Solana MEV, a big business that doesn't beat on the K line

MEV is called value that miners can extract, which means that when packing blocks, miners can include, omit, and sort transactions to earn as much additional revenue as possible. Due to the memecoin boom and active DeFi, MEV is huge.

Differentiated from a business perspective, MEV usually includes: liquidation, arbitrage, and sandwich attacks

• Liquidation: Liquidate borrowing positions that are on the verge of default to receive rewards. When borrowers fail to maintain the collateral ratio required for the loan in the loan agreement, their positions will be eligible for liquidation. MEV searchers monitor these undercollateralized positions on the blockchain and perform liquidation by paying off part or all of the debt in exchange for partial collateral as a reward.

• Arbitrage: Trade on different DEXs at the same time and profit from the spread. The simplest form of arbitrage is when two DEXs have different prices for the same trading pair, the arbitrator earns the difference in price from a single transaction.

• Sandwich Attack: Buy before the target trade and then sell for profit. A sandwich attack is an arbitrage strategy in the DeFi market. The attacker achieves profit through three atomic bundling transactions: first, an unprofitable preemptive transaction pushes the asset price to the highest level allowed by the victim's slippage, then the victim's transaction is executed at a high level to further boost the price, and finally the attacker sells the asset at an inflated price through a repurchase transaction (post-transaction) to offset the initial cost and obtain net profit.

In terms of behavior, it is generally very distinguishable between front-run (early transaction) and back-run (back-run transaction)

• Early access trading: Early access trading means that the MEV searcher identifies another trader's buy or sell order in the memory pool and places the same order before that trader to profit from the price impact on the other transaction.

• Post-transaction: A backorder transaction is a counterpart of a preemptive transaction. It is a specific MEV strategy that uses a temporary price imbalance caused by another transaction, and this imbalance is usually due to improper routing. Once the user's transaction is executed, the reverse trade seeker will balance the price of each pool by trading the same asset and ensure profit.

Liquidation is all back-run, and most arbitrage is also back-run. Sandwich attacks are front-run+back-run. For specific MEV examples, you can refer to Helius's report, which has very detailed explanations and examples.

According to some unverified statistics, trading robots made 1.1 billion US dollars last year, pump earned 500 million US dollars, MEV earned 1.5 billion US dollars, AMM earned 1 billion US dollars, and famous related parties such as Trump made 500 million US dollars, and were taken away from the market.

On the Solana network, MEV earnings on Solana have also risen sharply with the rise in network activity and the arrival of the 2024 Memecoin boom. As seen from Helius' report, Jito's arbitrage detection algorithm analyzed all Solana transactions, including those outside of the jito bundle, and the algorithm identified 90,445,905 successful arbitrage transactions over the past year. The average profit per arbitrage was $1.58, and the most profitable single arbitrage yield was $3.7 million. These arbitrage generated $142.8 million in profit, of which $126.7 million (88.7%) was denominated in SOL.

MEV is big business!

MEVs on Solana are more intense and centralized than MEVs on ETH, due to differences in the design at the bottom of their chain.

Solana: High performance --> sacrificing some degree of decentralization --> high degree of centralization--> high centralization of power

Solana is known for its high performance, with a block time of only 400 ms (12 seconds for Ethereum), but its design sacrificed some decentralization, leading to a high concentration of power.

Since there is no memory pool (mempool) on Solana, other nodes must connect to the validator node that is currently generating the block to obtain block data and submit transactions. This design allows the validator nodes that generate blocks to have great power and lack institutional checks and balances. As a result, the MEV problem on Solana is very serious, and the revenue is monopolized and high.

In contrast, Ethereum's MEV market is more market-oriented. There is a high level of competition between MEV Searchers (Searchers) and BlockBuilders (BlockBuilders), and this competition is depressing overall MEV earnings.

Jito is Solana's MEV hegemon.

In August 2022, Jito launched the Jito-Solana client. In the first nine months, due to low network activity, the adoption rate of the Jito-Solana client remained below 10%, and MEV rewards were limited. The adoption rate accelerated significantly from the end of 2023 to 50% by January 2024. By the end of 2024, over 94% of Solana validators (weighted by equity) used the JITO-Solana client, creating absolute dominance.

