With the rapid evolution of the blockchain ecosystem, Maximum Extractable Value (MEV) has emerged as a key challenge impacting the performance, fairness, and user experience of public blockchains. MEV refers to the additional value extracted by miners, validators, or other network participants through transaction resequencing, insertion, or deletion, as detailed in a previous MEV overview. This issue is pervasive across blockchain networks, particularly in decentralized exchanges (DEX), liquidation, and arbitrage scenarios.

Although blockchains like Ethereum have conducted abundant research and taken countermeasures, each blockchain’s unique design leads to varying manifestations and severity of MEV issues. Solana, as a high-performance public blockchain, is known for its high throughput and low latency. However, while these characteristics alleviate some MEV issues, they also bring new challenges: high concurrency leads to bidding problems - Solana’s high-performance architecture allows more participants to simultaneously compete for on-chain resources, which intensifies the risks of front-running and transaction resequencing; Solana’s widespread use of the Central Limit Order Book (CLOB) model, while enhancing liquidity, also provides more room for high-frequency arbitrage and MEV bots to operate; low latency improves user experience but also highlights sensitivity to delays between nodes, exacerbating the “first-mover advantage” problem…

To tackle these challenges, the community and developers have suggested various solutions, such as optimizing consensus mechanisms, implementing delayed transaction pools, and developing fairer order-matching algorithms. This article delves into the distinctive manifestation of MEV issues on the Solana blockchain, synthesizing existing research and practices to analyze potential solutions. It aims to offer insights for building a fairer, more efficient Solana ecosystem.

Overview of MEV on Solana

In June 2024, an MEV sandwich bot known as “arsc” exploited Solana users to steal approximately $30 million in MEV attacks over the past two months. This and subsequent debates about infrastructure design with Ethereum have once again drawn attention to Solana’s MEV issues.

According to the latest data, Solana’s network generates an estimated $500 million annually from MEV. Jito Labs, a flashbot on Solana, provides insight into the scale of MEV revenue on the network. The chart below compares the income of major DeFi protocols, showing that Jito Labs’ monthly revenue in October reached $78.92 million, a doubling from the $39.45 million recorded in May. On October 24, the protocol earned $6.14 million in a single day solely from tips, highlighting the strong demand for MEV extraction services on the Solana network.

Source: Defillama

This year, MEV activity on Solana has been particularly pronounced in the high-profile meme token trades. The primary factor driving this trend is that meme token transactions are often concentrated in low-liquidity pools, which makes their prices highly susceptible to manipulation. Given the speculative nature of meme tokens and their extreme price volatility, MEV bots have numerous opportunities to profit. Moreover, errors in order execution within these low-liquidity pools further open the door to MEV exploitation. For example, one trader mistakenly purchased dogwifhat tokens at $3 each, while the market price was just $0.20. As a result, it allows MEV bots to quickly seize the opportunity. Meme token trading has become a major component of MEV activity, with the BONK token craze in early 2024 seeing daily trading volumes soar to $50 to $60 million, a significant portion of which was driven by MEV-related trades.

How Solana’s Architecture Enables MEV Trading Opportunities

Proof of History (PoH)

Proof of History (PoH) relies on verifiable delay functions (VDF) to generate and verify time sequences. Each timestamp contains the hash of the previous timestamp, which ensures events are recorded in order. The result of each operation is subject to the previous output, resulting in unpredictable outputs. This process is executed on a GPU single core by periodically recording the current output and the number of calls. Validators confirm these outputs through parallel computations to ensure the time sequence and security. Acting as a decentralized clock, PoH helps reduce the need for node synchronization and simplifies the consensus process.

Source: Solana Whitepaper

Without PoH, the transaction sequence might be subject to other factors, such as miner fee bidding or node synchronization delays. However, with PoH on Solana, every event (e.g., transactions, block production) has a clear and agreed-upon timestamp. This allows other nodes and validators to easily verify the sequence of events. This transparency is crucial for MEV traders, as it provides a clear framework to determine which transactions will be executed first and which may present arbitrage opportunities. MEV traders can use the timestamps generated by PoH to predict which transactions could impact the market, which enables them to execute arbitrage trades before those transactions occur.

PoH’s design enables Solana to process and verify transactions with exceptional speed. The Solana network achieves low-latency transaction confirmations by calculating PoH timestamps on each node. This is a significant advantage for MEV traders, as the essence of MEV trading often hinges on rapid responses to market changes. In DeFi markets, certain assets’ price can shift due to a single transaction, and MEV traders can capitalize on these fluctuations for profit. PoH’s low-latency capabilities allow them to front-run others in executing trades. The cryptographic timestamp verification inherent in PoH underpins Solana’s high throughput. It enables the network to process a massive volume of transactions far faster than traditional blockchains. This creates ample opportunities for high-frequency trading and efficient MEV extraction.

PoH reduces node communication needs, which is why Solana is known for its high network efficiency. This condition makes Solana’s blockchain activity frequent. The high processing speed and low latency are particularly suited for high-frequency trading and arbitrage in low-liquidity markets, and a growing number of new projects further attract MEV trading.

