By Severin & Ian, MT Capital
TL;DR
Jito is the first liquid staking protocol on Solana that offers both MEV rewards and staking rewards. Over the past 30 days, its TVL has increased by nearly 70%, positioning it to reshape the Solana staking landscape.
Jito will soon launch its governance token, JTO. Early on,JTO’s circulating supply will be limited, with selling pressure coming mainly from airdropped users. JTO has limited use cases and inferior value capture capabilities. Jito needs new incentive programs and ecosystem growth to drive continuous TVL increase, which could ease selling pressure from airdropped users and maintain JTO value stability.
With the influx of new assets and users on Solana, coupled with rising trading volumes and extremely low liquid staking penetration, LSD protocols like Jito are positioned to capture more staking TVL. Solana’s enormous MEV potential also gives Jito ample room to grow.
Compared to Marinade, Jito’s disadvantages in ecosystem breadth, decentralization, and staking model specificity will diminish over time. Meanwhile, Jito’s core competitive advantage in MEV value capture and distribution will expand dramatically with Solana adoption. We are very bullish on Jito’s future prospects to overtake Marinade as Solana’s top LSD protocol.
Jito’s strengthening fundamentals will also boost JTO token prices. Looking at LSD token performance over the past month, we believe JTO could see even more spectacular secondary market gains.
Jito: The First Liquid Staking Protocol on Solana with MEV Rewards
Jito Labs’ Deep Dive into the Solana MEV Realm
Jito Network was launched by the Jito Labs team. Early on, Jito Labs focused on Solana MEV infrastructure. In July 2022, they released the Solana MEV Dashboard, analyzing over 36 billion transactions on Solana for MEV since January 2022. Subsequently, in August 2022, Jito Labs announced a $10 million Series A financing round led by Multicoin Capital and Framework Ventures. The proceeds continue to fund infrastructure optimizing MEV extraction and distribution.
Jito Labs then rolled out products like the Jito-Solana validator client and Jito Block Engine to become a major Solana MEV infrastructure provider. Jito Block Engine links relayers, searchers and validators through off-chain auctions to alleviate MEV issues.
First, Jito Block Engine receives transaction orders from relayers and forwards them to searchers.
Next, searchers submit transaction bundles with bidding prices.
Finally, Jito Block Engine simulates different transaction combinations to find the optimal bundle to forward to validators for processing.
source：https://www.jito.wtf/blog/jito-block-engine-expands-access-to-all-solana-mev-traders/
According to the Validator Health Report: October 2023 released by the Solana Foundation, about 31.45% of Solana validators currently use the Jito-Solana validator client by Jito Labs. This underscores Jito Labs’ technical capabilities in the MEV domain.
With increasing adoption of the Jito-Solana validator client, more MEV rewards are captured on Jito-Solana, laying the groundwork for Jito to launch liquid staking modules with MEV rewards.
The First Solana LSD Protocol with MEV Rewards
Ill-timed launch leading to lackluster JitoSOL performance: In November 2022, right before FTX imploded, Jito Labs officially launched the Jito staking service to ride the popularity of liquid staking protocols. Similar to other LSDs, users receive JitoSOL tokens as liquidity tokens after delegating SOL to validators. JitoSOL prices appreciate over time to reflect earned validation rewards. Thanks to Jito Labs’ early efforts in Solana MEV, Jito also distributes MEV profits to stakers for extra yields. Unfortunately, right after announcing liquid staking, FTX collapsed due to customer fund misappropriation. The closely-tied Solana ecosystem also took a heavy hit with massive liquidity outflows. Thus, despite launching staking modules, lack of market confidence and liquidity demand kept Jito TVL lukewarm.
Points Program bolstering Jito revival: As the Solana ecosystem recovered in the second half of 2023, Jito’s TVL also started picking up gradually. Concurrently in August 2023, Jito launched Jito Points program to incentivize adoption of JitoSOL. Users earn points through activities like staking with Jito, holding JitoSOL, using JitoSOL in DeFi, and referring friends. Points represent contributions to the Jito community and serve as an important benchmark for future airdrops. The launch of the loyalty program markedly steepened Jito TVL growth.
Lido withdrawal accelerating Jito growth through market share capture: Around the same time in October 2023, the Lido DAO community voted to stop supporting new SOL staking deposits, with node operators set to exit the staking market starting November. With Lido bowing out, nearly $6M worth of stSOL needed to find new staking avenues. Jito, offering combined staking and MEV rewards plus a loyalty program, opportunistically onboarded large amounts of stSOL. This further catalyzed Jito TVL growth, propelling Jito to become one of the top 2 LSD protocols on Solana.
source：https://lookerstudio.google.com/u/0/reporting/b41835bc-fafb-46c8-9ade-b012f28a41b2/page/p_7dnjjzu6uc
More Decentralized Jito — StarkNet
To make the underlying validator pool and staked asset allocation more decentralized, Jito proposed the future roadmap for Jito StarkNet. Jito StarkNet is a self-sustaining, transparent, decentralized protocol for intelligently managing validator pools. It consists of three modules — Keepers, Validator History Program, and Steward Program.
The Validator History Program stores historical data for each validator over the past ~3 years, including participation and accuracy in consensus, fee rates, MEV extraction value, total stake value, and staking ranking.
The Steward Program calculates a score and optimal staking allocation for each validator based on on-chain historical records.
The Keepers Network executes staking allocation based on calculations from the Steward Program.
In the Jito StarkNet network, validators’ historical behaviors serve as the sole benchmark for staking allocation to incentivize benign competition and better staking experiences. Also, allocation management no longer relies on centralized governance. Instead, the Steward and Keepers programs autonomously adjust allocations in a more decentralized fashion.
