Author: Frank, PANews

Fairness and transparency of transactions in the crypto world have always been one of the core issues. In the Solana ecosystem, the recent phenomenon of MEV (maximum extractable value) has attracted widespread attention. MEV involves miners or validators gaining additional benefits by manipulating the order of transactions, which not only threatens the fairness of transactions, but may also affect the overall security of the network.

On June 10, the Solana Foundation announced that due to some validators participating in the "sandwich attack", more than 30 validators, mainly Russians, have been removed from its delegation program. In addition, Solana co-founder Anatoly Yakovenko proposed on Twitter that increasing competition among block producers could be a potential solution to the MEV problem.

However, the community's focus does not seem to be on solving the MEV problem. Instead, the Solana Foundation's direct removal of validators has raised questions about its centralization.

Fighting MEV through blacklisting

MEV refers to the ability of miners or validators to gain additional benefits by manipulating the order of transactions on the blockchain, inserting their own transactions, or delaying specific transactions. The well-known clamp robot and "sandwich attack" refer to the unfair competition of MEV transactions. Sandwich attack is a typical MEV attack method. The attacker places two transactions around the victim's transaction to manipulate the price and profit from the price difference. This attack often causes huge losses to the victim.

The MEV problem on Solana began to emerge in this round of bull market. On April 28, the data platform Blockworks Research announced that the MEV revenue on Solana has exceeded that of Ethereum. This data will be almost negligible before November 2023. On April 5, data revealed that Solana's transaction failure rate reached 75%. Behind this phenomenon is also the fact that MEV robots sent a large number of arbitrage exchanges.

Previously, Solana only paid 50% of the transaction fees to validators, which effectively curbed the generation of MEV. Because every transaction has a cost, if the profit is not high, then the validator will not have much motivation to participate in MEV transactions. However, with the active transactions on the Solana chain and the rise of MEME, arbitrage attackers can ignore the loss of transaction fees on the premise of having more benefits.

On May 28, the Solana validator community voted to approve the Solana Improvement Document (SIMD)-0096 proposal, which sends all transaction priority fees to validators. Now 100% of transaction fees are allocated to validators. Some skeptics believe that this will lead to validators colluding with transaction initiators to make fake transactions (reducing the cost of doing evil), which will further lead to the emergence of more MEV. (Related reading: Solana votes to reward validators with 100% priority fees, and community disputes continue to highlight governance issues)

After the Solana Foundation kicked the MEV validators out of the delegator program, it seemed that these validators did suffer losses. According to stakeview data, the staking income of multiple validators in Epoch 627 was reduced by 99%.

Is the Solana Foundation the largest “shareholder” of validators?

Why can the Solana Foundation have such a big impact on validators? The main reason behind this is related to the design of Solana's native proof-of-stake system. Its operating principle is as follows: In this operating system, the main participants are delegators and validators.

Among them, any user holding SOL tokens can become a delegator and stake their tokens to the validator through delegation. The delegator obtains staking rewards by staking tokens, and the validator can obtain commissions and block rewards.

Staking rewards come from Solana's inflation tokens, which are distributed to staked accounts. Validators can set a certain percentage of commissions to share the benefits of staking rewards.

Blockchain rewards come from transaction fees. In the original plan, 50% of the rewards were given to the validator, and the remaining 50% were destroyed. In addition to normal transaction fees, Solana can set additional priority fees. By paying this fee, the priority of the transaction can be increased, thereby shortening the execution time. The current MEV problem is also mainly due to this priority fee.

In order to participate in the transaction accounting process through voting, validators normally need to stake a certain amount of SOL to start running. However, due to the high cost of the initial startup of the Solana node, the Solana Foundation launched the Delegation Program to stimulate the participation of more small and medium-sized nodes. The main content of this program is divided into two parts. One is to give US dollar rewards to qualified validators. Each validator node can receive up to US$250 per month. The second is that the foundation directly provides validators with the tokens required for staking. The more than 30 validators who were punished this time were kicked out of this plan, so in essence, this does not mean that these MEV nodes that have been removed can no longer obtain rewards by verifying the network, but have lost the support of the Solana Foundation.

There is currently no public data showing what percentage of tokens among validators come from the Solana Foundation. In October 2023, a researcher @arixoneth said that of the total 106 million SOL pledged, about 73% came from the Solana Foundation. According to the data of the Solana Foundation, all qualified validators can join the delegator program.

Centralization issue, a bigger challenge?

Unlike Ethereum's way of improving MEV through layer2 networks or improving EVM, the Solana Foundation's practice of directly kicking out malicious validators in the delegation plan has raised concerns about the centralization of the foundation. In addition to the Solana Foundation, Jito DAO, the largest stake pool on Solana, also proposed a governance proposal on June 10 that would create a blacklist of malicious validators and exclude them from Jito's stake pool.

A KOL commented on this matter, “The Solana Foundation has removed some validators to verify Solana. This is ridiculous! Unauthorized? Decentralized? What a joke! Solana solves MEV! They are just scammers and another group of scammers.”

In addition to the direct kickout of validators that has raised questions about the ecosystem, on May 28, the validator community voted to approve the Solana Improvement Document (SIMD)-0096 proposal. During this proposal, many small and medium-sized validators criticized the governance process for being too centralized and satisfying a small number of stakeholders. Some members said that in this proposal, the biggest beneficiaries are the validators, and the voting weight is also determined by the large validators. Therefore, this is a round of voting in which "a small group of people decide the fate of millions of people." The voting result directly doubles the validator's income and will increase the inflation rate of the SOL token. However, only 51% of the ticket holders voted during the voting process, and the voting rights were all represented by the validators.

Solana co-founder Anatoly Yakovenko suggested on Twitter that increasing competition among block producers could be a potential solution to the MEV problem. However, the comments section was not convinced, with one comment joking: "Or let the Solana Foundation remove the validator directly from the blacklist."

The MEV problem on Solana may be alleviated in the short term, but in the long run, governance still needs to face the problem and build a more reasonable governance structure.