You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $40/month you can upgrade to our FULL library of 60+ reports (including this one) and complete industry-leading analysis on the top crypto assets. 

Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:

• Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
• Early access to future CORE ratings: Being early is sometimes just as important as being right!
• Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more
• CORE report Audio playback: Don’t want to read? No problem! Listen on the go.

Jito and Firedancer Clients

Several significant developments are forthcoming for Solana, the major ones being Jito and Firedancer.

Jito: Jito open-sourced their validator at the end of October. At a high level, the Jito validator not only enables a more efficient market for miner extractable value (MEV) but also effectively filters spam. The Jito relayer acts as a separate transaction processing unit, thus reducing the burden on validators and increasing the stability of the Solana network. Spam has been a major contributor to two of the four times Solana has experienced downtime and has also caused high transaction failure rates on other occasions.

Source

The Jito-Solana client introduces a mechanism akin to Flashbots observed in the Ethereum mainnet. Here, traders bid for transaction bundles they anticipate will be profitable. These bundles are then vetted through simulations by external block engines to identify the most valuable transaction combinations. This process, while adding a layer of complexity, enhances the overall efficiency and profitability of transactions.

However, implementing such auction-based mechanisms on Solana presents distinctive challenges. Unlike Ethereum's fixed block time, which allows for a specific auction period, Solana operates on a continuous time architecture with a first-in, first-out (FIFO) transaction execution model. This makes discrete auction times more complex to establish. To address this, Jito's MEV-client has innovated a pseudo-mempool, conducting auctions every 200 milliseconds. This allows searchers to view incoming transactions, simulate potential outcomes, and construct and prioritize bundles for execution, significantly altering the dynamics of MEV strategies from probabilistic outcomes to decision-making based on the highest auction bids.

Validators operating the Jito-Solana client offer searchers the opportunity to submit transaction bundles to the Jito bundle auction, conceptually mirroring the auction systems run by Ethereum block builders. While these auctions introduce a slight delay, they enable more efficient MEV extraction by fostering price competition and reducing on-chain spam.

In the Solana landscape, most MEV is captured by searchers employing strategies of spam and priority fees, leading to inherent unpredictability. However, the Jito-Solana client shifts this paradigm. It enables searchers to transfer value more effectively to validators via the Jito bundle auctions, with 100% of the bundle tips directed to the validator and their stakers. This approach is integral for validators aiming to maximize their MEV capture.

jitoSOL

JitoSOL, a pioneering liquid staking derivative on the Solana blockchain, offers users the innovative opportunity to stake their SOL and receive JitoSOL in return. This mechanism allows users to maintain liquidity and engage with DeFi platforms while earning staking yields. A distinctive feature of JitoSOL is its ability to reward holders with additional income from Miner Extractable Value (MEV) extraction on Solana, supplementing the native staking yield.

The adoption of liquid staking on Solana has not progressed as swiftly as some anticipated, particularly in comparison to Ethereum's staking landscape. Lucas, the founder of Jito Labs, identifies several reasons for this, including unclear communication about the benefits of liquid staking and the absence of technical and institutional-grade products. As the Solana ecosystem evolves and more DeFi protocols emerge, liquid staked SOL, particularly in the form of JitoSOL, is expected to become increasingly favored, much like stETH in Ethereum's ecosystem.

JitoSOL's inherent yield-bearing properties, stemming from the underlying staked SOL and accrued rewards, make it an attractive long-term asset. Its growing acceptance by emerging DeFi protocols on Solana not only bolsters the token's utility but also creates a multiplier effect by increasing these protocols' TVL and transaction volume. Furthermore, the combination of high Annual Percentage Yield (APY) from staking and shared profits from MEV makes JitoSOL a highly sought-after asset for protocols, enabling them to unlock additional yield and revenue streams for their stakeholders beyond regular SOL holders.

While liquid staking is undoubtedly rising on Solana, it still remains just a small portion of the overall stake.

