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MEV on Solana with buffalu from Jito Labs

By Cove

Published on 2023-06-02

Dive deep into the world of MEV on Solana with Lucas from Jito Labs. Learn about validator clients, searchers, and the future of blockchain technology.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Rise of MEV in Blockchain

Maximal Extractable Value (MEV) has become a hot topic in the blockchain world, particularly in the Solana ecosystem. To shed light on this complex subject, Lucas, co-founder and CEO of Jito Labs, recently joined a podcast to discuss MEV on Solana. With his background in computer engineering and experience in robotics and cryptocurrency, Lucas offers valuable insights into the world of MEV and its impact on blockchain networks.

What is MEV?

MEV, originally known as Miner Extractable Value but now more commonly referred to as Maximal Extractable Value, is the value that can be extracted by controlling the ordering of transactions in a blockchain. Lucas explains, "It's the value that you can extract by controlling the ordering of transactions. So you know, every network has like validators that are producing blocks or sequencer or whatever it is. And it's kind of the, like on Solana in Ethereum, the leader has kind of a monopoly on producing that block."

This concept is crucial in understanding how blockchain networks operate and how value can be created or extracted through the sequencing of transactions. MEV has implications for network efficiency, user experience, and the overall economics of blockchain ecosystems.

The Evolution of MEV

MEV has its roots in the Ethereum ecosystem, with significant research and development occurring on that platform. However, as Lucas points out, MEV is now present on every blockchain, including BSC, Polygon, and Solana. The concept gained traction with the rise of decentralized exchanges like Uniswap, which created more opportunities for MEV extraction.

On Ethereum, before the introduction of solutions like Flashbots, MEV extraction often led to priority gas auctions, where bots would compete to get their transactions included first by bidding higher gas fees. This resulted in network congestion and inefficiencies.

MEV on Solana vs Ethereum

The MEV landscape on Solana differs significantly from that on Ethereum due to the fundamental differences in how these networks operate. Lucas explains, "On Solana, the transactions are ordered with a combination of randomness latency and first come for a serve. So when there's a randomness involved, then you have a higher likelihood of getting your transaction in if you spam it."

This unique characteristic of Solana's transaction ordering mechanism has led to different strategies for MEV extraction. While Ethereum's MEV extraction often involved bidding higher gas fees, Solana's MEV extraction often involves transaction spamming to increase the likelihood of favorable transaction ordering.

Jito Labs: Addressing MEV on Solana

Recognizing the challenges and opportunities presented by MEV on Solana, Lucas co-founded Jito Labs. The company's mission is to build MEV infrastructure on Solana to minimize spam and return value to users. Jito Labs has developed several key components to achieve this goal:

  1. Jito Solana: A modified validator client that can process transaction bundles.
  2. Block Engine: An interface between validators and searchers that simulates bundles and optimizes for validator profitability.
  3. Relay: A system that allows users to bundle their transactions for more efficient processing.

These tools work together to create a more efficient MEV ecosystem on Solana, reducing network spam and potentially increasing profits for validators and searchers alike.

The Role of Searchers in MEV

Searchers play a crucial role in the MEV ecosystem. Lucas defines a searcher as "someone, it's basically a trader that is looking not even trader. It's like a person who writes bots to trade in like what is kind of equivalent to like the high frequency trading on blockchains, like searching."

These searchers are constantly monitoring the network for opportunities to extract value through arbitrage or other strategies. On Solana, Lucas notes that there are roughly 100 unique searchers active every day, highlighting the competitive nature of MEV extraction.

The Impact of MEV on Users and Protocols

While MEV often has negative connotations, Lucas argues that it's not entirely detrimental to the ecosystem. He states, "I think like protocols function protocols require MEV to function. So I'd say for the most part, it's like a win-win for everyone, but there's certainly cases and like certain types of MEV where it might be less ideal for the user."

MEV activities like arbitrage can help maintain price consistency across different exchanges, benefiting users by ensuring they get the best prices. However, some forms of MEV, such as sandwich attacks, can be less favorable for users.

Jito Sol: Liquid Staking on Solana

In addition to their MEV infrastructure, Jito Labs has introduced Jito Sol, a liquid staking token for Solana. Liquid staking allows users to stake their assets while retaining liquidity, as they receive a token representing their staked assets that can be used in DeFi applications.

