Contemplating Solana DeFi #4 - Jito and JTO token
Jito is currently in the midst of a hockey stick moment as hype continues to grow, $JTO token has been confirmed which will bring a flurry of liquidity to the Solana ecosystem.
Introducing the backbone of Solana DeFi 2.0, contents:
1. What is Jito and value proposition
2. Jito Foundation and the ‘MEV’ dilemma
3. How to stake SOL (inc. vid)
4. JitoSol and rapid expansion
5. JTO and airdrop
6. Summary
What is Jito
Jito is a decentralized liquid staking protocol on the Solana blockchain powered by MEV.
The key purpose for liquid staking is; to improve the security of the network, increase liquidity and encourage user participation in the ecosystem - this is incentivized by the protocol providing a Liquid Staking Token (LST) for depositing and staking your native crypto asset.
In this instance, SOL is staked on Jito and in return the depositor receives JitoSOL as the LST, which can be used freely in the defi ecosystem elsewhere as a liquid asset.
The user accrues yield on their deposited SOL as an incentive to continue staking, the yield rate on Jito comes in the form of APY which generally fluctuates over time depending on different factors.
Why can’t I just stake my SOL natively?
This is also an option to put your asset to work, but the drawback to ‘native staking’ is that it requires you to deposit and lock up your SOL - meaning, although you are taking part in helping to secure the Solana network, you are illiquid and can’t use the staked SOL in other platforms, e.g. for lending or to use as collateral for borrowing.
This means that you’re missing out on other additional yield baring opportunities that come from fully participating across the defi landscape. Not to mention potential rewards for participation.
It’s also worth noting that if you want to withdraw your natively staked asset, there is likely going to be a wait time, often measured by a number of epochs which vary depending on the stake pool validator - for those unfamiliar, an epoch represents a fixed number of blocks or a specific duration of time on the network.
With Jito you have the option to un-stake any time for a very small fee.
Why Jito?
What makes Jito unique is the client software used - alongside accruing value from staking it also enables the distribution of MEV (maximum extractible value) rewards to depositors of the staking pools for contributing liquidity, i.e. real yield extracted from real network transactional activity.
This is also one of the reasons for extremely competitive yields.
It’s easy to see in the dashboard below how the interest and market share is increased dramatically leading up to November.
The transactional volume on Solana determines how much value capture there is to distribute to stakers, and this can play a part in determining the APY rate. Whenever participants and users of the blockchain pay higher fees for prioritization in the block to validators, these additional fees are bundled together and distributed accordingly.
Jito Foundation and the ‘MEV’ dilemma
The core mission for the foundation is;
To support high quality and high performing node operators
Maintaining and increasing high yield for JitoSOL holders
Ensuring the decentralization of the network
Encouraging Jito-Solana delegation client adoption - part of an approach to tackle the ‘MEV dilemma’
One of the most important USPs of Jito is that it prioritizes decentralization over everything else and does so on a network wide scale by weighting validator distribution fairly across geographies (there are currently around 80 validators) and reassesses this overtime to ensure strong decentralization and security.
This will be automated in due course through a permissionless mechanism to remove influence and dependance on the Jito Foundation.
What is the dilemma?
Previously, due to the extremely low fees on Solana - around 0.00001 SOL - bots were able to easily spam the network with thousands of transactions for very little cost, this issue spawned due to overwhelming attempts from traders aiming to capture MEV.
This caused a significant amount of network congestion - and for those who were around at the time - this also attributed to a number of outages on Solana last year (2022). It’s worth noting that since February ‘23, the network has had 100% uptime:
This is where Jito and it’s novel client mechanism comes in and played a big role in increased efficiency. It involves an auction process for traders to bid on bundles of transactions they believe to be valuable - this removes the necessity of having to spam the network with bots in an attempt to achieve successful profitable arbitrage opportunities.
You can check arbitrage activity and profits easily on explorer.jito.wtf:
Jito’s ethos is to embrace and ‘democratize’ the process of MEV, rather than extinguish it - as this would be significantly more difficult to attain and MEV is arguably, currently at least, a net benefit for Solana is it has helped to draw in stakers seeking decent yields.
How it works (mini-walkthrough)
Important: There is always risks when utilizing crypto and DeFi applications, whether it be smart-contract exploits, hacks or volatility. Please only proceed to use Jito if you fully understand the consequences and that your funds can be at risk of loss. Never invest more than you can afford to lose.
It is extremely easy to stake SOL on Jito to receive JitoSOL liquid staking token.
I’ve included a 60 second video walkthrough below for easy reference for those of you who are visual learners, but here is an outline of the main steps;
Go to jito.network
Connect your crypto wallet
Hit ‘Stake Now’
Enter the amount of SOL you want to deposit (important to review how much JitoSOL you will receive as this won’t be 1:1)
Click to stake and and confirm the transaction in your wallet
You’re done!
Also remember, to un-stake your staked SOL, you will need to ensure you retain the required amount of JitoSOL to do so.
JitoSol and expansion
Now that you have staked and own some JitoSOL, you can rehypothecate this and deposit it to utilize in other Solana DeFi applications.
Choose to lend, borrow, trade or farm to compound your returns further.
Some of my favourites to use are:
marginfi
Kamino Finance
Drift
Meteora
Two scenarios for redeploying your JitoSOL:
Option 1.
