Investors in Jito’s JTO Token May Soon Collect Payouts on Top of Holdings
Jito Labs, the company behind the Solana protocol’s economic rails, is redesigning its system to allow investors in JTO token to collect payouts on top of their holdings. This change will impact billions of dollars in crypto value that already flow through the network built by Jito Labs to make Solana crypto transactions more efficient.
The profit-seeking bots that reorder transactions to suit their economic interests have spent billions of SOL (Solana’s native cryptocurrency) to facilitate this process. Historically, Jito Labs has overseen the distribution of tips to validators running Jito software, but a new setup called the TipRouter is spreading this burden across a network of node operators.
These node operators will be tasked with reaching consensus on who gets a piece of the $15 million worth of tips generated by Jito every few days. In return, they will get a taste of the upside, as well as those who grant them legitimacy by staking their assets with them, assuming the new governance proposal JTO-10 is adopted.
The proposed system leans on two of Jito’s recent headline-grabbing plays: its decision to build a restaking network for Solana and its adoption of a new type of governance model called futarchy that empowers markets instead of tokens and votes. Jito’s governance token, JTO, was created in the image of most every cryptoasset tied to a DAO (Decentralized Autonomous Organization). Holders vote on proposals, and the more tokens they have, the more power they wield in the DAO.
However, unlike most governance tokens, JTO will capture direct economic upside if JTO-10 passes through Jito’s traditional DAO and then is approved at the futarchy-based MetaDAO. Passage there seems all but certain because futarchic models push traders toward the outcome that is most likely to be economically beneficial for the token.
Interest in MetaDAO has been steadily building among market nerds who care about decentralized governance, but struggled to catch on more broadly because it’s quite complicated to participate in. Jito is MetaDAO’s most prominent user and a proposal of this magnitude could drive more engagement with futarchy.
The TipRouter setup will also be an early stress test for Jito’s restaking setup, one of the first to launch on Solana. The project partly built a restaking setup to support the decentralization of the TipRouter. Brian Smith from Jito Foundation said, "It’s a good demonstration that these networks actually have utility, and people are willing to pay to use these networks."
However, some critical pieces of the final design won’t be ready at launch of Jito restaking and TipRouter. For instance, there won’t initially be a slashing mechanism that would punish node operators who attempt to lie about where tip rewards ought to flow. Slashing would cut the JTO that stakers allocated to them.
Slashing is a critical element of ensuring economic security in crypto’s broader restaking movement. It’s also seen as an optional piece of early-days design by the biggest proponents of restaking, most notably sector leader and pioneer EigenLayer. Smith said, "You can have a carrot and a stick. The carrot is big enough at the moment that we probably don’t need a stick."
This setup might see $3.6 million in tips flow to node operators and their JTO stakers annually. Eventually, the TipRouter will probably have some sort of slashing mechanism, but there are many "really complicated edge cases" that need to be accounted for before then.
The implementation of JTO-10 and the introduction of the TipRouter setup will provide a significant opportunity for investors in JTO token to collect payouts on top of their holdings. This change is expected to have a substantial impact on the Solana ecosystem, with billions of dollars in crypto value already flowing through the network built by Jito Labs.
The new governance proposal and the TipRouter setup will also create opportunities for node operators to participate in the decision-making process and earn rewards for their efforts. The combination of these two elements is expected to drive more engagement with futarchy and decentralized governance, making it easier for market nerds to participate in the Solana ecosystem.
The successful implementation of JTO-10 and the TipRouter setup will provide a significant boost to the Solana protocol’s economic rails, making it an even more attractive option for investors and node operators alike.