,600.

Bandwidth costs are often determined by the amount staked; the more times a validator leads block production, the higher the bandwidth costs.

On-chain Voting:

Solana requires on-chain voting to reach consensus, and the fees generated from these voting transactions are the same as other transactions on the network. In each epoch (432,000 slots), validators need to vote, with each voting transaction costing 0.000005 SOL (voting is a privilege and does not incur related priority fees). This amounts to a total cost of about 2-3 SOL per epoch. Given that an epoch usually spans 2 to 3 days (generally close to 2 days), the annual cost of voting transactions is approximately 300-350 SOL, which translates to about 1 SOL per day. At a price of $182, this part of the cost amounts to approximately $54,600 to $63,700. When the price of SOL is high, this cost typically becomes one of the largest expenses.

Overall, the annual cost on Solana is at least around $60,000. This level of investment is not a small amount for ordinary users, and it does not even include costs related to server operation and maintenance.

Potential Losses

Although the investment is significant, what about the earnings as a validator?

The earnings for Solana validators come from several sources: inflation rewards, block rewards, and MEV.

Inflation Rewards: Inflation rewards are the SOL token rewards earned by participating validators. The initial inflation rate for SOL tokens was set at 8%, with a subsequent annual reduction of 15%. The inflation rewards for validators are also related to the overall staking ratio of the network; the lower the total staking ratio, the higher the staking rewards for validators. The current comprehensive inflation yield is 5.52%. Assuming a typical validator charges an 8% commission, with a staked amount of 10,000 SOL, the annual staking yield is approximately $8,000.

Block Rewards: Each validator has a certain probability of becoming a block leader, and the number of times elected also depends on the amount of staked SOL. Taking 10,000 SOL as an example, the number of times elected per epoch (generally 2 days) is about 11 times. This part of the earnings amounts to about 52 SOL per year (the current average block reward is about 0.0332 SOL), which is approximately $9,400.

MEV Rewards: MEV, or "Maximum Extractable Value," refers to the profits validators can earn by including, excluding, or reordering transactions in the blocks they produce. On Solana, designated leader validators can fully control the packaging and scheduling of blocks. Searchers can send bundles to leaders through an off-chain auction mechanism to be included in blocks while paying a certain tip. If validators run the Jito-Solana client, they can collect this portion of the profit, but this income also depends on how often they are elected as leaders. Currently, the average MEV reward per block is about 0.0427 SOL, and in the Jito client, this income generally needs to be shared with staked users. Assuming an 8% commission, for an annual stake of 10,000 SOL, this part of the income is approximately $970 per year.

Based on this ratio, if the staked amount is only 10,000 SOL, the annual comprehensive cost is at least $60,000, while the income is about $18,370, resulting in a loss of $41,630. It appears to be a business that only incurs losses.

However, this loss is mainly due to insufficient staking of SOL. If the amount of staked SOL is increased to over 32,300 tokens, it can turn losses into profits.

Currently, there are 2,724 validator nodes on Solana, of which 857 validators have a staking amount of 32,300 tokens or more. By this calculation, the remaining over a thousand validators are operating at a loss. However, the Solana Foundation has related support plans; for new validators entering the Delegation Program, if the total staking amount is less than 100,000 tokens, they will match the SOL stake 1:1. Nevertheless, based on this, validators still need to strive for at least 15,000 SOL in staking, and if they are self-funding their stake, this investment currently amounts to no less than $2.73 million.

Maximum Validator Income Reaches $14 Million

For those already established validators, their income has become a sufficient profit. For instance, Helius, which has just become the largest validator, currently manages 13 million SOL in staked tokens. Helius does not charge any inflation or MEV commissions, and this portion of the income is fully returned to staked users. In this case, Helius's block rewards will reach $14.05 million per year. If Helius also charges an 8% commission, the income would increase by another $14 million. Perhaps it is precisely by giving up this portion of income that Helius has attracted more staked users to choose to stake their tokens with them.

Moreover, large validators like Helius do not rely solely on block income; Helius also generates revenue by providing RPC node services and API access. The current subscription standards range from $49 to $999 per month, and Helius has become one of the main RPC service providers in the Solana ecosystem.

Difficult to Profit Solely from Staking

For users staking with such validators, they can typically expect an annualized return of between 6% and 8%. However, this is not a stable return; they often face the risk of SOL token depreciation, potential penalties for unstable validator servers, and the risk that some unscrupulous validators may quietly raise their commission rates to 100%. However, from the data, the current staking ratio on the Solana chain is about 65.7%, which is leading among public chains, suggesting that participating in staking has become a collective choice for large SOL holders. Nevertheless, this investment strategy is only viable in a market where the price of SOL is expected to rise; if the holding cost of SOL is too high, it can easily wipe out all profits and result in losses during a downturn.

Overall, whether in terms of financial reserves or technical complexity, there is a certain threshold for earning income as a Solana validator. However, for those with a certain influence in the ecosystem and financial strength, becoming a validator is indeed a relatively stable source of income. However, the high threshold has led to increasing concerns that Solana may become more centralized or monopolized by a small group. For ordinary users, relying solely on staking and MEV reward sharing is also unlikely to be a reasonable means of mitigating the risks of asset volatility.