Jito's Impact on Solana with CEO Lucas Bruder

Bankless Nation, welcome to this exploration of Jito. Jito is a Solana validator client, a staked SOL token called Jito Soul, and an MEV optimization engine, all built into a single software suite, which we call Jito. Recently, the Jito airdrop shook the entire crypto industry as $200 million worth of Jito was distributed to over 10,000 addresses on Solana. And the Solana ecosystem seems to have turned a new page ever since. Notably, fees on Solana have started to emerge, changing the game when it comes to Solana economics, and Jito has found itself right at the center of this conversation. Today on the show, we have Lucas from the Jito team to walk us through the basics and the nuances of the Jito system. How does it work? How is it similar to Ethereum? How is it different? Bankless Nation, I've been doing some of my Solana homework. I think you're gonna learn a ton about Solana and Jito in this conversation, as well as where Solana is in its development arc. A quick moment of reflection and thoughts before we get into this episode today with Lucas from Jito. I think the Jito conversation is a gateway into a broader conversation about Solana. Jito is a Solana app that relates deeply to the Solana protocol itself. And the emergence of alternative Solana clients like Jito and Fire Dancer spawns the conversation about Solana governance, right at the same time that Jito airdrops its governance token to govern over Jito. To me, the Solana conversation is potentially at the beginning of a very interesting arc when it comes to Solana economics and Solana governance. I think it's pretty easy to say today that Solana has captured the attention and energy of these low-level systems engineers and system designers, hardware people, and as a result, has produced a very well-engineered crypto system. And with the launch of Jito and other developments, Solana is moving into needing new character archetypes to enter the scene. There is an airdrop season happening on Solana right now where Solana apps are launching their governance tokens, and the emergence of multiple Solana clients will require human meet-space conversations to make non-breaking upgrades with each other. In the Ethereum world, we have the Ethereum Magician's Forums and the Alcore Devs Call in order to produce rough consensus as to how Ethereum upgrades. Solana will also need to establish some sort of system and process to make this happen for itself. Solana is entering the very messy world of governance, something that all successful layer ones must enter in order to truly maximize their decentralization and robustness. This is a rite of passage that very few layer ones ever get through. Solana has gotten to that point and now it needs to get through that point. And as a podcast maxi myself, I'm absolutely here to host these interesting and challenging conversations and probably the best way that I can play any role at all in the growth of the Solana project, now that Solana is entering conversations that I feel familiar with. And so with that context and preamble out of the way, let's go ahead and get right into the episode with Lucas from Gito. But first, a moment to talk about some of these fantastic sponsors that make the show possible, especially Kraken, our preferred crypto exchange for 2023 and 2024. If you do not have an account with Kraken, consider clicking the link in the show notes to getting started with Kraken today. Bankless Nation, I'm super excited to introduce you to Lucas, aka Buffaloo, on Twitter. He is the co founder and CEO of Jito Labs, which recently had an airdrop inside of the Solana ecosystem that more or less changed the game for the entire crypto landscape. Lucas, welcome to Bankless.

Hey, thanks for having me. Excited to be here and talk more about JITO and Solana.

Yeah, there's a a number of different ways that I think Jito nerd snipes people. One is from the MEV side of things, one is from the Solana latency hardware networking side of things. Uh, another one is just from the economics side of things, and I think that's the way that I uh approach the Jito is like the economics conversation. But of course, all of these Venn diagrams over overlap. I think we're gonna approach each one of these angles one by one here on the episode today. But I kind of want to give a take and then a question about what I saw the Jito Airdrop from the external perspective, from the outside perspective. Because the Jito Airdrop

Seemed to be something larger than itself. You know, it was an airdrop for an app when we've seen these before, but it wasn't really a typical airdrop. It kind of represented something larger than just a drop for a Solana app. It really turned into a symbol for the Solana community at large. And there's this like before and after the Jito drop moment for Solana. And after Jito, if we have before Jito and after Jito, after Jito is marked by a large uptick in Solana new addresses, new like new highs in Solana volume, new TVLs, like a showing of Solana fees. And now there kind of seems to be a post moment for the postGito drop. That's at least how I interpret it from the external perspective. And I kind of just want to ask what was this moment like for you? What was it like to be on the inside?

