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A | Bankless nation welcome to this exploration of Jitto. Jitto is a Solana validator client, a staked soul token called Jito Soul, and an mev optimization engine, all built into a single software suite, which we call Jitto. Recently, the Jito airdrop shook the entire crypto industry as $200 million worth of Jito is distri... |
B | Hey, thanks for having me. Excited to be here and talk more about Jito and Solana. |
A | Yeah, there's a number of different ways that I think Jito nerd snipes people. One is from the mev side of things. One is from the Solana latency hardware networking side of things. Another one is just from the economics side of things. And I think that's the way that I approach to Gito is like the economics conversati... |
B | Yeah, it was super exciting, very overwhelming. We didn't expect it to go this well. I think it went much better than we could have ever anticipated. I think there's a lot of people excited about participating in judo governance, and there's a lot of other protocols that are looking to decentralize very soon on Solana.... |
A | So one of the reasons, I think, why the Jito drop was so significant is because Jitto isn't just an app on Solana in the same way that Lido is not just an app on Ethereum. Like, these things relate to the protocols that they stand upon. And so that's one of the reasons why I think this airdrop mark made such a signific... |
B | Yeah. So Jito Labs builds infrastructure to efficiently extract Mev on Solana. There's a lot of spam and arbitrage transactions that are failing on Solana. And we predicted this would happen back in 2021 and wanted to work on solving it. So Jito Labs built a lot of mev infrastructure, created the Jito Solana client, wh... |
A | The Jito soul liquid staking token for the Ethereum, familiar people out there, that's like the staked ETH from Lido or the Reth from rocket pool. But the interesting thing about Jito is that it's. That is stacked upon a client. And so in Ethereum, we have things like prism from prismatic labs, we have lighthouse nimbu... |
B | Yeah. So, yeah. Anyone? It's a little. The staking on Solana is a little different than Ethereum. So anyone can run the Jito Solana client. Actually, like currently, today, there's like 46% of Solana stake running the client, over 300 validators, and roughly $14 billion of sole stake to the client and stake pool. Becau... |
A | Can you talk about just the synergies between this tech stack? Because some parts of it just make a lot of elegant sense there, like having a client that also is Mev optimized, relating to a staked soul token. All of these things kind of makes sense. Can you put these pieces together for us? |
B | Yeah, I think there's definitely a lot of overlap. I think liquid staking tokens are a really good opportunity to decentralize stake on Solana. That can be geographic decentralization, client decentralization, and all the other types of decentralization that existed. I think Jito Sol does pretty well at that. Helps boo... |
A | Can we stop and unpack why the existence of a staked Sol token adds to the decentralization of Solana? Can you unpack that? |
B | Yeah. So, typically what stakers will do is they will go to their phantom wallet or soulflare, some other wallet on Solana. They go through the validators. They want to stake their soul. They'll just choose one validator to stake that to. They're staking that to one validator. It's not spread across a network of valida... |
A | Okay, so if I just have Sol in my phantom wallet, my Solana wallet, I could just delegate that soul to a single validator, and then I would start to get some of the issuance of Sol and some of the fees of, of Solana, just because that's what that validator provides me, which is, which is a step towards decentralization... |
B | Yes, correct. And yeah, theres an algorithm thats currently running and that ill transition to stake net, which I think well dive into in a bit, assuming that the Cheeto governance wants to switch over to Stakenet, and basically that will allow the protocol to, if it sees a validator is performing poorly, or maybe you ... |
A | I think if we were talking about a standard staking pool system on Solana, everything that we've talked about thus far is more or less like table stakes. Like you have a system for spreading out Sol so that no one validator is enshrined and you kind of load balance based on metrics to optimize for things. This is all k... |
B | Yeah, we ran some numbers close to a year ago. I think the numbers last I checked were pretty similar, but 98% of arbitrage transactions on Solana fail, and there's roughly 56% of compute wasted executing these failed arbitrages. So if you go on a Solana block explorer and you look at the transactions, you'll see all t... |
A | Can we go into why there is so much spam and so many failed transactions on Solana? And this is just a product of Solana being such a high throughput, low latency chain. Correct. Can you talk about why there is this incentive for traders and arbitrageurs to send out so many transactions? |
B | I think the one thing is that it's really cheap for transactions. So I think it's like a hundredth of a penny per transaction. So there's not really, like, you know, if someone has a failed transaction on Solana, it's not going to cost them a lot of, compared to Ethereum, where if you have a failed transaction, then yo... |
A | Right. $100 to try and get $5 of revenue. So it really costs you to make that failed transaction. |
B | Yeah, also, the price of the transactions is so low that there's just so many microscopic arbitrages available. So the price of this, as I mentioned earlier, the price of a transaction is like 100th of a penny. So, basically, if there's any profit over 100th of a penny available on Solana, an arbitrager is going to cap... |
