In this week's interview Dan and Sam are joined by Lucas Bruder, co-founder and CEO of Jito Labs. Lucas dives into the intricacies of Solana including the validator client, Solana LST providers, and the upcoming launch of Jito's Stakenet. He discusses the function of streaming transactions and how networks use algorithms and waivers to arbitrate these. Lucas explains the role of keepers, the limitations of current Solana systems, and how Stakenet aims to revolutionize the process by decentralizing the operation of the stake pool. Stay tuned for all of this and much more!

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Timestamps
0:00 Introduction
2:36 Mitigating Sybil Actors
8:01 Capturing MEV via Block Enginge
17:30 DAS London Ad
18:26 Growth of jitoSOL in Lido's Absence
24:37 Stakenet Design
38:43 Improving Solana Fee Mechanism
47:28 Solana Dev Experience
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Disclaimer: Nothing said on 0xResearch is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Dan, Sam, and our guests may hold positions in the companies, funds, or projects discussed.

I'm extremely confident that every stake pool on Solana is going to use it in some form or another.

The Jita Solana client was built, a lot of stake pools and stakers and validators are running that.

I think Stakenet is going to be another 1 of those things that every single stake pool on Solana is going to use Stakenet.

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right, everyone, welcome back to another episode of ZeroX Research.

We are joined today by Lucas Bruder, the co-founder and CEO of Jito Labs.

Lucas, thanks for joining us, man, and big congrats on the token launch.

Obviously, it's a huge milestone for not only you and your team, but also the broader Solana community.

It feels like morale is probably at all-time highs right now.

And 1 of the cool takeaways I actually had from this was Brian, the COO of Judo Labs, had an awesome thread that highlighted the level of coordination that really went on between your team and other development teams within the Solana ecosystem.

There was decentralized exchanges, even centralized exchanges, lending markets, wallet providers, pretty much everybody in the ecosystem had to be on point and be ready for this.

Can you just talk a little bit about what that organization, how that was all orchestrated and really just the effort required to make this thing happen flawlessly as it did?

Yeah, it's just like really cool to see the, like the community and ecosystem rally around this.

I think there's a lot of reach out and, coordination that goes into these launches.

And so you have like Phantom doing the, the Jito airdrop notification and SoulFlare as well, and the banner on Jupiter, and there's a lot of other people that were involved.

So apologies for forgetting any names here, but yeah, it's just cool to see people are DMing you and asking how to help.

And I think for the first time in a while, it feels like the Solana ecosystem is like really shining right now.

And that was like 1 of the goals of doing this entire thing, the way that it went down.

And so it just blew all of our expectations and the attention on Solana is super high right now.

So it's just really exciting to be building on Solana right now.

Yeah, I can only imagine how big of a weight off your shoulders that was.

I'm sure you got to catch up on sleep over the weekend, hopefully, but I have seen a lot of takes on Twitter saying, Oh, like projects that are doing points programs need to take into account the cyber activity post GDO and more heavily weight on activity that was done before.

Yeah, I think it's in any ecosystem, especially 1 that are, they have a lot of pre-token protocols.

I think there's always going to be like mercenary capital and Sybil's where these people are just in it for the airdrop and they will spin up like tens to hundreds of wallets.

And you see it a lot more on the L1s and some of the newer L2s where people are running these like massive farms that are just generating like fake activity.

That was definitely like somewhat the case during, like before the Judo airdrop.

But if you look at the stats now from MarginFi, Zeta, Drift, there's like record sign up numbers coming in.

I think a lot of it is actually like new users in there.

There's definitely a lot of bots that are coming in and to tech neck that activity is extremely hard.

So I think that The game has definitely changed for those protocols.

So I think they need to think very hard about the activity they're rewarding, trying not to leak too much of the airdrop and the governance power to civil actors.

And yeah, to Shara's point, try to focus on just keep continuing to build a good product and ignore all the noise that these people are bringing.

And I mean, in a time when there's been all this infighting as well, It's glad to hear and see that there was a little bit of a different change of pace over in this ecosystem.

And I definitely agree with your point, though, there's full scale legitimate Sybil farms these days, and that's just a crazy thing you have to deal with now.

I can't Imagine being on 1 of these L2 teams that seriously have millions of transactions a day that are from these Sybil farms.

That's got to be a really hard thing to deal with.

But on the other side, especially on the L2 side, not to go off on a tangent here, but a lot of that activity is proving that your tech does what you want your tech to be able to do.