Uh yeah, it was super exciting, very overwhelming. Um, we didn't expect it to go this well. I think you know it went much better than we could have ever anticipated. I think there's a lot of people excited about participating in JITO governance, and there's a lot of other protocols that are looking to decentralize very soon on Solana. And so I think, you know, it.

Got a lot of people excited about Solana. There's a lot of good press there. And now you have a lot of people coming over to Solana from other ecosystems and interacting with a lot of the dApps on Solana and really just realizing like how good of a network it is, how fast it is, how cheap it is. And

uh I just love to see people coming over and trying it out.

So one of the reasons I think why the JIDO drop was so significant is because Jito isn't just an app on Solana, in the same way that Lido is not just an app on Ethereum. Like these things relate to the protocols that they stand upon. Uh and so that's one of the reasons why I think this airdrop mark made up such a significant mark on the Solana ecosystem and also the broader ecosystem as well. So maybe maybe we can just start at the very beginning. Like, what what is Jito and why is it so important for the Solana ecosystem?

Yeah, so uh Jito Labs builds infrastructure to efficiently extract MEV on Solana.

Um, there's a lot of spam and uh arbitrage transactions that are failing on Solana. And we kind of predicted this would happen back in 2021 and wanted to work on solving it. So JITO Labs built a lot of MEV infrastructure, created the JIDO Solana client, which uh enables the efficient MEV extraction, built the JITO block engine, which is kind of like a block builder equivalent, uh, you know, like a uh beaver build or uh Rsync and stuff like that on Ethereum to uh kind of efficiently extract MEV. Um and then also built a lot of systems to make sure that the MEV is distributed to stakers. I think that's super important.

Um, you know, validators can choose how much they want to distribute to their stakers.

And also um

I'm also a contributor to Jito Network, which is a liquid staking protocol on Solana. So Jito uh network is you know operates the JITOSOL liquid staking token.

So the JitoSol liquid staking token for the Ethereum familiar people out there, that's like the staked ETH from Lido or the RETH from Rocket Pool. But the interesting thing about Jito is that it's that is stacked upon a client. And so in Ethereum, we have things like Prism from Prismatic Labs, we have Lighthouse, Nimbus, we have these different clients that run Ethereum, that uh run Ethereum consensus. And that is also what Jito is. JITO is also a client along with a staked soul token uh called Jito Soul. And then it's also this MEV extraction optimization engine. So it's like these three core products all kind of stock stacked on top of each other, right?

Yeah. So yeah, anyone, um it's a little the staking on Solana is a little different than Ethereum. So anyone can run the Jito Solana client. Um actually, like currently today, there's like 46% of Solana stake running the client, uh over 300 validators and roughly $14 billion of soul stake to the client.

And stake pool, because Solana is delegated stake has delegated staking, stake pools can delegate to any validator that they want. So there's there's validators in that are running Jito Solana that don't have any JITOSOL stake, and there's uh validators that do have JITOSOL stake. There's also, I think every liquid staking token on Solana delegates some percentage of their pool to the JITOSolana client as well.

So it's really just like an open source, permissionless, validator client that anyone can run.

Can you talk about just the synergies between this tech stack? Because it some parts of it just make a lot of elegant sense. Um there is like having a client that also is MEV optimized relating to a staked soul token, all of these things kind of make sense. Can you put these pieces together for us?

