TL;DR

Jito is the first liquidity staking protocol on Solana that combines MEV earnings with staking rewards. In the past 30 days, its Total Value Locked (TVL) has increased by nearly 70%, potentially reshaping the Solana staking market landscape. Jito is about to launch its governance token JTO. Early on, there will be a limited circulation of JTO on the market, with the main selling pressure coming from airdrop users. JTO’s use cases are relatively limited, and its value capture capability is weak. Jito needs new incentive measures and ecosystem expansion to stimulate the continuous growth of Jito TVL, thereby alleviating the selling pressure from airdrop users to some extent and maintaining the stability of JTO value.

Backed by the influx of new assets and users to Solana, along with the rise in transaction volumes and Solana’s very low liquidity staking ratio, LSD protocols represented by Jito are expected to capture a higher staking TVL. Solana’s potentially immense MEV value gives Jito a broader scope for imagination. Compared to Marinade, Jito’s gap in ecosystem composition, decentralization level, and single staking model will continue to narrow as Jito develops. Meanwhile, Jito’s core competitive advantage in capturing and distributing MEV value will expand as the Solana network thrives. Therefore, we are very optimistic about Jito’s future and expect it to surpass Maridane as the leading LSD protocol in the Solana ecosystem.

The steady improvement of Jito’s fundamentals is also expected to drive up the price of its secondary token, JTO. Looking at the price trend of LSD protocol tokens in the past month, we believe that JTO will also perform strongly in the secondary market.

Jito: The First Solana Liquidity Staking Protocol with MEV Earnings

In-depth Exploration of Solana MEV by Jito Labs

Jito Network is launched by the Jito Labs team, which initially focused on the infrastructure of Solana MEV. In July 2022, Jito Labs released the Solana MEV Dashboard, which categorized and analyzed over 36 billion transactions on Solana since January 2022. Subsequently, in August 2022, Jito Labs announced the completion of a $10 million Series A funding round led by Multicoin Capital and Framework Ventures. The funds raised will continue to be used to build optimized MEV infrastructure.

Following this, Jito Labs successively launched the Jito-Solana validator client and Jito Block Engine to optimize MEV extraction and distribution, becoming another important infrastructure service provider in the Solana MEV field. The Jito Block Engine connects relays, searchers, and validators in the network through off-chain auctions to address the MEV issue.

Firstly, the Jito Block Engine receives transaction orders from relays and forwards them to searchers.

Next, searchers submit transaction bundles that include bids.

Finally, the Jito Block Engine simulates each transaction combination, finds the optimal transaction bundle, and forwards it to validators for processing.

According to the Validator Health Report: October 2023 released by the Solana Foundation, approximately 31.45% of Solana’s validator nodes currently opt to use the Jito-Solana validator client developed by Jito Labs. This reflects Jito Labs’ technical proficiency in the MEV domain.

With the increasing adoption of the Jito-Solana validator client, the MEV rewards captured through it have also grown, laying a solid foundation for Jito to launch an LSD module featuring MEV rewards.

The First Solana LSD with MEV Earnings

JitoSOL, born at an inopportune time, struggled to make significant progress: In November 2022, just before the FTX collapse, Jito Labs officially announced the launch of the Jito staking service. Similar to other LSD protocols, users delegating SOL to validator nodes receive JitoSOL as a liquidity certificate. The price of JitoSOL continuously rises to reflect the node validation rewards earned. Benefiting from Jito Labs’ early efforts in the Solana MEV space, Jito was also able to distribute MEV earnings to stakers, further enhancing staking returns. Unfortunately, Jito’s announcement of the LSD staking service coincided with the FTX collapse due to misappropriation of customer funds. Solana, closely tied to FTX, couldn’t escape the turmoil and experienced a significant liquidity drain. Therefore, post-launch, Jito’s TVL (Total Value Locked) remained tepid due to a lack of market confidence and liquidity demand.

