It pays to be a Solana validator and right now, in the current bull run, it pays very handsomely. It’s no secret that the busier a network is, the more fees it generates, and Solana is presently a hive of activities.
All of these activities are routed through validators who are tasked with verifying transactions, adding new blocks, and maintaining the overall security and decentralization of the system.
While Solana validators are bullish on the ecosystem they’re supporting and want to see it succeed, they aren’t doing this for altruistic reasons: it costs money to run a validator, and in return, they’re entitled to the rewards they receive.
It’s not just validators who earn rewards: so do stakers who delegate their SOL to validators. As Solana fees and validator rewards have risen sharply, it’s prompted a debate about the distribution of wealth.
Are validators entitled to the lion’s share of the rewards, or do they have an obligation to pay it forwards and give SOL stakers a bigger piece of the pie?
How Solana Staking Works
Anyone can stake on Solana without needing to run a validator and be burdened by hardware costs and maintenance. This is achieved through delegated staking in which users assign their SOL to a validator that processes transactions, using their stake to increase the frequency with which they’re called upon to write new transactions.
Staking rewards are based on a number of factors including the current inflation rate, the total number of staked SOL, validator uptime, and commission. 50% of block rewards, derived from transaction fees that are included in the block, go to validators and the remainder is burned.
It’s these rewards, which have recently become very lucrative, that have sparked debate over their distribution which occurs every epoch – approximately every two days.
Solana fees spiked in March this year before diminishing, but since October they’ve risen again sharply as onchain activity has heated up, peaking at almost $5M in fees on October 24. At present, Solana fees are still averaging over $3M per day, making network validation a highly rewarding process.
This uptick is largely attributed to heightened activity on decentralized exchanges like Raydium, driven by the popularity of Pump.fun, which by last month had amassed over 1 million SOL in lifetime fees.
Everyone wants their transaction included in the next block, which means everyone’s upping the bribe they’re willing to pay validators to make this happen. Platforms such as BullX, which provides the most popular Pump.fun frontend, make it easy for traders to adjust fees to ensure their transaction is executed fast. And where is all this additional SOL going? Into the pockets of Solana validators.
The Case for Giving More to Solana Stakers
At present, the vast majority of staking platforms have no system in place to dynamically control the rewards that are paid out to stakers. In other words, they’ll receive roughly the same whether Solana has a quiet month or a busy one. One exception to this rule is Xandeum, whose multi-validator pool is the first to programmatically share block rewards.
By and large, though, stakers are forced to accept what they’re given and have few options at their disposal short of spinning up their own validator, which is technically and financially unfeasible for most SOL stakers.
Stakers play a crucial role in network security and consensus by delegating their tokens, thereby supporting validators in processing transactions and maintaining the Solana network’s integrity. Traditionally, these stakers earn rewards from inflationary issuance and a share of transaction fees.
However, the current model doesn’t oblige validators to share the additional priority fees with stakers, leading to a disparity in earnings.
To address this imbalance, a growing number of Solana stakers are advocating for a more equitable distribution of revenue. Implementing a protocol-level mechanism that ensures a portion of priority fees is allocated to stakers would enhance their incentives and reflect their contribution to the network’s security.
Such a system would align the interests of validators and stakers, promoting a more balanced and sustainable model.
Conclusion
Essentially, there are two arguments for doing so: a moral one and a financial one. Morally, it only seems right that stakers whose SOL has been pivotal in their chosen validator being selected to frequently confirm blocks should receive a little extra in return.
Financially, meanwhile, it’s simply a case of market dynamics: once one staking platform adopts this model and Solana stakers flock there for the increased rewards, it’s only a matter of time until others follow suit.