So it's, I don't know, in some ways, they're still providing value.

You can, it's the people that are good at it are really good.

And I think there's, I don't know if there's any right way to do the airdrop.

I think no matter what, no matter what way you do it, some people will be very excited, some will be angry.

And that's just like the way that it goes.

But I think that it's definitely going to accelerate and teams definitely need to think about that a lot.

And potentially you can feel free to ask us for help and ask others for help.

And yeah, I think there's a, it's the game's definitely change.

I want to double down on anything in life.

There will always be people that'll be mad at you.

But I got a good question list lined up for you today, really centered around MEV, the Jito Solana client, and kind of how those 2 intertwine.

Jito Sol, of course, and then a couple of like broader Solana questions, but maybe we can kick things off on more of the MEV side.

Huge uptick in activity recently on Solana.

How have you seen the MEV landscape kind of shift or change or develop and mature over time?

And just like these last few months with the new wave of activity?

Yeah, so there's definitely a lot of, there's a lot more volume.

I think a few days ago, Solana, what was it?

Did it do 70% of Ethereum volume or something?

If you look at the volume charts over the past few months, I think Solana was doing in the range of 20 to $50 million a volume a few months ago.

Now it's doing hundreds of millions to a billion dollars.

So with that, there's a lot more arbitrages.

The fees on Solana are so low that basically like any trade is, there's a high likelihood that any trade will result in some type of arbitrage available.

You're definitely seeing a lot of volume generated by that.

There's definitely a lot of blocks that are getting filled up pretty fast here and some room for improvement on fees.

I think probably dive into that a little bit later.

But yeah, there's, and then we're seeing the block engine and like the Gita Solana Validator client is seeing a lot more MEV going through it in the past few days.

So there's a lot of all hands on deck, making sure it's reliable, able to handle the load and giving a good service to the traders and searchers that are using it.

I think also 1 more thing to mention is that we're seeing a lot more market maker interest on some of the order books on Solana, whether it's like Orca or Phoenix.

So you're seeing some people that were previously out of the game for a bit that are coming back in.

And then we're also seeing some newer participants that are coming in and starting to provide liquidity on like Phoenix and stuff like that.

They're asking like, how do these bundles work?

Like the first things that you do when you start to dive into MEV.

Like if you're diving into an MEV on Ethereum, you have to understand the builders and the relayers and the timing and all this stuff.

And there's a lot more of those questions coming in from professional organizations.

So I think that's super cool to see as well.

That might be a good segue actually to understanding a little bit more about how the block engine actually creates the opportunity to capture MEV.

Can you walk us through what that architecture looks like?

Yeah, basically the block engine and the relayer, it creates this rolling mempool that's super short lived.

So right now it's basically like a 200 millisecond rolling mempool and searchers are able to subscribe to these opportunities.

Basically the transactions coming in And they essentially transactions go to the relayer and then they get forwarded to the block engine and the searchers are receiving the stream of transactions.

They are simulating them and doing their complex arbitrage and liquidation, whatever logic they're doing to basically figure out like, where's the MEV?

And then they will send a bundle or a bunch of bundles over a connection.

All of those get aggregated into the block engine.

And there, I guess there's, there's multiple block engines around the world.

So there's a lot of communication between all these things, but it goes in, it goes into this proprietary simulation engine that we built from the ground up.

And basically that will, it runs a periodic auction.

So every 200 milliseconds, it will basically spit out a list of the most profitable bundles to send to validators.

And then the block engine will forward it.

At a high level, it's like pretty similar to the way that MEV on Ethereum works for those that are listening.

1 is that Solana is very fast and it's a 400 millisecond slot times.

Every leader has multiple of 4 leader slots back to back.

It's really difficult because you'll be in Germany, Frankfurt, 1 second for 1.6 seconds.

And then you'll be in New York for 1.6 seconds.

So coordinating, not only is like trading on that hard and you have to have, if you're like a trader and you really want to do well, you have to have like servers all over the globe, but also coordinating on the block engines pretty hard.

Compared to Ethereum, it's 12 second or 13 second block times.

You can send a packet around the world like a bunch, I don't know, I don't know how many times, a lot of times before it's an issue.

I think another thing that's interesting too, is that there's like this big censorship issue problem on Ethereum that is getting talked about a lot recently with OFAC and just how you have a few builders that are building the entire blocks on Ethereum.

JITO can't censor transactions if the relayer is, if the validator is running these relayers.