A | Work on that for the reasoning behind why so many of these transactions are failing. Is it because I'm an arbitrage, uh, arbitrager, and I really just want my transaction in. And because it's so low cost, I'll send out 10,000 transactions, and only one of them will work. And then. Then nine 9999 will. Will fail? Or is ... |
B | Yeah, I think you hit both points. There's a lot of arbitrageurs on Solana. I think there's a few hundred at this point, or at least there's a few hundred signers TBD on how many entities are running those signers. So there's a lot of arbitrageurs. I think arbitrageurs will typically send their transaction more than on... |
A | How does Jitto produce fewer failed transactions? |
B | Yeah, so we provide searchers opportunity to bundle those transactions. |
A | Cant they just do that themselves? Can they just bundle up a transaction and send it to them? Just to vanilla Solana. |
B | So the vanilla salon and validator doesn't support bundles. Another thing is that the, yeah, so the bundles are feature specific to the judo Solana validator. And so yeah, another thing is that there's like a very, very short lived mempool in the block engine. Basically, this lets searchers see these opportunities befo... |
A | Yeah, that seems like a pretty big engineering lift. Let me try and put that into Ethereum words so that the Ethereum people can interpret that for the people who aren't familiar with Solana. So Solana has this local fee markets, right? And this, I think, is downstream of that conversation. So like, if this was in Ethe... |
B | Yeah, that was perfect. I couldn't have explained it any better. Yeah, I think you hit the nail on the head. It's kind of like the. Yeah, yeah, I think you hit the nail on the head. It's kind of like the parallel fee markets on Solana, basically kind of applying a similar concept in the block engine. I think getting in... |
A | Right. And all the point of this is to say that once Jitto is done doing its work, it's produced the highest value block possible that it could produce, because it has. It's like a pre processing layer for Solana. Right. It almost is kind of like, in a way that I know the engineers of Solana don't like my more imaginat... |
B | Yeah, for sure. It's kind of like a. It's like an optimization layer for validators to build more efficient blocks. I think the one thing is, on Ethereum with PBS, you have the builders are actually building the entire block. And so you run into some issues there, like, a lot of the potential censorship issues where Ji... |
A | And the reason why I want to spend so much time on this is, a, because it's interesting and worth noting, but also b, because it's kind of the tip of the geo stack. Like, what is Jitto? It is delegated staking. It is a staked soul token. Judo soul. But it really, again, like I said, really, the shining part of judo is ... |
B | Yeah, so Jito soul is a reward bearing liquid staking token, so on. I think on ethereum, like lido, it's a rebase, so they will kind of credit you more staked eth when you receive the rewards. On solana, all of the liquid staking tokens are reward bearing. So the price of Jito soul and liquid staking tokens as a whole ... |
A | People run the jitto client because it optimizes MeV extraction on their behalf. Right. I have enough technical chops to be able to download a client and run it, but I do not have enough technical chops to be able to run an MEV botanical roughly about where my line is. Uh, and so, like, for me as an individual, if I co... |
B | So, yeah, we want to make sure that, like, everyone can have opportunity to do this and access to it. Clients open source, it's permissionless. Anyone can connect to the block engine and start receiving these bundles. And there's kind of this marketplace of searchers and traders that are available that we, we kind of, ... |
A | Can we talk about the way that the economics of Jito impacts Solana? And so maybe we can start with how much of the MEV is being able to be pocketed by Arbors versus how much of that MEV is getting sent into the Jito soul token. So what's that? Pie split? There's a bunch of value being created here eventually, value be... |
B | So, yeah, basically anyone can run the Jito Solana validator client. The way it works is that when there is a tip that's sent to the block engine, we try to optimize the tip for a given set of state that is running the auction. That tip will then get paid out to these programs. The program will kind of split the fee th... |
A | Okay, so that was four 5% to judo labs, 4% to the judo treasury. And those two numbers are correct. |
B | Yeah. So the 4% to the judo treasury is just the 5% to Jito labs is on all mev, and then the 4% to the treasury is just on the soul that the Jito soul stake pool manages that portion of mev. |
A | Understood. Okay. And then the large majority is just sent to either the Jito soul or validators who run the Jito client. Correct. |
B | So majority, I guess the majority of it gets sent to the validators, these stake accounts on the validator. And if the GSL stake pool is staking to that validator, then it will receive it in that stake account, which basically funnels back up into the pool. So it's not like, I guess, to the Gito soul protocol is not li... |
A | With the geo client and the mev optimization and building the block, how so? I guess the question I really want to know is, what is the value capture difference between just, like, staking and deli, or delegated staking your soul to a validator versus holding judo soul, because judo soul captures some of the mev. Corre... |