Point Incentive Program Aids Jito’s Recovery: With the Solana ecosystem’s revival in the latter half of the year, Jito’s TVL began to gradually increase. In August, Jito also launched its own point incentive program to promote widespread adoption of JitoSOL. Users could earn points by participating in Jito staking, holding JitoSOL, using JitoSOL in DeFi activities, and inviting friends. These points represent a user’s contribution to the Jito community and are considered an important criterion for future airdrops. The launch of this incentive program led to a more pronounced growth in Jito’s TVL.

Jito Capitalizes on Lido’s Exit, Gaining Market Share: In October, Lido DAO decided to stop supporting new SOL stakes following a community vote, with node operators beginning to withdraw from the SOL staking market in November. Lido’s withdrawal necessitated the repositioning of nearly 6M worth of stSOL. Jito, offering both staking and MEV rewards, along with the point incentives, naturally absorbed a significant amount of stSOL, causing Jito’s TVL to surge and making it one of the top two LSD protocols on Solana.

More Decentralized Jito - StarkNet

To make the management of the underlying validator node pool and the process of handling changes in the staking pool amount more decentralized, Jito has proposed the future development plan for Jito StarkNet. Jito StarkNet is a self-sustaining, transparent, and decentralized smart management protocol for validator node pools. Jito StarkNet mainly consists of three modules: Keepers, Validator History Program, and Steward Program.

The Validator History Program stores the historical data records of each validator node for the past three years. This includes data on the validator node’s participation and accuracy in the consensus process, commission rate, MEV (Maximal Extractable Value) extraction value, total staking value, and staking ranking.

The Steward Program calculates the score and suitable staking delegation amount for each validator node based on their on-chain historical data records.

The Keepers Network then executes the allocation of staking delegation amounts based on the calculations of the Steward Program.

In the Jito StarkNet network, the historical behavior of validator nodes serves as the sole reference standard for the allocation of staking delegation amounts. This is intended to encourage healthy competition among the underlying validator nodes to provide users with a better staking experience. At the same time, the management of staking delegation funds will no longer rely on the centralized management of the protocol. Instead, the Steward Program and the Keepers Network will automatically execute changes in the delegation amounts, making the operational process more decentralized.

Token Economy

On November 28, the Jito Foundation announced the launch of the governance token JTO. The introduction of JTO is a significant step in Jito’s development. JTO will be used to reward early contributors through airdrops and empower users with governance capabilities over the protocol.

Token Distribution: The total supply of JTO is 1 billion tokens, of which：

• 10% will be airdropped to early users;
• 24.3% is controlled by DAO governance for community growth;
• 24.5% and 16.2% of the tokens are respectively allocated to the Jito team and early investors. These tokens will have a one-year lock-up period and a three-year vesting period;
• 25% of the tokens will be used for ecosystem development.

Token Utility: JTO holders can make decisions on important parameters and governance measures of the protocol, including but not limited to:

• Setting fees for the JitoSOL staking pool;
• Adjusting key parameters of Jito StarkNet to allocate staking fund delegation strategies;
• Managing the JTO tokens held by the DAO and the fees captured by JitoSOL.

Airdrop Incentives: Early adopters of Jito will have the opportunity to receive JTO token airdrops. Among these,

• 80% of the tokens will be airdropped to JitoSOL holders and users;
• 15% of the tokens will be airdropped to validators running the Jito-Solana client;
• 5% of the tokens will be airdropped to Jito MEV searchers.

Considering the distribution of JTO tokens, the initial circulation in the market will be limited, mainly subject to selling pressure from airdrop recipients. In terms of token empowerment, JTO’s use cases are relatively limited, and its ability to capture value is weak. Jito needs new incentive measures and ecosystem expansion to stimulate the continuous growth of Jito TVL, thereby alleviating the selling pressure from airdrop users to some extent and maintaining the stability of JTO’s value.

Future Expectations of Jito

Explosive Growth of Solana

After the bankruptcy of FTX, the long-dormant Solana has finally embarked on a path to recovery. Since September, the Total Value Locked (TVL) on Solana has seen significant growth, now approaching 700 million USD. In this upward cycle, the monthly growth rate of TVL for the top ten public blockchains was only 14.8%, while Solana’s TVL surged by 85%, far outpacing other public chains. From the asset perspective, this massive inflow of assets is expected to drive an increase in the demand for SOL staking.