Yeah, I think there's uh I think there's definitely a lot of overlap. I think uh liquid staking tokens are a really good opportunity to decentralize stake on Solana. That can be um, you know, geographic decentralization, client decentralization, um, and you know, all the other um

You know, types of decentralization that exist. Um,

and so you

know, I think JITASOL does pretty well at that, you know, helps kind of bootstrap the growth of the JITA Solana client. And also it um

can, you know, a lot of the the uh validators that JITOSOL stakes to in the stake pool are sharing the MEV with stakers.

So there's like a very, you know.

Up until a few weeks ago is a very small amount of MEV, but with the recent uptick in trading activity on Solana, that has massively increased. I think the uh

I was looking at the numbers earlier today, and basically over 50% of all MEV extracted by the system has happened in the last two weeks, and it's been live for a year now.

So there's been like a massive, massive uptick in trading. Uh, there's a lot of improvements on the block engine that we can dive into later.

Why can we uh s uh stop and unpack why um the existence of a staked soul token adds to the decentralization of Solana? Can you unpack that?

Yeah. So typically uh what what valid or what stakers will do is they will go to like their Phantom wallet or Soulflare or some other wallet on Solana.

You know, they they go through the validators, they want to stake their soul, they'll just choose one validator to stake that to.

And so

um, you know, they're they're staking that to one validator, it's not spread across a network of validators. Um, JitoSoul kind of improves that. And basically, when you deposit soul into the uh stake pool program that JitoSoul runs on, there is an algorithm running that will kind of look at all the different validators that are available to delegate to.

And we'll delegate to those validators according to some like performance and decentralization metric. So instead of your soul, like if you have a hundred soul staking it to one validator, now you have a hundred soul, you know, there's a hundred validators, you know, one soul per validator. And those validators are spread across the entire world. So anywhere from like California, New York, Germany, Tokyo, Singapore, um, it's it's kind of spread all over the world. So it, you know, it increases the uh decentralization of the network from like a uh geographic standpoint, and then also.

um, you know, helps with some of the uptime um

Hmm.

that you it

it helps reduce uh it helps reduce the

potential for like downtime invalidators and losing staking rewards as well.

Okay, so if I just have Soul in my Phantom wallet, my Solana wallet, I could just delegate that Soul to a single validator, and then I would start to get some of the issuance of Soul and some of the fees of Solana just because that's what that validator provides me, which is which is a step towards decentralization. It's better than just me having vanilla soul in my wallet and not using that at all. Um uh but you what you're saying is that if you just simply have this Jito system, uh, you can actually not really have to be locked into one single validator, and instead the JITO system is a little bit again, we're probably gonna have to use a lot of Ethereum metaphors here because that's what the bankless um bankless audience is familiar with. In the same way that if you buy uh Lido uh stake death, you are actually spreading out your ether to like 32 uh node operators, and eventually like that is destined to be according to the Lido roadmap, that's be it's supposed to be permissionless. So the same kind of way, like rather than just picking one validator and having that be locked into that one validator, and that one validator accrue a lot of soul, Jito spreads it out to many, many, many an open set of potential validators. And it also solves a simultaneous problem of having um

Non-homogeneous soul, right? And so if I stake to one validator, my soul is stuck to that one validator. But if I put my soul in Jito, I get Jito's soul back in the same way I get staked ETH back from Lido. And so it both spreads it out to many, many validators, and I get a token back in return that can go back into the Solana DeFi ecosystem. Is this all correct?

Yes, correct. And yeah, the there's an algorithm that's currently running and that'll transition to StakeNet, which I think we'll dive into in a bit, uh, assuming that the JIDO governance wants to switch over to StakeNet. And basically that will allow the protocol to, if it sees a validator is performing poorly, or maybe you have like validators that are moving around and there's too much stake in one region or something like that, then you can start to move that stake around. So, like, as a, you know, if you want to support the decentralization of Solana and also have like a very high performing validator set that your soul is stake to, then the Jito Soul uh stake pool kind of just takes care of a lot of that for you.