Go to marginfi > Supply JitoSOL > Earn additional compounded yield > Utilize deposited collateral to borrow other assets
Benefits:
Earn point rewards on marginfi for their incipient reward/airdrop campaign - if you want to know more about how marginfi and their points incentive works, refer to previous article here:
Option 2.
Go to Kamino Finance > Offer JitoSOL as liquidity to one of the CLMM vaults, or create your own vault with your own custom strategy > Earn additional yields on the deposited assets
Benefits:
Kamino will auto-compound your yields over time, removing the need to manually manage and re-allocate your funds
The team also just released Kamino 2.0 and a complete overhaul of the platform, they will soon be announcing their new points program. Now is the opportunity to deposit your JitoSOL and begin accruing points.
Check out my latest write-up on Kamino which includes full detail of the different primitives now offered and how to farm the airdrop:
Some statistics
As the first prolific LST on Solana, JitoSOL has cemented itself as the 2nd most popular asset to utilize (only behind Marinade) with TVL going completely parabolic in the past few months.
The accessibility of JitoSOL has been one of the factors which has allowed a fluid adoption and growth throughout the Solana DeFi ecosystem.
Last time I reported on this around 6 weeks ago, TVL was $100mil - it has just exceeded $400mil as we’ve hit December. Truly mental numbers which are hard to keep up with!
The amount of active users (stakers on Jito) is around 25k, which over a period of around 5 months has been an 10x increase in participation.
It is worth noting that the numbers are looking like they are peaking since Jito announced the completion of their points program for early participants and contributors.
Jito have formally introduced their native token $JTO which will be released soon.
JTO token and airdrop
On the 27th November, Jito announced that the native points campaign had ended and the final snapshot for participation was taken on the 25th of November for early contributors as a means to calculate which users will be eligible for the initial airdrop of JTO.
You will no longer be eligible for points or the initial airdrop by staking SOL with Jito.
What is JTO?
The token is being introduced as a governance token to further decentralize the protocol and entrust the community with deciding the direction of how Jito is developed going forward.
Holders of the token will be able to;
- Set fees for JitoSOL pools
- Update delegation strategies via StakeNet parameter management
- Manage the DAO treasury and revenue from JitoSOL
- Contribute to the development of Jito
The high level tokenomics are highlighted as below. There is around 60% of floated tokens initially, with around 80% of float being locked up for around 12 months for investor and team vesting.
Put this date in your calendar as if you hold JTO by this point, the aggressive vesting schedule could have an impact of token price with a lot of sell pressure coming into the market.
Checking Airdrop eligibility
This one of the most hotly anticipated tokens drops in the ecosystem and likely what will be one of the most impactful. The initial airdrop will support with spreading ownership amongst the earliest supporters of Jito and will have an immediate influence on governance of the protocol going forward.
Check your eligibility for the drop here: https://www.jito.network/airdrop/
The main contributors who will be eligible for the initial airdrop;
Users of Jito will receive 80,000,000 JTO
Validators will receive 15,000,000 JTO
Searchers will receive 5,000,000 JTO
If you have used Jito and managed to accrue points before the deadline cutoff, you can see how the distribution of points and the different tiers will work in the table below:
Although you can check your wallet eligibility, the claim is NOT yet live. Keep notifications on for the official Jito X account or join their telegram for the official announcements.
You can also read a far more in depth article on JTO and what it means for the protocol here:
https://www.jito.network/blog/jto-airdrop-eligibility-and-allocation-specifications/
Jito has had a massive impact on the success, stability and scalability of the Solana network as a whole and they have introduced massive innovations with novel tech. The release of their governance token will bring more eyes to the ecosystem who are interested in exploring new Solana protocols but have been itching for more token releases.
I don’t doubt that the protocol will be as significant to Solana as Lido has been for Ethereum.
Risks and security
Jito is passionate about security and have prioritized this as a non-custodial decentralized platform. One reassuring thing I learned when researching is, if Jito is to disappear for some reason, you as a staker would still retain access to withdrawing your staked SOL from validators.
As mentioned above, the plan for the team is to cede all responsibilities - currently these pertain to: fees and validator selection - which will both be redistributed to the responsibility of governance participants and StakeNet.
Jito have gone through at least 7 audits which can all be reviewed within their docs page on their github, teams auditing include:
Quantstamp
Neodyme
Kudelski
Ottersec
Halborn
Check out the audits in detail here:
https://www.jito.network/docs/jitosol/deployed-programs/
Summary
I wrote in October that there was a storm brewing and that Jito was in the center of this ahead of an inevitable Solana DeFi winter.
Already it is evident that we are currently experiencing a huge parabola of excitement and liquidity floor into the Solana ecosystem to partake.
Jito is the beating heart of ecosystem, utilizing JitoSOL as a vessel to feed liquidity and users to other applications.
It’s clear the team understand their role in the future success in Solana DeFi and are pivotal to the growth long term. They have nailed the product, are currently experiencing incredible growth, this now just has to be sustained with the right amount of incentive to keep users coming back.
The JTO drop will be biblical and set the stage for the next leg up for Solana DeFi.
Thank you so much for reading to the end!
I hope you enjoyed this write-up on Jito. Let me know your thoughts in the comments, drop a like and reshare with your fellow crypto bros.
See you on in the next one!
f.