Besides the substantial rise in TVL, the daily transaction volume on Solana has also reached a peak of nearly 400 million. This increase in transactions not only boosts the network fees for Solana but also promotes the growth of MEV (Maximal Extractable Value) fees, driving the staking demand represented by Jito.

Furthermore, the number of new and reactivated users on Solana continues to recover, further expanding the audience for Liquid Staking Derivatives (LSD) protocols like Jito.

Huge Development Space for Solana LSD

Although the current staking rate of SOL has reached 70.07%, the proportion of liquidity staking is only 3%-4%. There is considerable room for growth in liquidity staking. Compared to other staking methods, liquidity staking allows users to earn staking rewards while participating in other DeFi activities by providing liquidity token certificates, thus offering higher capital efficiency. As shown in the figure, with the gradual recovery of the Solana ecosystem, liquidity staking is experiencing explosive growth. We anticipate that liquidity staking on Solana will replace a larger portion of the general staking market due to its higher capital efficiency in DeFi activities.

Huge Value Space for Solana MEV

Since Jito distributes MEV rewards to JitoSOL holders, the higher the MEV value in Solana, the more staking rewards will be allocated to JitoSOL. An increase in APR will further enhance the attractiveness of JitoSOL to users. In the past year, Solana’s MEV Profit reached 14 million, indicating a huge space for optimizing MEV value.

As the Solana network thrives, the cumulative MEV value captured by Jito is continually increasing. We expect this trend to continue, with Jito accumulating more MEV value in the rapidly growing network activities of Solana and distributing it to JitoSOL holders.

Comparative Advantage of Jito Over Marinade

Marinade, one of Jito’s major competitors, is the earliest LSD protocol in the Solana ecosystem, with its TVL once reaching 1.7 billion. Jito’s main competitive disadvantages compared to Marinade are as follows:

• Marinade’s LST ecosystem network is richer than Jito’s;
• Marinade has more validator nodes, offering greater decentralization than Jito;
• Marinade offers additional staking options beyond LSD.

Regarding the first disadvantage, as shown in the figure, JitoSOL is continuously expanding its ecosystem use cases and has already been integrated with over 10 mainstream DeFi protocols. With the support of Multicoin, which has deep roots in the Solana ecosystem, Jito is likely to expand its ecosystem partnerships more easily in the future.

Regarding the second disadvantage, Marinade currently has about twice the number of nodes as Jito, significantly outperforming in decentralization, a gap Jito might find hard to bridge in the short term. However, Jito is also transitioning towards Jito-StarkNet, with hopes of further improving its decentralization.

In addition to these disadvantages, Jito also has competitive advantages over Marinade:

• JitoSOL can capture additional MEV rewards, offering slightly higher staking rewards than Marinade;
• With similar incentive programs, Jito captures more active users in the current Solana recovery wave;

The capture and distribution of MEV value are core competitive strengths for Jito in the long run. The more active the Solana network, the greater the MEV value, which further highlights Jito’s competitive advantage. Jito’s ability to capture more active users also indicates that Marinade has not yet monopolized the LSD market, and protocols like Jito still have significant room for growth.

In summary, compared to Marinade, the gap in ecosystem composition and decentralization between Jito and Marinade is expected to narrow as Jito develops. Meanwhile, Jito’s core competitive advantage in capturing and distributing MEV value is expected to expand with the prosperity of the Solana network. Therefore, we hold a very optimistic future outlook for Jito. Jito is expected to surpass Marinade and become the leading LSD protocol in the Solana ecosystem.

The stability and improvement of Jito’s fundamentals will also drive the price of JTO secondary tokens to rise. Referring to the price trend of the LSD protocol token in the past month, we believe that JTO will also have stronger secondary market performance.

Disclaimer：

1. This article is reprinted from [Momentum Capital]. All copyrights belong to the original author [Severin & Ian，MT Capital]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.