Tower BFT

The essence of Tower BFT lies in expediting the consensus process by minimizing node communication overhead. Traditional BFT protocols require extensive message exchanges to achieve consensus, particularly in multi-node networks where delays and bandwidth usage are inevitable. Solana’s PoH mechanism precomputes and records timestamps. This enables validator nodes to efficiently verify transaction sequence by relying solely on the timestamps generated by PoH. There is no need for them to exchange extensive time-sequence data.

Source: Helius Blog - Consensus on Solana

The operation of Tower BFT is based on the following key points:

Verification Sequence: Tower BFT uses the time sequence provided by PoH to ensure that each validator has a clear time reference when voting. This speeds up the consensus process and avoids the delays typically found in traditional BFT algorithms.

Voting Weight: Each validator votes based on its weight in the network. The voting process strengthens consistency and reliability by continuously accumulating confirmed historical data. This ensures that, when consensus is reached, a minority of nodes cannot easily compromise the network’s security.

Reducing Network Synchronization Needs: Through PoH, Tower BFT reduces the amount of message exchange required between nodes, which improves the network’s efficiency and scalability. In Solana’s network, this means more transactions can be processed simultaneously, thus reducing delays caused by node synchronization issues.

By combining the PoH mechanism, Tower BFT can provide a low-latency and efficient trading environment. Similar to PoH, this efficiency and low latency create vast opportunities for MEV. MEV traders often need to execute a large number of transactions in a short amount of time. The high throughput of the Solana network empowers MEV traders to seize arbitrage opportunities with greater efficiency and frequency.

Concurrent Leader Scheduling

Solana leverages the PoH mechanism to establish a unified timestamp across the network and assigns multiple leaders for parallel scheduling based on this timestamp. Each leader is tasked with producing a block within a designated time slot, known as a “leader slot.” Operating concurrently, these leaders generate blocks using the unified timestamp, which are then validated alongside those produced by other leaders. This parallel structure significantly enhances Solana’s transaction throughput while reducing confirmation latency. Unlike traditional blockchains such as Bitcoin and Ethereum, where a single leader (miner or validator) handles block generation, Solana’s concurrent leader scheduling enables multiple blocks to be created simultaneously, thus maximizing network efficiency and scalability.

The single-leader model in traditional blockchains often encounters bottlenecks during block production, particularly during periods of high transaction volume. This can lead to delays and uncertainty in executing arbitrage trades because MEV traders may need to await block generation and confirmation. Solana’s concurrent leader scheduling reduces waiting time in block production by allowing multiple leaders to produce blocks simultaneously. This results in faster transaction confirmations and block inclusion.

Concurrent leader scheduling introduces competition among leaders. In each slot, multiple leaders are tasked with generating blocks, and each leader may prioritize different transactions, which results in price discrepancies or inconsistencies in transaction sequence. MEV traders can capitalize on these variances by swiftly executing trades before others. When multiple leaders generate blocks, some transactions may be prioritized in one leader’s block but delayed in another’s. This allows MEV traders to exploit these timing differences between slots to engage in arbitrage.

Native Fee Market Structure

Solana currently has a two-layer fee structure: base fees and priority fees. Every transaction requires a base fee, usually priced at 5,000 lamports/signature, equivalent to approximately 0.000005 SOL. The priority fee is an optional additional fee that aims to enhance the transaction priority in the network. 50% of the priority fee is burned, while the remaining 50% is paid to the current leader (validator). The core idea of this mechanism is to adjust the transaction processing sequence through incentives, thus allowing transaction senders to pay for higher priority and ensuring that validators process their transactions quickly in the next block.

Since Solana lacks a dynamic fee mechanism like Ethereum’s EIP-1559, the priority fee system somewhat mirrors the dynamic adjustments based on transaction conditions,which serves a similar function. The key feature of this mechanism is that it enables transaction senders to adjust their fees flexibly based on the network’s current state to ensures timely processing in line with market demand. For MEV traders, this is especially crucial: MEV traders can pay higher fees when the network is busy to prioritize their transactions in the next block.

However, Solana’s dynamic fee structure still has room for improvement. The current fee system is not without flaws, and future updates are expected to create a more fair and efficient design.

Quality of Service (QoS)

The Quality of Service (QoS) mechanism is a network traffic management system based on weighted allocation. Solana uses it to assign priority to different types of transactions, thus optimizing resource distribution and network performance. Validators allocate network resources based on the stake they hold. Accounts with higher stakes are granted more processing bandwidth during network congestion, making the resource allocation more economically incentivized. Validators are responsible for processing transactions and maintaining the ledger state in the network. QoS ensures that validators can efficiently manage network traffic according to their stake while incentivizing them to attract users through higher stakes.

