Recently, the phenomenon of MEV in the Solana ecosystem has attracted widespread attention. This behavior not only threatens the fairness of transactions but also may impact the overall security of the network. In order to address this issue, the Solana Foundation directly removed relevant validators, but this move also raised concerns about “centralization” among people.
(Background:
The EU’s new regulatory draft views MEV as “market abuse” and requires exchanges to report all suspicious transactions…)
Fairness and transparency in the world of cryptocurrency trading have always been core issues. In the Solana ecosystem, the recent phenomenon of MEV (Maximal Extractable Value) has sparked wide attention. MEV involves miners or validators manipulating transaction order to gain additional profits, which not only threatens the fairness of transactions but also may affect the overall security of the network.
On June 10th, the Solana Foundation announced that, due to some validators participating in “sandwich attacks,” over 30 validators, mostly Russians, have been removed from its Delegation Program. Additionally, Solana co-founder Anatoly Yakovenko suggested on Twitter that increasing competition among block producers might be a potential solution to the MEV problem.
However, the community’s focus seems to be less on solving the MEV problem and more on the Solana Foundation’s direct removal of validators, raising doubts about its “centralization.”
MEV refers to the ability of miners or validators to manipulate the order of transactions on the blockchain, insert their own transactions, or delay specific transactions to gain additional profits.
The well-known sandwich attack by the frontrunner bot refers to improper competition in MEV transactions. The sandwich attack is a typical MEV attack method, where the attacker places two transactions around the victim’s transaction to manipulate prices and profit from the difference, often causing significant losses to the victim.
The MEV problem on Solana began to surface in this bull market cycle. On April 28th, data platform Blockworks Research announced that MEV revenue on Solana had exceeded that on Ethereum. This data was almost negligible before November 2023.
On April 5th, data revealed that Solana’s transaction failure rate reached 75%, a phenomenon largely attributed to the large number of arbitrage transactions sent by MEV bots.
Previously, Solana only distributed 50% of transaction fees to validators, effectively curbing the generation of MEV. Because every transaction has a cost, if the returns are not high, validators are not incentivized to participate in MEV transactions. However, with the increasing activity of on-chain transactions on Solana and the rise of MEME, arbitrage attackers can ignore the loss of transaction fees for more profits.
On May 28th, the Solana validator community approved Solana Improvement Proposal (SIMD)-0096 through a vote, which now allocates 100% of transaction fees to validators. Some skeptics believe this could lead to collusion between validators and transaction initiators for fake transactions (reducing the cost of wrongdoing) and further exacerbate the appearance of more MEV.
After the Solana Foundation removed validators involved in MEV from the Delegation Program, these validators seem to have indeed suffered losses. According to stakeview data, multiple validators saw a 99% decrease in staking rewards in Epoch 627.
Why is the Solana Foundation able to have such a significant impact on validators? The primary reason lies in Solana’s native Proof of Stake system design. In this system, the main participants are delegators and validators.
Any user holding SOL tokens can become a delegator by staking their tokens to validators. Delegators earn staking rewards, while validators receive commissions and block rewards.
Staking rewards come from Solana’s inflationary tokens, distributed to staked accounts. Validators can set a certain commission percentage to earn a share from staking rewards.
Block rewards come from transaction fees. In the original scheme, 50% of the rewards went to validators, and the remaining 50% was burned. Apart from regular transaction fees, Solana allows for additional priority fees to be set, which can enhance transaction priority and reduce execution time. The existing MEV problem largely stems from this priority fee.
To participate in transaction validation, validators typically need to stake a certain amount of SOL. However, due to the high initial costs of starting Solana nodes, the Solana Foundation introduced the Delegation Program to encourage more small to medium-sized nodes to join. The program consists of two main components:
1. Providing USD incentives to eligible validators. Each validator node can receive a maximum of $250 per month.
2. The foundation directly provides validators with the tokens needed for staking.
The over 30 validators penalized this time were removed from this program, so fundamentally, this does not mean that these excluded MEV nodes cannot earn rewards through validating the network, but they have lost the support of the Solana Foundation.
There is currently no public data showing what proportion of validators’ tokens come from the Solana Foundation. In October 2023, a researcher @arixoneth stated that about 73% of the total 1.06 billion SOL staked came from the Solana Foundation. According to data from the Solana Foundation, all validators who pass the test can join the Delegation Program.
Unlike Ethereum’s approach of improving MEV through Layer2 networks or enhancing the EVM, the Solana Foundation’s practice of directly removing malicious validators from the Delegation Program has raised concerns about the foundation’s centralization.
In addition to the Solana Foundation, the largest equity pool on Solana, Jito DAO, proposed a governance proposal on June 10th to establish a blacklist of malicious validators and exclude them from Jito’s equity pool.
A Key Opinion Leader (KOL) commented on this issue, saying, “The Solana Foundation has deleted some validators to validate Solana. This is ridiculous! Unpermissioned? Decentralized? What a joke! Solana has solved MEV! They are just deceivers and another group of deceivers.”
Apart from the ecological questions raised by the direct removal of validators, on May 28th, the validator community approved Solana Improvement Proposal (SIMD)-0096 through a vote, a process that was criticized by many small and medium validators for being too centralized and catering to a small group of beneficiaries.
Some members stated that the biggest beneficiaries in this proposal were the validators, and the voting weight was determined by larger validators. Thus, this was a vote of “a small group of people deciding the fate of millions.” The voting outcome directly doubled the validators’ earnings and will increase the inflation rate of SOL tokens. However, only 51% of stakeholders voted, and all voting rights were delegated by validators.
Solana co-founder Anatoly Yakovenko suggested on Twitter that increasing competition among block producers might be a potential solution to the MEV problem. However, comments in the community section did not support this idea, with one commenter sarcastically suggesting: “Or let the Solana Foundation directly remove validators from the blacklist.”
While the MEV problem on Solana may be alleviated in the short term, governance in the long run needs to address the issues and build a more reasonable governance structure.