Jito DAO Proposes MEV Fee Redistribution for Solana

Solana is on the verge of a significant transformation regarding the distribution of benefits within its blockchain ecosystem.

Proposal Overview

A recent proposal from Jito's DAO aims to allocate 3% of all maximal extractable value (MEV) tips collected by the protocol to the DAO treasury and TipRouter, a proprietary program designed for Jito's upcoming restaking platform.

Changes in Fee Structure

Jito Labs has committed to reducing its share of tips from 5% to 3%. As a result, the total taxation on Jito MEV tips will increase from 5% to 6%. This adjustment is projected to yield an annual revenue of approximately $22.8 million for the newly established Jito DAO.

Understanding MEV

Maximal extractable value (MEV) refers to the potential profits that can be made by rearranging transactions within blockchain blocks. Jito has developed a validator client that allows "MEV searchers" to bid for validators to process their transactions first. These searchers can enhance their bids with tips, which have become increasingly lucrative for validators, particularly during heightened trading activity on Solana.

Economic Impact of Jito MEV Tips

From March to September of this year, Jito MEV tips generated around $232 million in economic value, according to Blockworks Research. Recently, Solana processed $20 million in Jito tips in just one week, driven by a surge in memecoin trading. Notably, MEV tips contributed to 54% of Solana's real economic value (REV), a metric that assesses the income generated by blockchains.

Implications of the Proposal

The proposed changes would significantly alter how one of Solana's major income sources distributes its earnings. Currently, Jito Labs receives about 2.5% of Solana's REV from its 5% share of MEV tips. If the proposal is enacted, a smaller portion of REV will go to Jito Labs, with more being allocated to the DAO.

The debate continues over whether stakers or validators should receive a larger share of REV, or if Jito deserves a more substantial portion of Solana's economic value.

Recent Developments in Solana Revenue Structure

Another noteworthy change in Solana's revenue distribution is the Solana Improvement Document (SIMD)-0096, which proposes that priority fees be fully allocated to validators instead of being partially burned.

TipRouter's Role

The majority of the new tip structure will benefit Jito's DAO, while 0.15% will be directed to TipRouter, a protocol created by Jito to programmatically distribute MEV tips. The TipRouter network will operate as a node consensus network (NCN) within Jito Restaking.

TipRouter can be likened to EigenDA on EigenLayer, serving as an early restaking service developed by the restaking platform.

The proposal is subject to a governance vote within Jito. Given that the protocol is essentially asking whether the DAO wants to receive an estimated $22.8 million annually, it is likely that the proposal will pass.