And then another thing is that JITA is building the, we call it block engine, but it's actually just sending bundles to the validator.

We're not actually building the entire block, just pieces of it.

So I think that's another like pretty key difference between Ethereum and Solana MEV, where some of the issues that are present over there aren't necessarily an issue on Solana.

Yeah, the block time is super, super interesting.

I think it was Tim from A16Z who put out a paper basically declaring that the MEV opportunity equates somewhere around the square root of block time, suggesting that faster block times reduce the amount of arbitrage MEV that can really exist.

And so because Solana has such fast block times, Jito's client is creating a Meb pool on top of a continuous transaction stream.

And is it fair to say that this is slowing down some of these transactions by about 200 milliseconds?

I think there's a large potential for the effects of MEV, especially on these high frequency or high throughput, low latency chains to really geographically centralize the network.

I think you'd see that now in like Frankfurt and Amsterdam and especially in Tokyo, because there's a lot of sexes in Tokyo.

A lot of the traders that are, a lot of the traders that we're talking to are setting up in Tokyo, because that's where a lot of the servers are.

So I think that 1 of the goals of doing this is to try to prevent the geographic centralization.

Another point is it just like something that has to be done to optimize the system.

And I don't think that 200, 200 milliseconds is it's a tunable number.

So, you know, the new simulator it's looking very promising.

That's something you can get down to a hundred milliseconds or maybe even 50 milliseconds in the future.

Also, yeah, every validator can run their own relayer and choose the settings that they want.

I think another cool thing about Solana is that, the, there's a lot of people in Solana that are like, Oh, TVL is a meme.

I think we all realize that like TVL is a meme.

I think totally tweeted the other day, like you only want capital on chain that's actually being used.

A lot of the capital in these order books is just sitting idle and like never gets used.

And I think that the, because of compute and resources are so cheap on Solana and you can do a lot more.

So I think like something like a Phoenix or like a, like any order book on Solana or even like Orca and Radium, I think they are just going to expose less MEV to users, which I think is a good thing.

Like ultimately you want MEV to be reduced at the application layer as much as possible.

I appreciate that extra color, but You can't talk about a validator clients without talking about FireDancer.

I feel like that's 1 of the most hype developments for Solana in 2024 and 2025.

So how does the release of FireDancer impact the Jito client?

Yeah, I think it's TBD on when it comes out.

I think it's probably people are running something called Franken Dancer on testnet right now.

So Franken Dancer, for those that don't know, it's basically a combination of Fire Dancer and the Salon Allows Valid Air client.

And it's essentially the Fire Dancer networking stack.

So Fire Dancer, QUIC, and I'm actually not sure how far up the networking stack it goes, but I know it's for sure Quick.

It is running and then it basically like plugs into the current Solana Labs validator clients for receiving transactions and processing them.

I think Firedancer is probably maybe a year ish out from testnet or mainnet.

I think that we're certainly keeping like pretty close eyes on the development of FireDancer.

I think once there's some type of like transaction execution and like when you, when we start to see like consensus and stuff like that go in, that's when it makes sense to Start looking at it.

I think for our dancer would definitely be easier to work on and modify.

And it'll definitely be easier to plug in like Jito's specific code into fire dancer.

Just because of the way it's built, there's a multiple processes and things like that running.

And it's really easy to, to modify fired answer compared to the salon of labs out Air client.

So I think it will definitely be a thing.

And yeah, I think for MEV at all, I think FireDancer will be like the highest performance open source software that's ever been built.

And I think that there's going to be a lot of people referencing that that are in the crypto industry and working on L1s and L2s and a lot of people that aren't.

I think That's super, super cool to see that happening on Solana.

I think TBD on what that looks like, but everyone's obviously very excited about Fire Dancer.

Yeah, that's a really cool fact that you just mentioned.

Having the most high-performance tech that's ever built open source be in crypto is a really massive step forward for industry.

I think, I feel like that just brings in a lot more developer talent, a lot more tech junkies, people that are just like, think things are cool.

Like then it's, Oh, wow, look what this industry is doing.

But yeah, do you think that makes a difference?

If you have a development background and so does many people on your team, so I'm curious, when you try to take yourself away from crypto and pretend like you've never found it before.

Why would a developer come to the Solana ecosystem versus something more like any of the other broad ecosystems, right?

Yeah, I think Solana tends to attract really like engineers that really want to dive into hard problems and work on really cool tech that I think some of the other ecosystems don't have.