Tokenomics
On November 28th, the Jito Foundation announced the release of JTO governance token. The launch of JTO is a crucial step in Jito’s development, as it will be utilized to reward early contributors through airdrops and empower users with governance capabilities over the protocol.
Token Distribution: Total supply is 1 billion JTO, allocated as:
10% Airdropped to early users
24.3% Community pool governed by the DAO
24.5% and 16.2% to the Jito team and early investors, with a 1-year cliff and 3-year vesting
25% Ecosystem fund
Token Utility: JTO holders can decide on key parameters and governance initiatives like:
Setting fees for the JitoSOL staking pool
Tuning parameters in Jito StarkNet to adjust staking allocation strategies
Managing the DAO’s JTO treasury and fees captured from JitoSOL
Airdrop Incentives: Early Jito adopters stand to earn JTO token airdrops. Specifically,
80% of tokens are airdropped to JitoSOL holders and users
15% of tokens are airdropped to validators running the Jito-Solana client
5% of tokens are airdropped to Jito MEV searchers
Given the token allocation, there will be limited circulating supply initially, with selling pressure coming mainly from airdropped users. As for utility, JTO use cases are currently limited with inferior value capture capabilities. Jito needs new incentive programs and ecosystem growth to drive continuous TVL increase, which could ease selling pressure from airdropped users and maintain JTO value stability to some extent.
Jito’s Future Outlook
Explosive Solana Growth
After lying low in the fallout from FTX’s bankruptcy, Solana is finally seeing signs of recovery. Starting September 2023, Solana TVL kickstarted exponential growth, recently approaching $700M. Moreover, in the latest bull run, top 10 chain monthly TVL increased 14.8% versus a whopping 85% on Solana — far outpacing peers. The influx of assets bodes well for driving up SOL staking demand.
Aside from surging TVL, Solana also hit peaks of nearly 400M in daily transactions. The heightened trading volumes should increase network fees as well as MEV profits to stimulate staking demand for protocols like Jito.
Additionally, Solana also saw increases in new and reactivated users, further expanding the addressable market for LSD protocols like Jito.
Huge Runway for Solana LSD Growth
Despite 70.07% of SOL already staked, liquid staking only accounts for 3–4% — leaving ample room to run. Compared to regular staking, liquid staking offers superior capital efficiency by letting users enjoy staking yields while participating in other DeFi activities with liquidity staking tokens. As depicted below, liquid staking saw explosive growth with the Solana revival. We expect liquid staking to displace more generic staking avenues over time given higher capital efficiency for DeFi activities.
Enormous MEV Potential on Solana
Since Jito distributes MEV profits to JitoSOL holders, higher MEV yields on Solana translate to higher staking rewards for JitoSOL. The boosted APR makes JitoSOL more enticing for users. Over the past year, Solana saw $14M in MEV profits, with ample optimizable MEV left on the table.
As the Solana network thrives, Jito also accumulates higher MEV takings over time. We expect this trend to continue with Jito capturing incrementally more MEV from burgeoning Solana activity to distribute to JitoSOL holders.
Jito Has its Unique Competitive Advantages Compared with Marinade
Marinade, as the earliest LSD protocol in the Solana ecosystem, once disrupted TVL, reaching a peak of 1.7 billion and standing as one of Jito’s major competitors. When compared to Marinade, Jito faces the following key competitive disadvantages:
The ecosystem network of Marinade’s LST is more diverse than that of Jito’s LST.
Marinade has a higher number of validating nodes, resulting in a higher level of decentralization compared to Jito.
Marinade offers additional staking options beyond LSD.
In response to competitive disadvantage 1, as illustrated in the following diagram, JitoSOL is continually expanding its ecosystem use cases and has already integrated with over 10 mainstream DeFi protocols. Moreover, with the solid support of Multicoin, a dedicated player in the Solana ecosystem, Jito is well-positioned to effortlessly expand its ecosystem partnerships in the future.
In response to competitive disadvantage 2, Marinade currently boasts approximately twice the number of nodes compared to Jito, resulting in a significantly higher level of decentralization. This presents a challenge for Jito to surpass in the short term. However, Jito is actively transitioning towards Jito-StarkNet, offering the potential for a substantial increase in protocol decentralization in the future.
In addition to the competitive disadvantages, when compared to Marinade, Jito also possesses the following competitive advantages:
JitoSOL has the ability to capture additional MEV rewards, with staking rewards slightly higher than Marinade.
Under similar incentive programs, Jito can attract a larger number of active users in the current wave of Solana’s recovery.
Jito’s ability to capture and distribute MEV value stands as a core competitive advantage for long-term success. As the Solana network becomes more active, the MEV value will increase, making Jito’s advantage more pronounced. The fact that Jito can attract a larger number of active users also indicates that Marinade has not yet established a monopoly over the LSD market. Similar LSD protocols, including Jito, still have significant room for development.
In summary, compared to Marinade, Jito’s disadvantages in ecosystem breadth, decentralization, and staking model specificity will diminish over time. Meanwhile, Jito’s core competitive advantage in MEV value capture and distribution will expand dramatically with Solana adoption. We are very bullish on Jito’s future prospects to overtake Marinade as Solana’s top LSD protocol.
The stable fundamentals of Jito are expected to drive an upward trend in the secondary token, JTO. Considering the price trends of LSD protocol tokens over the past month, we believe that JTO will also demonstrate a robust performance in the secondary market.
Reference
https://www.jito.network/docs/jitosol/overview/
https://www.jito.network/blog/
https://solana.com/news/validator-health-report-october-2023
https://foresightnews.pro/article/detail/48090
https://www.techflowpost.com/article/detail_14335.html
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