0xResearch

JitoSol: Building Solana's Hot Seat DeFi Moment | Lucas Bruder (Buffalu)

Wed Jul 12 2023

SolanaArkham IntelligenceMEV ExtractionLiquid StakingBlockchainDeFi

Description

This episode covers a range of topics including Solana's trade-offs between decentralization and ease of use, the launch of Arkham Intelligence's on-chain intelligence exchange, MEV extraction and liquid staking on Solana, and the future developments and advantages of Solana. The episode also explores the challenges and opportunities in liquid staking, the user experience and integration on Solana, and the market dynamics of MEV on Ethereum and Solana.

Insights

Solana sacrifices decentralization for composability and ease of use.

Solana's focus on speed and leveraging core providers like Amazon and Google makes sense.

Arkham Intelligence launches an on-chain intelligence exchange where users can buy and sell information about blockchain wallet addresses.

The marketplace allows users to place bounties for specific information, which is then offered by others who have the information.

dydx plans to punish validators who extract MEV through a metric that measures MEV per validator using execution price of fills

The slashing mechanism for validators is not enshrined into the protocol and will be decided by governance or social consensus

Lido is in a dominant position in e-staking with about 75% market share of LST and 32% of all ETH staked done through Lido

There are concerns about one entity controlling too much stake, but it's shard amongst multiple validators managed by Lido

Judo Salon is a custom client based on the Salon Eloud Air Client that enables more efficient EV extraction.

The Judo Salon client can process bundles sequentially, handle locking and threading, and handle mev tips.

Solana is expected to have less MEV (Miner Extractable Value) than Ethereum due to its more efficient DeFi infrastructure.

Solana's isolated fee markets allow for separate bidding on state, reducing the impact of MEV on fees and NFT mints.

Decentralizing the complete operation of the pool and ensuring trustless automation are key challenges to address in liquid staking on Solana.

Determining where liquidity should go and incentivizing participation in off-chain operations are important considerations.

Teams are taking ownership and rebuilding Solana

Recent weeks have seen increased interest in Solana, with positive price action and growing mind share.

Solana's composable and easy-to-use nature makes it a good choice for scaling blockchain

There is value in decentralizing the complete operation of liquid staking pools on Solana.

The user experience on Solana is smooth and seamless, with Phantom being considered the best wallet

Gito Labs can be found on Twitter at @Gito_Labs and @Gito_Soul, and learn more at Gito.WTF

Chapters

Solana and Arkham Intelligence
Upcoming Events and Projects
MEV Extraction and Liquid Staking
MEV Extraction on Solana
Judo Salon and Liquid Staking on Solana
Judo Solana and Liquid Staking on Solana
MEV and Liquid Staking on Solana
Liquid Staking and Solana's Future
Solana's Advantages and Future Developments
User Experience and Integration on Solana

Summary

Transcript

Solana and Arkham Intelligence

00:00 - 07:17

Solana sacrifices decentralization for composability and ease of use.
Arkham Intelligence launches an on-chain intelligence exchange where users can buy and sell information about blockchain wallet addresses.
The marketplace allows users to place bounties for specific information, which is then offered by others who have the information.
Arkham's core mission contradicts their white paper, as they promote de-anonymization while claiming to value privacy.
The tokenomics of the Occam token include allocations to core contributors, investors, advisors, and a foundation treasury controlled by Arkham themselves.
The creation of a marketplace for doxxing raises concerns about privacy and anonymity in the crypto industry.
While some argue that the information is already available on-chain, creating a marketplace to facilitate its dissemination is controversial.
The integration of a token with an intelligence platform raises questions about its purpose and volatility.
An intel-to-earn model could be applied in finance for predicting trades based on satellite images or tracking shipping port activity.
Blockchain's core value proposition is transparency, so using an open ledger for shady actions goes against this principle.
Privacy-focused chains are being explored as a solution to address these concerns.

Upcoming Events and Projects

06:47 - 14:01

The Arkham Intelligence token launch may not be successful.
Watchers is an alternative platform worth checking out.
Stargate V2 and the zero token launch are upcoming events to watch.
Bridging assets across blockchains may become less important with CCTV's live messaging platform.
Centralized bridges offer more trust and control in case of issues.
Layer Zero's purpose in gaming remains unclear but intriguing.
dydx plans to punish validators who extract MEV.

MEV Extraction and Liquid Staking

13:32 - 20:31

dydx is planning to punish validators who extract MEV through a metric that measures MEV per validator using execution price of fills
The slashing mechanism for validators is not enshrined into the protocol and will be decided by governance or social consensus
The podcast hosts expected a more robust MEV mitigation solution at the protocol layer rather than relying on social consensus
There are concerns about the simplicity of slashing as a solution and the potential for false positives
Suggestions include internalizing MEV and distributing it as rebates to traders, or creating an infotocal mechanism to fight against MEV capture
Lido is in a dominant position in e-staking with about 75% market share of LST and 32% of all ETH staked done through Lido
There are concerns about one entity controlling too much stake, but it's shard amongst multiple validators managed by Lido
Lido recently passed a governance proposal to stake their treasury ETH into staked ETH, which has generated some contention
Lido has the potential for significant cash flows with $60 million in revenue and $30 million going to the Dow, but valuation is challenging due to cash flows denominated in ETH rather than dollars