I think if we were talking about a standard staking pool system on Solana, everything that we've talked about thus far is more or less like table stakes. Like you have um a system for spreading out soul so that no one validator is enshrined and you kind of load balance based on metrics to optimize for things. This is all kind of like table stakes. And we haven't actually yet added in the MEV uh component as well. And I think that's really kind of the thing that um makes Jito go from table stakes to something like unique and special to Solana. Uh and so you you you talked about it a little bit MEV uh extraction optimization. Why is that important, not just from like being a good product, but being good for Solana, the ecosystem?

Yeah. So there's um

you know we we ran some numbers like uh close to a year ago. I think the numbers last I checked were pretty similar.

But um 98% of arbitrage transactions on Solana fail. And there's roughly 56% of compute wasted executing these failed arbitrages. So if you go on a Solana Block Explorer and you like look at the transactions, you'll see like all the DEXs and a ton of failures. And so, you know, that's kind of that has a downstream impact on users. Like if you want to interact with the chain and the blocks are consistently full and they're kind of just like spending time executing this entire transaction and then rolling back the state. That's not really like the best, in my opinion, like not the best use of block space. I think you know, you want to see a high success rate of transactions. And so the Jito client and the block engine kind of helps mitigate some of that.

And essentially, you know, a lot of these people that are spamming the arbitrages, they are trying to

Um, they're trying to order transactions. So, like you send a trade, they'll kind of monitor it, um, you know, see see if there's a uh arbitrage between two DEXs, and then they'll fire off one or two or three trades that try to capture that arbitrage. And using the the JIDO Solana client and the JIDO block engine, those searchers can bundle those trades together. So they actually execute back to back inside the block. And it's actually uh, if you if you know about proof of history, you've heard about it, it's actually uh right next to each other in the proof of history tick chain. So it's literally like the fastest that you can capture it by the Solana protocol rules. It's just instantly captured. So the goal there is you know, we want to try to enable this like efficient ordering so that people aren't spamming and try to free up some of the block space. And then also there's the validator and stake out economics as well.

Can we go into why there are is so much spam and so many failed transactions on Solana? And this is just a product of Solana being such a high throughput, low latency chain, correct? Uh can you talk about why there is this incentive for traders and arbitragers to send out so many transactions?

I think the one thing is that it's really cheap for transactions. So I think it's like a hundredth of a penny per transaction. Um so there's not really like

uh,

you know, if if someone has a failed transaction on Solana, it's not going to cost them a lot compared to Ethereum, where you know, if you have a failed transaction, then you might end up paying $30, $50, $100, whatever the gas price is.

Right. A hundred dollars to like try and get like five dollars of revenue. So it really costs you to make that failed transaction.

Yeah, that um also the you know that the

price of the transactions is so low that there's just so many microscopic arbitrages available.

So the price of this as I mentioned earlier, the price of a transaction is like a hundredth of a penny. So basically, if there's any profit over a hundredth of a penny available on Solana, an arbitrager is going to capture that.

So there's just a massive amount of arbitrage transactions. Only the first one is going to succeed. The rest are going to fail. And so, you know, I think that's that's a lot of the reason why I think there's um there's some like more engineering related things as well. Like, you know, there's there's a lot of work going into the scheduler to make it have less jitter and make it be more deterministic. So when you set a priority fee, it actually uh lands in the block where you expect it to.

I think another big thing that core engineers and like the Fire Dancer team and us and people on Twitter and a lot of people are talking about some other type of, you know, you have the carrot, you need the stick.

Um, so how do you kind of throttle those transactions? Uh, you know, probably through some dynamic base fee. I don't think copying EIP 1559 and copy pasting it onto Solana is the same thing. I think there's unique things uh

that there's Solana's unique a unique architecture. So I think there's like some tweaks that you can make to EIP 1559. Um

and yeah, I think that will be that's uh that's an area of research that I'm pretty excited about. Um and we're starting to see kind of more people think about that and work on that.