Source

Stakenet

Current liquid staking tokens (LSTs) on Solana predominantly rely on centralized entities for pivotal operations like managing staking pools and orchestrating delegation rebalancing. This centralization brings forth a multitude of challenges that impede the growth and decentralization of LSTs. Notably, the use of centralized admin keys and hot wallets presents a significant risk as they create a single point of failure. Additionally, the opacity surrounding scoring algorithms and delegation strategies raises concerns about the transparency and long-term viability of these tokens, especially considering the resource-intensive nature of maintaining custom staking bots. A cessation of operations by the managing team could render the LST nonfunctional, highlighting a critical vulnerability.

Such centralization starkly contrasts with the core tenets of decentralized finance (DeFi) and introduces several risks, including censorship, susceptibility to hacking, and potential abrupt shutdowns. This structure significantly hampers the broader adoption of LSTs. The decision by Lido to sunset its stSOL token — a major force in the Solana DeFi landscape and the second-largest LST — underscores the real-world implications of centralized control within liquid staking protocols.

In light of these challenges, Jito has unveiled Jito StakeNet, a novel solution poised to redefine the landscape of liquid staking tokens on Solana. The initial aim of Jito StakeNet is to facilitate JitoSOL operations in a permissionless fashion, with aspirations to extend its utility to other prominent Solana stake pools through community engagement.

Jito StakeNet is primarily composed of two components. The first is the Validator History Program, which maintains an extensive record of up to three years of detailed data for every validator. This includes metrics such as stake amounts, vote credits, commission rates, software versions, and IP addresses. By sourcing information directly from on-chain accounts and gossip data, this program ensures the integrity and transparency of the data, aiding in informed decision-making.

The second component is the Steward Program, which leverages the comprehensive data from the Validator History Program to calculate scores and orchestrate stake delegation for each validator. This process is coordinated by a network of keepers, dynamically directing stakes to high-performing validators. In place of the traditional hot wallet, the system employs a Program Derived Address (PDA) controlled by the Steward, thereby bolstering security and automating the stake delegation process.

By shifting all staking logic to an on-chain environment and utilizing a decentralized network of keepers and governance mechanisms, Jito StakeNet effectively tackles the issues of centralization, lack of transparency, and sustainability that plague current LST designs. This forward-looking approach not only fosters broader adoption and innovation in LST protocols on Solana but also sets a new standard for staking by ensuring a transparent and decentralized foundation. The promise of truly decentralized LSTs without single points of failure, improved protocol auditability, streamlined launches of sophisticated staking dApps, and access to tamper-proof validation data for research holds immense potential. Moreover, such an architecture is likely to attract institutional capital, which often demands high levels of decentralization and transparency. As Jito StakeNet progresses, it is poised to initiate a new era of growth and decentralization in staking on the Solana blockchain.

Firedancer

Firedancer is a new, independent Solana validator client being developed by Jump Crypto. It will help increase client diversity on Solana and make bugs less likely to halt the network (due to the low overlap of bugs in both clients, if one fails, the other can continue running). The main difference between Firedancer and the Solana Rust validator is its modular architecture, which runs many individual C processes called "tiles" (compared to the Solana Rust validator, which runs as a single process). 

Key Features of Firedancer:

1. Modular Design: In contrast to Solana's monolithic Rust validator, Firedancer is built on multiple independent C processes called tiles. This structure improves resilience against failures and facilitates seamless upgrades without any downtime.

2. High-Speed Packet Processing: Firedancer incorporates an innovative message-passing framework that allows it to access network interface buffers directly. By utilizing high-performance computing principles, Firedancer can handle and filter around 100 Gbps of network traffic on a standard Solana validator server.

3. Runtime Consistency: Firedancer prioritizes dependable results for every stage of the blockchain process to ensure reliability. Comprehensive testing strategies, including integration testing, fuzz testing, and the creation of specification documents, will further enhance the validator's runtime accuracy.

