The economic overhaul of Jito, a core protocol on the Solana blockchain, is kicking into high gear. And for investors in Jito’s native JTO token, that means potential payouts could be on the horizon – but with some important provisions attached.
According to those familiar with the matter, billions of dollars in crypto value have already flowed through the Jito Labs network, which was engineered to optimize Solana transaction efficiency. In the process, profit-seeking bots have spent billions more in SOL to manipulate transaction ordering to their economic benefit, a practice known as MEV (maximal extractable value).
Bringing TipRouter Online
While Jito Labs has traditionally overseen the distribution of these tips to validators running Jito software, a new setup called TipRouter aims to spread that burden across a network of node operators. They’ll be tasked with reaching consensus on who should receive a cut of the $15 million in tips that Jito generates every few days.
The upside? Node operators stand to benefit handsomely. So too will JTO holders who lend them legitimacy by staking their assets with them – assuming a new JTO-10 governance proposal passes muster.
Futarchy Meets Token Rewards
The proposed system builds on two recent Jito plays that made headlines. First, there was the summer decision to construct a restaking network for Solana. Second came the embrace of a novel governance model called futarchy, which empowers markets over tokens and votes.
Jito’s JTO governance token was modeled after virtually every other DAO-linked crypto asset: holders vote on proposals, and the more tokens they have, the more sway they hold in the DAO. Like most governance tokens, JTO did not capture direct economic upside.
That will change if JTO-10 first makes it through Jito’s traditional DAO and then wins approval in the futarchy-based MetaDAO. The transition there seems all but certain, because futarchic models incentivize traders toward the outcome most likely to benefit the token economically.
It’s a nice demonstration that these networks are actually useful and people are willing to pay to use these networks.
– Brian Smith, Jito Foundation
Early Restaking Test
The TipRouter setup will also serve as an early stress test for Jito’s restaking configuration, one of the first to launch on Solana. Brian Smith of the Jito Foundation said the project created the restaking setup in part to support TipRouter’s decentralization.
Some key elements of TipRouter’s final design will have to wait until after the Jito restaking and TipRouter launch, however. For example, there initially won’t be a slashing mechanism that would penalize node operators who try to lie about where tip rewards should flow. The slashing would cut the JTO that stakers allocate to them.
That would be a costly reversal in a setup that — if all works as intended and if current network activity holds — could funnel $3.6 million worth of annual flows to node operators and their JTO delegators.
The Carrot and the Stick
Slashing is a critically important element for ensuring economic security in the broader crypto restaking movement. The biggest proponents of restaking, especially sector leader and pioneer EigenLayer, see it as a paradoxically dispensable element of early design.
Smith said Jito’s TipRouter will likely have some slashing mechanism. But in the meantime, there are many “really tricky edge cases” to account for.
You can have the carrot and the stick. For now, the carrot is pretty big, so we probably don’t need the stick.
– Brian Smith, Jito Foundation
As Jito’s economic evolution unfolds, JTO holders and Solana ecosystem observers will be keeping a close eye on whether the promised rewards materialize – and what governance hoops they may need to jump through to secure their piece of a growing MEV pie.