How does Jito work?

The biggest difference between the Jito-Solana client and the official client is that it natively supports the MEV extraction mechanism, and its core function is to provide Bundles services. When the validator runs this client, it is equal to joining the JITO Alliance. The alliance provides a priority execution channel for external transactions. Traders submit bundles through payment of tips (Tips) to obtain transaction ranking advantages. Therefore, compared to the official client, the jito client has significantly improved the profitability of the node.

1. Jito Bundles (Jito Bundles) Jito Bundles allows traders to prioritize submission and execution of key transactions by bundling transactions and paying tips. This not only applies to MEV opportunities, but is also commonly used for other purposes such as acceleration, batch trading, and anti-pinch transactions. The core process is as follows: 1. Trade assembly: Traders discover arbitrage opportunities and quickly construct transactions. 2. Bundle submission: Package the transaction as a bundle and send it to the Jito node, with a tip to improve the ranking priority. These bundles are transferred to the Jito node to the block leader. 3. Priority execution: If a jito validator becomes the leader of the current slot, these transactions will be prioritized into blocks and executed in the previous position. The proceeds will be distributed to the validators and the Jito protocol according to the mechanism.

2. Jito's staking mechanism Earlier, we mentioned that the more money is staked on the Jito node, the more tips and MeV revenue. Therefore, Jito nodes need to attract more SOL to stake on them. Therefore, the JITO agreement will allow users to pledge and share some of the node's staking income and MEV revenue to these users.

To further expand its node staking amount, Jito launched a staking agreement that allows ordinary users to delegate SOL to Jito nodes and share block rewards and MEV earnings in proportion. Stakers get revenue, nodes increase the probability of block generation, and traders get priority execution opportunities, forming a complete closed loop of MEV benefits

The three key characteristics of MEV: information advantage, monopoly effect, and capital barriers

1. MEV is an information war. The winners all compete for MEV opportunities on Solana, competing for millisecond speed and on-chain information sensitivity. Whoever can find the arbitrage space the fastest and place the transaction accurately into the same/next slot. Whoever can eat this profit. This depends on two things: fast information synchronization capability, which usually requires RPC services connected to large jito nodes; fast transaction upload, priority is given to submitting transactions through the Jito Bundles channel, and paying sufficient tips.

2. JITO's bundle service is a monopoly service, and the key to MEV is “who is the leader (leader)”. If Jito wants to provide traders with stable and reliable bundled services, it must cover as many Leader Slots as possible. This requires its client to have a very high coverage rate in the network to ensure that the jito node blocks most of the rounds. The tipping point was reached in a day, and the network effect was self-increasing: the more widespread adoption, the more stable the service, and the harder it was for competitors to shake. This is why jito was able to quickly consolidate its 94% client share.

3. Solana's MEV is a capital game Solana is a PoS chain. The more staking, the higher the probability of becoming a leader. Leaders, on the other hand, have the right to rank blocks and can naturally get the most MEVs and tips. This brings about highly concentrated capital barriers: large nodes have many pledges, high block generation frequency, and fast information synchronization; the more sensitive the information, the stronger the arbitrage capacity; the price of RPC services (even services in the same computer room) for large nodes has soared, making them a scarce resource for information entry.

Those that can earn MEV can often only go through the largest nodes with the most capital.

As mentioned earlier, MEV earnings on Solana are very impressive. So who did these earnings end up going to? It mainly belongs to three core stakeholders: the Jito protocol itself, large high-staking nodes, and blockchain space sales brokers.

Jito agreement: taxpayer of infrastructure

Over the past year, the total number of transaction bundles (bundles) processed by Jito exceeded 4.3 billion, and the total number of user payment tips generated reached 5.51 million SOL, calculated at a SOL price of $140, which means that additional on-chain transactions guided through the jito infrastructure are worth about 7.7 billion US dollars. IITO and validators share 3-5% of the platform's profit, so the actual revenue of IITO itself was about 20-27W SOL in the past year, or about 3,500 US dollars.