And that's why I got into Solana originally.

Why don't we just use everything, every like compute resource, like RAM and caches and all the clock cycles as efficiently as possible.

I think you don't really have that on some of the like other networks.

You know, I don't think there's definitely a lot of people that I get excited about working on Ethereum, like the L1, but I think it doesn't really have the capability to nerd snipe people on high performance engineering problems, unless you are into MEV.

Nerd sniping is probably 1 of crypto's best use cases.

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Pivoting a bit to Gito's soul, the LST, growth has been up and to the right, phenomenal growth, even post-air drop, still seeing a lot of that growth hang on.

And 1 of the interesting things is a lot of that growth seems to actually have come from the deprecation of Lido's stake soul.

It seems like that was the clear choice of where those users were going was Jido.

So I want to get your take on how that growth has been, but also there still seems so much untapped potential with only about 5% of the unlocked staked soul is used is like liquid stake and using these LST providers.

What is Jido's plan to really attract those assets into the liquid staking side of things?

So I think to your first point, yeah, their growth of Jido Solos has seen a lot of success from Lido shutting down.

I think it's a bummer that they did that, but I think in retrospect will probably be a poor decision.

They're the clear market leader on Ethereum.

And I think if you spread your company or your team and your resources available too thin, then you can end up slipping and losing lead on a market that you're clearly winning on, I think we've seen that when some protocols go across chain and stuff like that, where they start to get a little comfortable or split on their time and attention.

But yeah, I think a lot of the, a lot of the capital coming in has also been traditional stakers as well, and some institutions that are finally starting to see the light of liquid staking.

I think really it comes down to how do we get more people in?

I think it comes down to communicating the, like the safety and security of the protocols, making sure that communicating the audits and things like that.

I think also explaining some of the benefits as well.

You're spreading your stake across a wider network of validators.

So it's making the network a little healthier.

And also if you're only sticking to 1 validator, that validator has downtime.

Then you're going to take a yield hit where if you're spreading it across a bunch, the yield hit might not be as severe.

I think some of the other stuff, like this is a little more like hands-on, but I think starting to dive into some of the taxes and things like that and understand what are these institutions actually care about and why aren't they doing it now?

Obviously not financial legal investment advice at all, but there's some people will believe that basically swapping from like sole to a liquid stake sole is not a taxable event.

You can work with, these institutions are starting to work with accountants and lawyers and things like that to understand that a little better, and we've seen some like good success there with people warming up to that idea.

Also, there's At least on Solana, there's some potential tax advantages with the staking rewards as well, where if you're staking normally and you're receiving staking rewards, then some, depends on your accountant and your lawyer and all that stuff, but some people view the staking rewards coming in as income.

And on Solana, I think on Solana, the Judo on all the LSTs, they're reward bearing.

Basically, when you deposit Judo Sol, that Judo Sol represents the Sol that you put into the stake pool, plus any accrued rewards from staking and MEV.

So right now, I think the price of Judo Sol is like around 1.07 Sol.

That will continue to go up as like the, as it accrues staking yield from the network.

And so it's potentially way more tax efficient than just normal staking.

So yeah, I think those are a few of the things that I think makes sense to focus on.

And maybe this question is a little premature, but I feel like I got to ask it since we brought up Lido, but do you have any thoughts on self-limiting from the perspective of a, an LST provider?

I think it's like too early to have that conversation.

I think that's Stakenet will actually help a lot here.

And I think we're going to probably dive into Stakenet in a bit, but I think when you decentralize the stake pool into Stakenet, I think it changes the risk model from a self-limiting standpoint, just because it's this open source algorithm and people can influence the way that it delegates and whatnot.

Staken that is definitely something I want to dive into, but right before we do that, I want to tie the validator client back to the LST.

So All of Jito sole validators that they delegate to for the user deposits run the Jito client, but anybody else can also opt into running the client as well.

Okay, and in that case, then what's the plan to, because At the end of the day, I feel like most, at least on-chain users, more of a D-Gen personality, their mindset is maximize yield.

And if you can stake to a validator, because I guess there's also a difference between delegated proof of stake versus something like Ethereum, where as a user, I can just delegate my soul to an existing validator.

So obviously you get the liquidity and some of the tax benefits that you've mentioned, but is there any way in your mind that you can also offer a higher yield than if you were to delegate yourself?

Yeah, it's definitely something we're thinking about.

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Jito: Airdropping the Solana Wealth Effect | Lucas Bruder