B | So, yeah, I think the, the yield is pretty similar between the two. So if you go to, like, Solana compass or something like that, the yield is currently roughly around, you know, 6.86.9%, pretty similar to staking to normal validators. I think normal validators are maybe a little bit higher because there's not the 4% f... |
A | So you actually make less money holding Jito Sol due to the 4% fee that you talked about earlier than you would if you had just staked your Solana directly to a validator. But then the nice thing is that you can go and use your Jito soul inside of Jito inside of Solana defi, which if you can somehow find a way to get m... |
B | Correct. Yeah. There's a lot of exciting opportunities going on in Solana defi, and not financial advice, but there's certainly ways to use that Jito soul and other liquid staking tokens to kind of get higher yield. |
A | Okay. And since the Jito drop, like I kind of said at the beginning, the activity in Solana has just jumped in a very, very big way, and fees on Solana have started to actually show up. Does that impact the economics of Jito soul, or is there kind of like, a wall where that doesn't really. The fees and mev opportunitie... |
B | Yeah, we're definitely seeing the beginning of it. I think it's kind of the first inning. So, yeah, the MeV system has made, I think, 50 or over 50% of all fees, and Mev have been made in the last two weeks compared to the previous year. So there's been a lot more trading activity. I think the interesting thing is that... |
A | Right? I guess, yeah. I guess I'm wrapping my head around the fact that just these economics between Ethereum and Solana are just fundamentally different at the transaction level, because Ethereum is all about passing value down to eth stakers, because it is the widest, largest, most accessible and most decentralized p... |
B | Yeah. So there's, I guess there's a few ways that it passes on to ethereum stakers. Uh, correct me if I'm wrong here, it's been a while since I looked at the ETH economics in detail. Um, but you know, there's, there's EIP 1559 and that burns the, the base fee. It's dynamic based on usage. |
A | Right. And that, that goes to everyone, not just stakers, that goes to just eth as an asset. |
B | And then you have the, um, I think they, they call them the priority. Is it the priority fee or the tip? Yeah, there's the tip. So yeah, the tip goes to the stakers or basically the stake on that validator. So yeah, it's a little different on Solana, the base fee, 50% of it gets burned, 50% goes to the validator operat... |
A | Oh, okay. So, wait, so is there really any difference between the economics of a base fee versus the economics of a priority fee on Solana, other than, like, one is required and the other one is just gets you higher in the list today? |
B | No, I think that needs to change. I think the fact that the priority fee is burned, I think, is one of the shortcomings in the protocol, but I think that's pretty easy to fix. I think priority fees have the incentive to. They can potentially incentivize out of band payment. And if I'm a validator, hey, I want you to pa... |
A | Well, to me, that is exciting, because, like I said at the start of this episode, I think the economics question, the economics conversation of Jito, is the most interesting one. And I think the most interesting thing about Ethereum was the arc of its economics over time. Like, I got into Ethereum when the economic, th... |
B | Yeah, there's a lot of conversations are happening in discord, in the. There's a Solana tech discord. There's some happening in telegram. It's kind of. It's decentralized. Pretty decentralized right now. So there's a lot of conversations happening in a lot of different places. I think, ultimately, people are trying to ... |
A | I think with that bit of conversation right there, we start to open up the rabbit hole of Solana governance, because now Solana governance is a conversation because there's newer clients of Solana. And when there are multiple clients of Solana, all of a sudden what Solana is is no longer determined by one single client... |
B | Yeah, so the, the Jito foundation just released the governance token. JTO allows the token holders to participate in governance. And the Judah network, as we've kind of gone over, has its hands in a lot of things. And I'm pretty excited to see people participate in governance here. Right now it's the governance control... |
A | Let's unpack stakenet really quick. An open source delegation strategy, what is that and why is that important infrastructure for Jito? |
B | Yeah, I think it will be like the most assuming that the Jito token holders and governance vote to kind of transfer the running of Jito sole stake pool to stake net, I think it will be the most decentralized stake pool in existence. Basically what stake net is an open source delegation strategy that runs on Solana. Bas... |
A | The way I kind of see Stakenet, from what you described, is kind of like the brain of Jito. Uh, where you're, you're, since Solana is a, uh, you know, a system that you can put data on, you're taking all the data about the state or health of Solana validators that are part of the Jito system, and putting that on chain ... |
B | That's perfect way to articulate it. Basically, all the data that Steakna uses, except for one, I think there's one piece that isn't available on chain. All of it is copied from backing up. I guess a lot of the data that we're referencing is in what's called a vote account. A vote account lives on chain. If you remembe... |