High Staking Nodes: A Privileged On-Chain Tier

Since Solana is a PoS chain, nodes with higher staked amounts have a higher probability of generating blocks. These “head validators” can not only continue to receive basic block rewards and inflation benefits, but also get lots of trading tips from Jito Bundles. Normal node revenue is about 6%. When network activity is high, the annualized income of some nodes can reach 20% or more, which is much higher than that of ordinary nodes. Sources of revenue include inflation rewards, block rewards, Jito Tips, and some revenue from selling SWQoS trading on-chain rights.

Blockchain Sales Brokers: Intermediaries for on-chain transactions

This type of broker acts as a second-tier seller in the blockchain space. The logic of its operation is as follows:

* They have established partnerships with high-staking nodes to purchase SWQoS on-chain transaction rights at preferential market prices;

(Stake-weighted Quality of Service SWQoS allows leaders to identify and prioritize transactions from staking validators. (In the case of network congestion, SWQoS ensures that transactions from high-stakes validators are less likely to be delayed or discarded)

* Package multiple users' transactions into a Jito Bundle and focus on improving tips to get higher priority;

*The tips paid by users are much higher than what brokers pay to validators, and brokers earn the difference in price from them;

*At the same time, they also embed their own arbitrage transactions (such as Backrun) in the Bundle to further earn MEV revenue. For example, on Defillama, you can see some of BloxRoute's revenue data (link), which shows that the tips it has received are impressive. Note, however, that this data does not cover all of their payee addresses, nor does it exclude shares distributed to validators and order flow providers.

Overall, Solana has experienced a high degree of centralization of power, and the vast majority of JITO's MEV earnings are captured by JITO protocols, large validator nodes, and blockchain space sales brokers.

Currently, there are more than 1,300 validator nodes on Solana, and more than 94% of the nodes are JITO nodes. The main types of clients include the following:

Solana Nodes

This is the most basic node client. It does not include any MEV optimization mechanism. The nodes running this client have almost been marginalized, because the benefits are far lower than the nodes running jito.

jito node

The Jito client is based on the official client and adds JITO protocol and Bundles support to enable nodes to accept bundled transactions and receive tips from them. If users want to meet requirements such as rush, anti-collision, and quick on-chain, they can submit transactions to validators through the jito Bundle service and attach tips to increase execution priority. Since nodes running the jito client can get additional tips, currently more than 90% of the nodes on the main network have been converted to Jito nodes, which is the default choice.

Paladin Nodes

Paladin is an improved version based on the Jito client. It aims to provide a fairer transaction priority upload mechanism, and mainly solves the “sandwich attack” problem that Jito has in bundle sorting (that is, fraudulent validators insert sandwich transactions without being punished). According to community sources, the current adoption rate of the Paladin client is about 15%, and since it is still recognized by the network as a jito client, it is included in 94% of the total statistics.

Firedancer Nodes

Developed by Jump Crypto, Firedancer is a high-performance Solana client implemented independently. The original purpose is to increase network throughput and facilitate quantitative transactions by Jump. The initial version did not support the Jito protocol, so there was no access to Tips earnings, and the mainnet adoption rate was extremely low. However, as the new version becomes compatible with the Jito protocol, validators can also earn JIToTips revenue using Firedancer. Although there are currently few mainnet deployments, most nodes on the test network have already adopted Firedancer, which indicates that they may gain more market share in the mainnet in the future. It was also supported by SolanaFoundations.

The competitive logic of these node clients

Jito vs. Paladin: The Fairness Battle

The Jito protocol has formed a de facto monopoly on MEV extraction due to its high concentration. However, the protocol currently lacks a punishment mechanism for misconduct (such as validator sandwich attacks), so even users who use bundles may still be pinned. This just gave clients such as Paladin an opportunity. Paladin provides a bidding process for a fairer transaction to prioritize on-chain transactions. However, Paladin was originally modified on JITO-Solana, and if ITO improves the mechanism in the future, it may suppress Paladin's living space.