Lucas explains the benefits of liquid staking: "You can deposit Sol into a stake pool, mint a liquid staking token, that's the sole that you deposit it is then staked to a validator by the stake pool and it's earning yield from like inflation and MIV and all that. And you have this token that is kind of increasing in value from the, the soul that's staked in there."

Despite the potential benefits, liquid staking adoption on Solana is still relatively low compared to Ethereum. Lucas notes that less than 2% of staked assets on Solana are in liquid staking, compared to much higher percentages on Ethereum.

The Future of Validator Clients: Firedancer

The podcast discussion also touched on Firedancer, a new validator client being developed for Solana. Firedancer, built by Jump Crypto, aims to increase validator client diversity and improve network performance.

Lucas sees potential benefits in Firedancer's development: "Jump has a lot of experience trading, doing high-frequency trading. They think a lot about computer architecture. When they are writing these algorithms, they're, like, very close to the metal."

However, he also acknowledges that if Firedancer proves to be significantly more performant than existing clients, it could potentially lead back to a single-client ecosystem, which would counteract the goal of client diversity.

Mainstream Adoption of Crypto

When asked about the future of crypto adoption, Lucas expresses optimism but cautions that widespread adoption may still be a few years away. He believes that Solana's fast transaction speeds and low costs make it well-suited for mainstream applications, particularly in gaming and social media.

"I think like the things that I'll push mainstream are probably like social or games," Lucas predicts. He also notes that financial applications, including DeFi, could drive adoption, especially in light of global economic uncertainties.

The Importance of User Experience

Throughout the discussion, Lucas emphasizes the importance of user experience in driving crypto adoption. He contrasts Solana's fast transaction times with Ethereum's slower and more expensive transactions, noting that Solana's speed makes it feel more like using traditional social media platforms.

"Like I post something on Twitter and like it's posted immediately. I don't have to like wait for it to like send. So just like the fact that things just happened so fast since Solana, I think will be was a reason for I guess it's like a technical barrier for mainstream adoption," Lucas explains.

The Challenges of Building in Crypto

Lucas shares insights from his experience building in the crypto space, emphasizing that the reality often differs from external perceptions. He advises aspiring crypto entrepreneurs to connect with other founders and investors, learn from mistakes, and be prepared for the challenges that come with building in this fast-paced industry.

"I think every like every everyone thinks that companies are like sexy. I guess like when I was at Tesla, like people are like, 'Oh, Tesla's like a cool sexy company. Like, must be super cool.' It's like it was like a total shitshow and like chaos and like I think every crypto company like has like a shiny outside, but it's like stressful and chaos on the inside," Lucas shares candidly.

The Importance of Community Engagement

Lucas emphasizes the value of community engagement in the crypto space, particularly on platforms like Twitter. He advises newcomers to actively participate in discussions, ask questions, and share their ideas. This engagement can help build networks, gain visibility, and foster connections within the industry.

"Everyone starts on Twitter, like building in the space and they're just kind of like lurking on Twitter, like the best way to get engaged and like starting start to grow up following is like to start asking questions and connect with people in the space and like ask questions on other people's tweets and just like always be curious," Lucas recommends.

The Future of Solana and MEV

As the conversation concludes, it's clear that MEV will continue to play a significant role in the Solana ecosystem. With companies like Jito Labs working on innovative solutions to optimize MEV extraction and minimize negative impacts, the future looks promising for Solana's efficiency and user experience.

The development of new validator clients like Firedancer, the potential growth of liquid staking, and the ongoing efforts to build mainstream applications on Solana all point to an exciting future for the network. As the ecosystem matures and addresses challenges related to MEV and other aspects of blockchain technology, Solana is well-positioned to play a significant role in the broader adoption of cryptocurrency and blockchain technology.

In conclusion, the insights shared by Lucas from Jito Labs provide a valuable perspective on the complex world of MEV on Solana. As the blockchain industry continues to evolve, understanding these intricate mechanisms will be crucial for developers, users, and investors alike. The ongoing innovations in MEV management, validator technology, and liquid staking are set to shape the future of Solana and potentially influence the broader blockchain landscape.