4. Secure Supply Chain: To reduce dependency on external sources, Firedancer relies on a minimal number of external dependencies, treats all build-process tools as dependencies, and uses the Bazel build system to ensure high-reliability software.

The project is structured in a phased approach, focusing sequentially on upgrading different components of the network's infrastructure. Each phase is designed to build on the successes of the previous, ensuring a stable and gradual enhancement of the network's capabilities.

Phase One: Networking Stack Overhaul

The initial phase of Firedancer involves a comprehensive overhaul of Solana's networking stack. This foundational layer is critical as it handles all data transmission processes across the network, and its efficiency directly impacts the overall throughput. By redesigning the networking stack with state-of-the-art technology, Firedancer aims to significantly reduce latency and increase the volume of transactions that can be processed simultaneously.

This new networking framework is expected to utilize advanced algorithms and optimized data flow techniques, which are crucial for handling high volumes of transactions without bottlenecks. The adoption of these technologies not only aims to enhance performance but also to establish a more robust and secure network, capable of resisting various network-related attacks that are common in less sophisticated blockchain environments.

Phase Two: Runtime Environment Enhancement

Following the successful implementation of a new networking stack, Firedancer's second phase focuses on the runtime environment. This component is where transactions are processed and executed, making its efficiency vital for overall system performance. The goal here is to replace the current runtime with a more efficient and scalable version that can better utilize the underlying hardware.

Improvements in this area typically involve optimizing how transaction data is processed and ensuring that the execution of smart contracts and other decentralized applications can be done more swiftly. By enhancing the runtime environment, Firedancer not only boosts Solana’s transaction processing capabilities but also reduces the energy consumption and computational load on the network, aligning with broader industry goals of sustainability.

Phase Three: Consensus Mechanism Redesign

The final phase of Firedancer addresses the consensus mechanism, which is central to the security and integrity of any blockchain network. Solana currently uses a proof of stake (PoS) model, which is already more energy-efficient than the proof of work (PoW) model used by networks like Bitcoin. However, Firedancer plans to innovate further by implementing a new consensus layer that would optimize the way transactions are verified and added to the blockchain.

This phase is particularly challenging because it requires not only technical expertise but also a deep understanding of network security to prevent potential attacks that could compromise the blockchain. The new consensus model proposed by Firedancer is expected to be faster and more secure, using advanced cryptographic techniques and algorithms that enhance the network's resistance to attacks while maintaining decentralization and user trust.

TinyDancer

The Solana blockchain has traditionally required participants to run full nodes for transaction validation, a process that demands significant computational resources. This requirement has been a barrier to wider participation in the network's validation process. To bridge this gap, the development of Tinydancer, a light client, marks a pivotal advancement. Tinydancer promises to facilitate transaction verification efficiently without the need to download entire blocks or execute transactions fully, significantly lowering the barrier for entry in terms of hardware requirements.

Tinydancer aims to alert the full node it is connected to upon detecting questionable transactions, offering a layer of security and integrity while minimizing the resource footprint. This development is particularly significant for the Solana network, where operating a node requires considerable hardware specifications, limiting the pool of potential validators. By integrating light clients such as Tinydancer, Solana is taking a significant step towards improving network accessibility and inclusivity, allowing for validation capabilities to be extended to a broader user base.

This move towards lighter validation methods is not just about lowering the technical barriers for participation but also about enhancing the network's overall resilience. A diversity in client software mitigates the risk associated with potential vulnerabilities or flaws in a single client that could compromise the network's integrity. The evolution of Tinydancer and similar initiatives represents a keen interest in achieving a more decentralized ecosystem by enabling "decentralization through affordable verification."

The development and eventual implementation of light clients like Tinydancer are critical for Solana's journey toward a more accessible, secure, and decentralized network. While the final design and efficacy of Tinydancer in achieving these goals remain to be fully observed, the initiative is a promising step forward. It underscores a commitment to broadening participation in the network's security mechanisms, reducing the potential for centralized points of failure, and ensuring the blockchain's integrity through a diversified validation infrastructure.