FireDancerVS Other Clients: Performance Changes

The biggest advantage of Firedancer is performance. It claims that the TPS can reach 1 million (theoretically 1 million; actual results are unknown). If the trading volume of the Solana network continues to grow in the future, high-performance client nodes that can meet performance requirements will gain advantages and squeeze low-performance clients. Once high-performance nodes begin to pack larger blocks, low-performance clients may not be able to keep up with the same progress, affect verification performance, and eventually be marginalized. As a result, when we have higher demand for Solana's TPS, it will drive an organic migration of the entire Solana network to high-performance clients.

Overall: The vast majority of Solana mainnet nodes run JITO-Solana clients, and the Jito protocol has become part of the infrastructure. As the Firedancer client becomes compatible with the Jito protocol, the main network may see iterative upgrades in client performance in the future — from “running a jito can make more money” to “running a high-performance Jito can not be eliminated”.

Solana's architecture naturally favors the centralization of power, which provides a favorable environment for large institutions to step in and dominate the ecosystem. SolanaFairs, Jito, Multicoin, Jump, Helius, Coinbase, Binance, Jupiter, etc. all have great governance power on Solana. There are also many institutions that are optimistic about Solana's future prospects and hope to become one of Solana's profit traders. Taking SolStrategies, which has been trending frequently recently, as an example, we can clearly see how large institutions are working step by step to infiltrate Solana's profit traders:

Step 1: SolStratagies will expand its market share and ecological dominance through the acquisition of nodes, and become one of the main players.

Solana's current ownership rate is as high as 65.6% (about 380 million SOL is pledged). Controlling validator nodes means that it has mastered the network's consensus mechanism and voting rights. SolStrategies acquired leading nodes on a large scale and quickly entered the core of power:

• 2024.11: Acquire Cogent Crypto, the verification node operator of Solana, Sui, Monad, and ARCH networks for $18 million (cash+shares), focusing on the SOL network.

• 2025.03: Acquire Solana's leading verification nodes Laine and StakeWiz.com for $35 million (cash+equity), increasing the number of SOL staked to 3.3 million units (worth approximately $388 million), and hired Laine founder Michael Hubbard as Chief Strategy Officer.

Step 2: Try to push the inflation rate adjustment proposal SIMD-228 to further consolidate its power. (In the end, this proposal did not pass)

SolStrategies promotes the SIMD-228 proposal to adjust the inflation mechanism. This proposal aims to introduce a dynamic inflation mechanism to replace the current fixed deflation model. If the proposal passes, Solana's annualized inflation rate will be reduced from a fixed interest rate of 4.68% to 1% or even 0%. Although the proposal was ultimately not approved, the strategic intent behind it is clear:

• Stabilize SOL value: Reducing inflation can reduce the release of new SOL, ease token selling pressure, and increase long-term returns for stakers;

• Suppressing small nodes and consolidating the dominance of large nodes: Reduced inflation will reduce the profits of all validators, but small nodes are less resilient to risks and are more likely to be eliminated, which is conducive to concentrating the network on leading validators.

Step 3: Trade interests on Solana. Promote the listing of SolanaETF, institutionalize crypto assets, and become an ETF pledge provider.

SolStrategies became a 3iQ Solana StakingETF staking provider and promoted the listing of 3iQ Solana Staking ETF. It is trying to further expand the amount of pledges and compete for dominance in blockchain governance.

Summarize:

1. MEV is big business. In particular, MEV on Solana is particularly intense and profitable.

2. The MEV agreement, such as Jito, is a monopoly agreement and has a strong leading effect.

3. Power on Solana is highly centralized, and MEV's money is mainly captured by JITO protocols, high-staking nodes, and blockchain space sales brokers.

4. Currently, there are various clients on the Solana network. The Jito-Solana client currently dominates the main network, and the FireDancer client that supports the JITO protocol may become a high-performance upgrade in the future.

5. Solana is ideal for institutional leadership. Through actions such as mergers and acquisitions, trying to promote governance proposals, and promoting ETF listings, Solana shows how an institution can penetrate Solana in all aspects from technology and governance to the financial system and compete for sovereignty over blockchain governance.