Banner background
Blog
February 28, 2023 • 5 minute reading time

Solving the MEV Problem on Solana: A Guide for Stakers

Jito Foundation
Twitter
Link
Solana HFT

Did you know Solana is under constant bombardment from MEV bots? If you’ve had problems sending transactions on Solana during price volatility, you have experienced the chaos these bots cause. In this blog post, we’ll give a background on MEV, explain why you’re having issues landing transactions, and show you a few easy things you can do to support a healthier Solana network that reduces the amount of spam and increases your staking rewards.

What is MEV?

Maximum Extractable Value (MEV) is the value that can be extracted on blockchains by validators and network participants by re-ordering, inserting, or censoring transactions. MEV has many analogies in the real-world, such as Disney fastpass, HOV lanes, UberEats priority delivery, and bribing the bouncer at the club to skip the line.

MEV takes many forms, but it’s all about ordering. When making a trade, MEV traders, known as searchers, are trying to land their trades immediately before or after another event. During a liquidation, bots will attempt to land their transactions immediately after an oracle update that causes someone’s account to become unhealthy. In the case of an NFT mint, bots are trying to mint as many NFTs as possible after the mint starts. Landing a trade too early or too late means a transaction failure.

Solana MEV

Solana has made great strides towards reducing the power of bots with the addition of priority fees and QUIC, but we illustrate below that bots continue to wreak havoc on Solana.

We mentioned earlier that MEV is all about the ordering of events. On Solana, traders attempt to order their transaction in a block with a combination of luck, latency, and priority fees. Given the low fees and randomness involved, searchers spam transactions, hoping their trade wins. Only the first transaction processed wins, so the validator wastes time processing all the failed transactions that are executed after the winner.

Looking at the Numbers

Over the last seven days, arbitrage transactions from bots comprised more than 30% of transactions. However, this only tells a small part of the story because the complexity of the transaction influences how much time it takes to execute. Knowing this, an even more important question to answer is: how much time are validators wasting processing failed MEV transactions? The best proxy for this metric is compute units, which represents how much time is spent processing a transaction. After completing an MEV analysis on epoch 414, we’ve come to a surprising discovery on the amount of transaction spam.

In epoch 414, 60% of block compute was used by arbitrage transactions, with more than 98% of arbitrage transactions failing. Solana validators are wasting more than 58% of their time processing failed arbitrages.

Solana validators spend the majority of their processing time on failed MEV attempts.

Without intervention, we anticipate the amount of wasted blockspace will only get worse in 2023. As more applications launch on Solana, there will be a higher demand for blockspace. New defi applications on Solana will expose MEV, and because Solana is the best L1 for composing applications, we expect the amount of cross-application MEV to grow. Since spamming is the most prominent strategy for extracting MEV, the problem will get even worse.

Supporting a Better Solana

As a staker, you have the opportunity to stake to validators that uphold the values you want to see in a blockchain while also maximizing your staking rewards. One can do this by choosing validators that:

  • Run the newest version of validator software
  • Contribute to the ecosystem like stakewiz.com, validators.app, and others
  • Have low commission and high uptime
  • Run in low staked regions, ASNs, and data center providers

We argue that Solana stakers should consider staking to validators running Jito-Solana software as it can help the network run more efficiently when adopted by validators, stakers, and traders. Jito-Solana is a fork of the Solana Labs validator client optimized for efficient MEV extraction. It has native support for bundles, which let searchers have fine-grained control over the ordering of transactions.

By providing traders the tools to have granular control over the ordering of transactions, we anticipate that spamming trades will start to become a losing strategy. Furthermore, the software only processes the highest paying successful bundles, so the number of failed transactions will decrease and staker rewards will increase as searchers compete to win trades by bidding in an efficient auction versus spamming transactions.

Jito-Solana just surpassed building 10% of blocks on Solana, but more stake is needed so searchers can leverage these tools more frequently. While the additional rewards are low now, higher staking yields and a more efficient Solana are possible with greater adoption from the community of validators, stakers and traders.

Stakers have several options to improve Solana‘s efficiency.

There are a few easy ways you can support a healthier network:

Stake JitoSOL

By visiting jito.network, you can one-click deposit SOL, other LSDs, and staked SOL in exchange for JitoSOL, the fastest growing liquid staking derivative on Solana. The staked SOL is only deposited to the top validators running Jito-Solana, which allows more efficient extraction of MEV through bundles. The staking pool is noncustodial, which means the Jito Foundation can’t steal your SOL, and you continue to earn staking yield while being able to participate in Solana defi and NFTs.

Stake to a Jito-Solana validator

Several of the top validators, small to institutional, are running the Jito-Solana software with more onboarding everyday. More information on validators running the Jito-Solana validator client can be found here. One can stake SOL to any of these validators using your favorite Solana wallet. Solana doesn’t have slashing yet, so the only risk to staking to a Jito-Solana validator is downtime due to an undiscovered bug.

Ask your validator about Jito-Solana

We always encourage you to get to know your validator operator by visiting their websites and talking to them in Discord, Telegram, and Twitter. If you want your validator to support the Jito-Solana validator client, bring it up with them! Switching to Jito-Solana takes less than 5 minutes and is an easy way for them to help support a more efficient network and earn more revenue. Tell them to contact Jito and we will walk them through the process.

Summary

Solana has been facing a constant barrage of MEV bots that disrupt the network and waste resources. This problem is only expected to get worse as the demand for blockspace increases with the launch of more applications on Solana. Jito Foundation offers a solution to this problem with the Jito-Solana validator client, which enables more efficient MEV extraction and better rewards for stakers. By staking JitoSOL or choosing validators running Jito-Solana software, Solana users can contribute to a more efficient and healthy network while also maximizing their staking rewards.

Additional Resources