During periods of network congestion, low-priority transactions (typically those with lower fees) can consume network resources, leading to delays in high-value transactions, such as MEV trades. QoS addresses this issue by implementing a priority ranking and resource allocation system, which ensures that low-value transactions do not disrupt the efficiency of high-value ones. This mechanism allows MEV traders to plan their strategies more effectively, thus increasing execution certainty. MEV traders often need to carry out multiple related transactions simultaneously, such as executing complex arbitrage strategies across multi-chain bridges or decentralized exchanges. QoS ensures these related transactions are processed consecutively within a short time window. This reduces the risk of failure caused by disruptions in the transaction chain.

QUIC Protocol

Solana utilizes the QUIC protocol to significantly reduce the time between transaction submission and confirmation, thus optimizing the workflows of validators and offering more precise timing for MEV trades. QUIC enables faster connection setup and recovery, which minimizes network latency. It also supports concurrent transmission of multiple data streams over a single connection. This alleviates network congestion. Additionally, QUIC features an efficient congestion control mechanism and packet loss recovery strategy, which ensures rapid transaction transmission even in unstable network conditions. With built-in encryption, QUIC ensures secure data transmission. Its implementation has resolved many of Solana’s previous network downtime issues.

Solana MEV Solutions

Jito: MEV Infrastructure Provider on Solana

When discussing MEV solutions on Solana, we must highlight Jito. Jito Network, launched by the Jito Labs team, focuses on MEV infrastructure for Solana. Jito Labs has introduced several products, including the Jito-Solana Validator Client and Jito Block Engine. In August 2022, Jito Labs announced it had raised $10 million in Series A funding, led by Multicoin Capital and Framework Ventures.

Jito-Solana

Jito-Solana is an optimized variant of the Solana validator client, designed specifically for efficient MEV extraction. By supporting transaction bundling, Jito enables searchers to control the transaction sequence within a block. This control minimizes the likelihood of searchers resorting to low-value or unnecessary transactions, instead encouraging participation in a streamlined auction system where bids are made based on potential rewards. Jito’s bundling mechanism enhances the chances of transactions being included in blocks by allowing searchers to submit multiple transactions in a single batch, thereby improving efficiency and reducing reliance on low-value transactions. Validators prioritize the highest-paying bundles, which drives more profitable interactions and decreases transaction failures.

Jito Block Engine

The Jito Block Engine is an off-chain auction platform through which relayers, searchers, and validators in the network can coordinate the transaction sequencing via an auction mechanism, thus maximizing MEV extraction.

MEV Dashboard

Jito Labs provides the MEV Dashboard to monitor and analyze MEV activity on Solana. It helps developers, validators, and users understand the specifics and trends of MEV on the Solana network.

Scheduler Optimization

In MEV-related issues, the uncertainty in transaction sequencing makes front-running and sandwich attacks easier. Attackers can profit by manipulating the transaction sequence to exploit the priority mechanisms of validation nodes. To address this, Solana has optimized its scheduler, especially with the upcoming version 1.18 scheduler update.

The scheduler is optimized is to primarily improve the determinism of transaction priority ranking. Solana’s current multi-threaded processing architecture can lead to unsynchronized priority decisions when different threads process transactions from separate queues. This inconsistency allows attackers to disrupt normal user transactions by submitting conflicting ones. The redesigned scheduler focuses on enhancing coordination between threads to minimize transaction sequencing conflicts that arise from race conditions. Furthermore, the optimized system better identifies high-priority transactions, ensuring they are processed without delay, even during network congestion.

Privacy Enhancements

In response to MEV transactions, Solana is improving privacy by encrypting transaction details, making it difficult for attackers to access critical information. Additionally, Solana is exploring concepts similar to Ethereum’s private transaction pools. Users can route their transactions through a privacy pool. In this pool, transactions remain concealed from the public until they are processed, thus minimizing the risk of sandwich attacks and front-running.

Decentralized Sequencing

By implementing independent sequencing services, Solana separates transaction sequencing logic from validation nodes. The use of randomization algorithms in sequencing effectively decreases the chances of certain transactions being prioritized, thus reducing attackers’ ability to exploit sequencing mechanisms for MEV extraction. Additionally, the validator incentive model can be adjusted to lessen their reliance on priority fees, which encourages more impartial transaction processing rather than manipulating sequence for extra profit.

Conclusion

MEV has long been a significant challenge for decentralized networks. While Solana is renowned for its high performance and low latency, these qualities make it an attractive target for MEV attackers. Issues such as front-running, sandwich attacks, and malicious transaction sequencing undermine network fairness and degrade user experience. To tackle these problems, Solana has implemented multi-layered solutions, including scheduler optimizations, privacy-enhancing technologies, and fee model adjustments. Solana aims to mitigate the risks of front-running and sandwich attacks through these efforts while improving resource allocation.

Addressing the MEV issue requires technological advancements, ongoing community engagement, and consensus-building. The community can collaboratively develop solutions to MEV challenges by fostering decentralized governance and transparent discussions. Solana should also offer tools and resources to help users detect and mitigate MEV attacks, thus empowering them with proactive defences. As the network expands and becomes more complex, Solana must balance high performance, decentralization, and fairness. There is still a long way to go in solving the “impossible triangle” problem.