MEV Extraction on Solana

20:04 - 27:05

LIDO's potential integration with eigenvalue restaking could lead to a contentious governance vote
The market value of a truly decentralized validator set is an interesting dynamic to watch
Cheeto Labs is a high-performance MEV software for the Solana blockchain
MEV solutions can be paired with liquid staking on Solana despite differences from Ethereum
Continuous block production and high MEV spam are challenges on Solana
Gito Solana is a custom client focused on extracting MEV

Judo Salon and Liquid Staking on Solana

26:41 - 34:11

Judo Salon is a custom client based on the Salon Eloud Air Client that enables more efficient EV extraction.
The Judo Salon client can process bundles sequentially, handle locking and threading, and handle mev tips.
The current amount of stake running on Solana is over 100 million Sol, which represents around 27% to 28% of all states on the network.
Fire Dancer is an upcoming upgrade that will have a significant impact on MEV performance.
Fire Dancer is being developed by the Solana team and will involve rewriting everything from scratch.
The Judo Solana client unlocks the ability to read and process bundles, similar to Ethereum's searchers who create bundles for processing.
Transactions in Solana are sent directly to the leader and one or two liters for processing, without a mempool like Ethereum.
Researchers can submit bundles to the block engine in order to predict what the tip will be every 200 milliseconds.
Bundles only work with Judo Solana clients, so searchers need to manage two code paths for sending transactions.
Tips from searchers get passed on to any staker on the validator, including those using Judo Stoles liquid staking solution.

Judo Solana and Liquid Staking on Solana

33:52 - 41:40

Minimum requirement to run the Judas Solana client for validators
Rewards for running Judas Solana client are high due to high-quality operators
145 validators currently running Judas Solana
Validator selection based on performance, with plans to automate and make it transparent
Liquid staking aims to distribute downtime risk across multiple high-performing validators
Geographic location considered for decentralization of validators and stake pool
Concentration of stake in Frankfurt due to lower costs compared to other locations
MEV extraction by Gito Labs block engine still relatively small but improvements planned
Yield driven by choosing high-quality validators who care about Solana's performance
MEV on Ethereum mostly related to DEX activity, while Solana may see MEV from different sources
Less MEV expected on Solana compared to Ethereum due to more efficient DeFi

MEV and Liquid Staking on Solana

49:22 - 57:34

Solana is expected to have less MEV (Miner Extractable Value) than Ethereum due to its more efficient DeFi infrastructure.
Solana's isolated fee markets allow for separate bidding on state, reducing the impact of MEV on fees and NFT mints.
A significant percentage of transactions on Solana can be processed in isolation, especially for separate markets with no overlap of accounts.
Gito Soul stake pool operator currently takes a 4% fee on inflation MEV rewards.
Liquid staking tokens like Gito Soul gain utility from integrations and deep liquidity across DEXs.
The treasury will decide how to allocate fees collected from liquid staking tokens.
Gito aims to differentiate itself by having the best delegation strategy and exploring location-based client services.
There is value in decentralizing the complete operation of liquid staking pools on Solana.

Liquid Staking and Solana's Future

57:05 - 1:05:14

Decentralizing the complete operation of the pool and ensuring trustless automation are key challenges to address in liquid staking on Solana.
Determining where liquidity should go and incentivizing participation in off-chain operations are important considerations.
The lower percentage of supply staked on Solana compared to Ethereum can be attributed to factors such as easier withdrawal options and a less mature DeFi ecosystem.
Messaging and understanding the needs of the NFT community on Solana are crucial for promoting liquid staking.
Liquid staking is becoming increasingly important for DeFi, offering opportunities for stakers to earn rewards while using their assets elsewhere.
Margin-fi activity on Solana, particularly with GEDO SOL, indicates that there is capital waiting to be deployed on the network.
The FTX implosion had a negative impact on liquidity and reputation but many teams remain dedicated to building on Solana and rebuilding from what was left.
Recent weeks have seen increased interest in Solana, with positive price action and growing mind share.
Teams are taking ownership of rebuilding and see this as their time to shine.

Solana's Advantages and Future Developments

1:04:59 - 1:12:47

Teams are taking ownership and rebuilding Solana
Curve-like exchanges and safe protocols are needed in Solana DeFi
Automation and unique features on Solana like Lefinity are important for DeFi
The market for liquid staking is small, messaging is needed to attract normal stakers
LSTs remain interesting collateral types even if Solana is not seen as money
Partnerships between NFT projects and exchanges on Solana can attract average users
Integration of liquid staking with popular projects like Tensor and Magic Eden would be beneficial
More liquid-staking integrations in the NFT space are expected soon
Solana's composable and easy-to-use nature makes it a good choice for scaling blockchain
Cosmos' app chain thesis has UX challenges with bridging between chains
The L2 space also has bridging challenges and abstracting them may take time
In the current state, Solana sacrifices some decentralization but offers efficiency and ease of use

User Experience and Integration on Solana

1:12:31 - 1:17:12

Solana's focus on speed and leveraging core providers like Amazon and Google makes sense
There is still work to be done on the Solana protocol, but the team is committed to contributing towards it
The user experience on Solana is smooth and seamless, with Phantom being considered the best wallet
Using Solana feels like using a traditional centralized server with fast transaction processing
Integration with XNFT Backpack allows for staking, depositing SOL, and minting Jita Soul
Exploring more possibilities with XNFTs is important and Armani is leading the way
Gito Labs can be found on Twitter at @Gito_Labs and @Gito_Soul, and learn more at Gito.WTF
For Gito-focused analytics, visit explore.gito.wtf or join their Discord for feature requests