Facts + Figures

  • MEV stands for Maximal Extractable Value, previously known as Miner Extractable Value.
  • Jito Labs has built the first MEV-enabled Solana validator client.
  • There are roughly 100 unique searchers active on Solana every day.
  • 26% of Solana stake is currently running Jito Solana.
  • In the week prior to the podcast, the Jito system made 130 Sol in tips.
  • Less than 2% of staked assets on Solana are in liquid staking, compared to much higher percentages on Ethereum.
  • The stake rate on Ethereum is around 16%, while on Solana it's approximately 70%.
  • Jito Sol is a liquid staking token introduced by Jito Labs for Solana.
  • Firedancer is a new validator client being developed for Solana by Jump Crypto.
  • Lucas predicts that mainstream crypto adoption may take a few more years to materialize.
  • Social media and gaming applications are seen as potential drivers for crypto adoption.
  • Solana's transaction speed is significantly faster than Ethereum's, with notifications received in less than a second.
  • MEV is present on every blockchain, including BSC, Polygon, and Solana.
  • The concept of MEV gained traction with the rise of decentralized exchanges like Uniswap.
  • Jito Labs was founded in mid-2021 by Lucas and his co-founder.

Questions Answered

What is MEV and how does it work on Solana?

MEV, or Maximal Extractable Value, is the value that can be extracted by controlling the ordering of transactions in a blockchain. On Solana, MEV works through a combination of randomness, latency, and first-come-first-serve principles in transaction ordering. This unique mechanism leads to strategies like transaction spamming to increase the likelihood of favorable transaction ordering for value extraction.

How does Jito Labs address MEV on Solana?

Jito Labs addresses MEV on Solana through a multi-faceted approach. They have developed Jito Solana, a modified validator client that can process transaction bundles. Additionally, they've created a Block Engine that serves as an interface between validators and searchers, optimizing for validator profitability. Lastly, their Relay system allows users to bundle their transactions for more efficient processing, all working together to create a more efficient MEV ecosystem on Solana.

What is a searcher in the context of MEV?

A searcher in the context of MEV is essentially a trader or developer who creates bots to engage in high-frequency trading on blockchain networks. These searchers constantly monitor the network for opportunities to extract value through strategies like arbitrage. They play a crucial role in the MEV ecosystem by helping to maintain price consistency across different exchanges and identifying inefficiencies in the market.

How does liquid staking work on Solana?

Liquid staking on Solana, as exemplified by Jito Sol, allows users to stake their SOL while retaining liquidity. Users deposit SOL into a stake pool and receive a liquid staking token in return. This token represents their staked assets and can be used in DeFi applications while the original SOL continues to earn yield from inflation and MEV. This mechanism allows users to participate in staking while still having the flexibility to use their assets in other ways.

What is Firedancer and how might it impact the Solana ecosystem?

Firedancer is a new validator client being developed for Solana by Jump Crypto. It aims to increase validator client diversity and improve network performance through highly optimized code. While Firedancer could potentially bring significant performance improvements to Solana, there are concerns that if it proves to be substantially more performant than existing clients, it could lead back to a single-client ecosystem, which would counteract the goal of client diversity.

How does MEV on Solana differ from MEV on Ethereum?

MEV on Solana differs from Ethereum primarily due to the differences in transaction ordering mechanisms. On Ethereum, MEV extraction often involved bidding higher gas fees in priority gas auctions. On Solana, due to the combination of randomness and first-come-first-serve principles in transaction ordering, MEV extraction often involves transaction spamming to increase the likelihood of favorable ordering. This fundamental difference leads to distinct strategies and challenges in MEV extraction on each network.

What are the potential drivers for mainstream crypto adoption according to Lucas?

Lucas believes that social media applications and games could be significant drivers for mainstream crypto adoption. He points out that Solana's fast transaction speeds and low costs make it well-suited for these types of applications. Additionally, he suggests that financial applications, including DeFi, could drive adoption, especially in light of global economic uncertainties. However, he cautions that widespread adoption may still be a few years away.

How important is user experience in driving crypto adoption?

User experience is crucial in driving crypto adoption, according to Lucas. He emphasizes Solana's fast transaction times, comparing them to the immediacy of posting on social media platforms. This speed and ease of use could lower the technical barriers to adoption. In contrast, he notes that Ethereum's slower and more expensive transactions could be a hindrance to mainstream adoption for certain types of applications.

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