A | And the reason why we like this product, this component of the Jito system, Stakenet, is that because we prefer things to be governed by code, we have this code, this open source code system, to be a manager of the Jitto tech stack. And the only way that humans get involved is when, like, somebody is writing an alterna... |
B | Yeah, I think that's super important because all stakenet lives on chain. I think you can have stakenet interact directly with governance, so you can build your own governance platform or potentially have a reference realms and actually have it be the stake pool can be directly controlled by governance, all on chain, m... |
A | Would you say that that's the main governance, um, lever or vector inside of the Jito system, or just. Or is that just a pretty big part of it? But there's other things that are relevant to Jito governance as well that we need to discuss. |
B | Um, I think that that will be a main piece of governance moving into 2024. I think there is some more flexibility with stake pool fees. Um, so token holders can kind of look and do more fee math if they want to, and, um, you know, figure out if the fees need to go up or down. I think there's also the 240 million judo t... |
A | All right. And now Jito is a part of Solana governance at large. So there's judo governance governing Jito, but then there's Jito that has its share of Solana governance. Lucas, can you talk about just, like, why Solana needs governance and where Solana is in its, like, arc of its own internal governance conversations.... |
B | Yeah, I think up until this point, I think there's been a few parties involved with governance on Solana. And similar to ethereum, you kind of have. I don't think, as far as I know, there hasn't been any ethereum votes. There's this soft governance going on where they have core devs and the client teams and the stake p... |
A | Yeah, I was at that one panel about Solana governance at breakpoint, and it seemed just pretty obvious to me that these conversations, people weren't used to having these conversations, and they didn't know how to think about these conversations. And so it's just, I think the Solana community at large, learning about a... |
B | Yeah, I think there's, there's definitely. I think it's. It's still pretty early in Solana governance. I think there's a lot of opportunities to learn from other ecosystems here on what has worked and what hasn't worked. There's a lot of governance experiments going on, and then there's some pretty long running governa... |
A | Well, Lucas, I've learned a lot in this episode, so thanks for coming on bankless and teaching me and a lot of the listeners all about judo and Solana, just, like, zooming all the way back out. I think most people ask these questions at the very beginning, but I like to ask them at the very end. Um, what got you starte... |
B | I really resonated with Anatoly and the team's vision on Solana. I come from a computer engineering and firmware background, so working in, like, pretty low level c c code on, like, very resource constrained devices. I love making code run faster. I love making code use less resources. Its like what I went to school fo... |
A | Do you have any perspectives as to what the Ethereum community or outside of Solana communities or, I don't know, the eth Maxy podcasters, what they don't understand about Solana or what they misrepresent about Solana the most? |
B | I think the centralization narrative of Solana, I think that's massively overblown. I think the. There's, like, thousands of validators running in Solana all across the world. And so I think from, like, a server and, like, geopolitical and geographical standpoint, the network is extremely decentralized. I think that. M... |
A | Sure. Interestingly enough, I'm actually about to have Anatolia on the podcast later today, in about an hour, actually. And I'm going to ask him the same question, but I'll ask it to you as well. But it'll be a question in the form of a monologue, if you. You will, so spare me. Nick Carter. Once upon a time, on an epis... |
B | I think it is. I think there's. There's a lot of. There's a lot of validators that are outside of the US. And so, you know, they validators can kind of make their own choices. You know, people have different opinions on whether they should respect the rules of the us government or not, based on if they're in the US or ... |
A | Well, Lucas, I wouldn't wish the ire of OFAC on any ecosystem, but also I kind of do, because it means that ecosystem is doing extremely, extremely well, and it is kind of like the final boss. And the more chains that we can go battling the final boss, the better. So in some weird, sick way, I do wish the Solana ecosys... |
B | Yeah, so one of my favorites is the Jitto bundle Explorer. So that's explorer Jitto. WTF? You can see all of the bundles that searchers and traders are submitting. Super cool to see. Like, you know, it's doing over 100,000 bundles a day, so there's a lot of cool information in there. Another one is there's some dune da... |
A | Well, Lucas, we will get all of those links in the show notes for the bank listeners. Lucas, thanks for coming on, my man. I learned a lot, and like I said, the economics conversation around Solana, I think, is going to be a very interesting one to track, especially this bull market. While Solana gets new levels of str... |
B | Thank you. Thanks for having me. It was a pleasure. |
A | Bankless nation, you know the deal. Crypto is risky, Ethereum is risky, Solana is risky. Tech. Stacks of this nature, they're all risky. You can lose what you put in. We are headed west. This is a frontier. It's not for everyone. But we are glad you are with us on the bankless journey. Thanks a lot. |
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